Compensation Administration

1. Compensation Administration How to Set Up a Solid Pay System North Dakota HR Conference for Local Government

2. Agenda • Five steps to building a solid pay system • What options you have available • Implementing pay changes • Questions and answers

3. Five Steps • Pay Strategy • Job Analysis • Job Evaluation • Job Pricing • Performance Management

4. Five Steps 1. Pay Strategy 2. Job Analysis Job Evaluation Pay Ranges 4. Job Pricing Employee Pay 5. Performance Evaluation

5. Pay Strategy • A statement which identifies the significant objectives of the pay system • Broadly or narrowly defined jobs • Importance of internal vs. external equity • Definition of the market • Pay in relation to market • Lead • Lag • Lead/lag • Role of incentives, benefits, workplace rewards • Visit www.foxlawson.com for more articles on Pay Strategy

6. Job Analysis • To understand and clarify the nature and level of work that each employee performs • Questionnaires for employees to fill out • Review and validation of questionnaires • Development of job descriptions • Verification of job descriptions • By employees, or by managers, or by both • Position versus Job • Position is each employee plus any vacancy • Job may represent several employees

7. Content of Job Descriptions • Title • FLSA status (exempt vs non-exempt) • Reporting relationships (mostly for exempt) • Summary of job’s purpose • Typical duties and responsibilities (essential functions for ADA compliance) • Minimum qualifications or job specifications • Working conditions • Disclaimer statement • Dates and approvals

8. Job Evaluation • To determine the correct internal value of the job based on the nature and level of work performed. • Does not account for market information • Ranking • Point factor • Decision Band™ Method • Slotting based on another method (such as market data)

9. Job Evaluation: Ranking • A non-quantitative process of rating the jobs based on the “size” or “complexity” or “difficulty” or “importance” of the job to the organization in relation to the other jobs • Pros: • Easy, cheap and fast • Cons: • Ranking criteria change from job to job • May be influenced by person in the job • Any new or changed jobs require the whole set to be re-ranked

10. Job Evaluation: Point Factor • A quantitative method which rates each job on several different “compensable factors” such as decision making, supervision, experience required • Pros: • Reliable, objective, easy to evaluate new jobs • Cons: • Expensive, time consuming, creates an inflexible hierarchy

11. Job Evaluation: Decision Band™ Method • A quantitative method that evaluates jobs based on their authority/responsibility, supervision and complexity and difficulty of the work. • Pros: • Reliable, objective, easy to evaluate new jobs • Transparent • Cons: • Introduces new terms • Appears to be a single factor system

12. Job Evaluation: Slotting • A non-quantitative method supported by a quantitative hierarchy • e.g. Market based salary structure • New jobs slotted based on market data • Pros: • Quick, market responsive, easy • Cons: • Need good market data • Need an existing salary structure • May be out of sync with internal equity • Market inequities will be built in

13. Job Pricing • The process of collecting valid market data and establishing a salary structure • Select and define benchmark jobs • Select and define recruiting market for jobs • Collect and validate market data • Establish salary structure

14. Job Pricing: Benchmarks • Jobs that can be found in other organizations and have essentially the same duties and responsibilities • 70% of duties and responsibilities are similar • Qualifications are similar • Usually populated by more than one person • Try to define enough benchmarks to cover about 80-90% of your employees

15. Job Pricing: What is the Market?

16. Job Pricing: Salary and Benefits Data • Salary data • Minimum • Maximum • Median • Midpoint of pay range • Actual average of employees • Pay practices data • How employees move through the range • Structure increases, merit increases • Bonus data • Eligibility • Amount and targets

17. Job Pricing: Salary and Benefits Data • Benefits Data • Health care • Dental • Vision • Retirement • Vacation/Sick/Holidays • Employer and employee cost

18. Job Pricing: How Many Pay Structures • How many salary structures? • Clerical/technical? • Professional? • Management? • How many salary ranges? • Depends on broad or narrow job definition, but usually-- • 8-12% differences between pay range midpoints • 30 to 60% range spreads from minimum to maximum • Clerical/technical - 8-10 ranges • Professional - 6-8 ranges • Management - 5-6 ranges

19. Sample Salary Structure

20. Performance Evaluation • A process to evaluate and assess the employees performance in relation to the objective of the job requirements • Key result areas • “What they do” • Objective information • Key process/competency areas • “How they work with others” • More subjective

21. Salary Range Management Maximum of Range Midpoint of Range Minimum of Range

22. Employee Pay Movement

23. Range Movement • Move ranges according to market movement • Move employees based on performance and organizational capability • Pay ranges and employee don’t necessarily move at the same time or at the same pace

24. Implementation Options • Employees paid over the maximum • Freeze pay until the pay ranges move up • Freeze pay but provide a lump sum payment for the difference until the ranges move up • Reduce pay

25. Implementation Options • Employees paid under the minimum • Do nothing • Raise pay to minimum immediately • Raise pay to minimum at next pay review • Raise pay based on a place in range calculation to keep the employee in the same place in the range that they were in their old range

26. Implementation Options • Appeals • Generally a good idea • Provides relief valve • Gives management a chance to take a second look • Good idea to involve a team of select employees

27. Questions? ?