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Salary Administration Procedures

Salary Administration Procedures Webinar March/April 2011

Webinar

March/April 2011

Salary Administration Procedures Webinar March/April 2011

What are “Salary Administration Procedures”?

Formal, documented approaches for:

Day-to-day management of compensation program; and

Defining

regarding staff pay.

authority

and

steps

for

making

decisions

management of compensation program; and  Defining regarding staff pay. authority and steps for making decisions

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Why Salary Administration Procedures are Useful

Involves formal review of options, with management discussion and approval of desired approaches

Establishes clear authority for decision-making with regard to staff salaries

Supports consistent and equitable approaches across the

organization

Promotes greater understanding among all staff with respect to salary actions

Followed consistently, can help reduce potential risk of

claims of unfair pay practices

respect to salary actions  Followed consistently, can help reduce potential risk of claims of unfair

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Establish Authority for Salary Administration

Establish Authority for Salary Administration Chief Staff Executive Final Authority Deputy Executive COO Chief of Staff

Chief Staff Executive

Final Authority

Administration Chief Staff Executive Final Authority Deputy Executive COO Chief of Staff Day-to-Day Approval

Deputy Executive COO Chief of Staff

Day-to-Day Approval

Deputy Executive COO Chief of Staff Day-to-Day Approval Human Resources Director Review & Recommendation 4

Human Resources Director

Review & Recommendation

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Instant Poll #1

How many webinar participants have adopted a formal compensation philosophy?

Reviewed/ approved by Board of Directors

Understood and communicated by senior management

philosophy? • Reviewed/ approved by Board of Directors • Understood and communicated by senior management 5

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Set and Articulate Compensation Philosophy

Affirmation of mission

Definition of peer organizations

Discussion of criteria for comparisons to local market:

Geographic location

Industry sector

Tax status

Revenue size

Targeted position relative to market:

Consistent for all positions?

Elements and mix of compensation:

Balance of base pay and benefits

Appropriateness of incentives

 Elements and mix of compensation: • Balance of base pay and benefits • Appropriateness of

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Example #1 Compensation Philosophy

Organization Mission: Global medical research

Peers: Research institutions; biotech/pharm; NFPs

Market Criteria:

Geographic: Global influence, New York City-based

Industry Sector: Medical/scientific research; biotech/pharm

Tax Status: Not-for-Profit, but competes with for-profit

Revenue Size: $25 million

Market Target:

60 th percentile for executive/senior scientific research staff

50 th percentile for all other staff

Mix of Compensation:

Balance of base salaries and benefits position total compensation between 50 th and 60 th percentile of market

Incentives available to senior executives to position total compensation between 60 th and 75 th percentile.

Incentives available to senior executives to position total compensation between 60 t h and 75 t

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Example #2 Compensation Philosophy

Organization Mission: Global relief and development

Peers: Human service, economic development NGOs

Market Criteria:

Geographic: Global influence, DC-based, international regional offices

Industry Sector: Human services, disaster relief, economic development

Tax Status: Not-for-Profit

Revenue Size: $60 million

Market Target:

50 th percentile for all US-hire staff

Local market value for local hires

Mix of Compensation:

Balance of base salaries and benefits position total compensation between 45 th and 55 th percentile of market

Incentives not considered to be consistent with mission and culture

t h and 55 t h percentile of market • Incentives not considered to be consistent

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Components of Compensation Program

Job descriptions the foundation of an effective compensation program

Job evaluation formalized process to establish internal value of jobs for purposes of classification into grades

Salary ranges established through market analysis to assure pay opportunities consistent with market for

comparable responsibilities, skills and experience.

analysis to assure pay opportunities consistent with market for comparable responsibilities, skills and experience. 9

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Instant Poll #2

What salary administration procedures are of most interest to you?

Setting salaries at hire

Approaches to annual salary increases

Salary actions for promotions

Special salary adjustments (equity adjustments, adjustments to

minimums, demotions, etc.)

Pay for temporary duty assignments

Other please specify

adjustments to minimums, demotions, etc.) • Pay for temporary duty assignments • Other – please specify

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Common Salary Administration Procedures

Setting hiring salaries

Regular salary review

Promotions

Special adjustments

Adjustments to new range minimums

In-grade salary adjustments

Equity adjustments

Demotions

Temporary duty assignments

Special recognition

salary adjustments  Equity adjustments  Demotions  Temporary duty assignments  Special recognition 11

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Setting Salaries at Hire

Who makes decision? Hiring manager? HR?

Typically, hiring range is between minimum and midpoint of salary grade for the position

Take into account incumbent’s experience

Additional education beyond minimum requirement

Directly-related experience minimizing “learning curve”

Prior supervisory, team leader or management experience

Consider salaries paid to existing staff members with comparable skills and experience

Exceptions require additional review/approval, based on legitimate business need

comparable skills and experience  Exceptions require additional review/approval, based on legitimate business need 12

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Annual Salary Review

When?

Common Date fiscal or calendar year

Employee Anniversary Date

Why?

Recognize longevity

Reward performance

How?

General increase same % across the board

Merit pay - % differentiated by performance rating

Lump sum one-time payments given instead of base increase

Combination approach

by performance rating • Lump sum – one-time payments given instead of base increase • Combination

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Instant Poll #3

What approaches does your organization take toward for

annual increases?

Common date or Employee Anniversary date?

Pay for Service or Pay for Performance?

General increase?

Merit increase?

Lump sum in lieu of base salary increase?

Combination

• General increase? • Merit increase? • Lump sum in lieu of base salary increase? •

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Common Date vs. Anniversary Date

Common Date Advantages

1. Promotes linkages between

individual and organizational

performance results.

2. Allows supervisors to evaluate the contributions made by all staff

members at the same time.

3. Supports differentiation on the basis of performance.

Disadvantage

1. Time required to prepare/conduct multiple evaluations.

1. Time required to prepare/conduct multiple evaluations. Employee Anniversary Date Advantage 1. Allows supervisor

Employee Anniversary Date Advantage

1. Allows supervisor time to focus

attention on one employee at a time.

Disadvantages

1.

Performance results may be “off

cycle”, not giving full picture.

2.

Requires greater focus on tracking individual performance to assure fair ratings for all employees.

3.

May result in overspending of merit budget early in the year.

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General Increases vs Merit Pay

General Increases

Most often used in “non- differentiating” organizations – “all employees contribute to our success”

Organization may rely on behavioral aspects of performance, rather than individual accomplishments.

Reduces burden on managers to

document and justify differences in

performance ratings

Reduces motivation in high- performing staff

ratings  Reduces motivation in high- performing staff Merit Pay  Establishes greater rewards for high

Merit Pay

Establishes greater rewards for high performing staff

Recognizes the achievements of individuals in support of organizational goals.

Requires strong performance appraisal system to document

individual objectives, measures and

results.

Requires managers to track progress and “manage to results”.

Typically results in higher-performing

organization overall.

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Sample General Increase Guideline

All employees who are rated as “Meets Expectations” will receive a base salary increase at the percentage determined each year by XYZ organization, based on

available finances.

receive a base salary increase at the percentage determined each year by XYZ organization, based on

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Sample Merit Pay Matrix

Performance Rating Level

Merit Increase Paid

Far Exceeds Expectations

4.5% to 5.0%

Exceeds Expectations

3.0% to 3.5%

Meets Expectations

2.0% to 2.5%

Needs Improvement

0%

Unsatisfactory

0%

3.0% to 3.5% Meets Expectations 2.0% to 2.5% Needs Improvement 0% Unsatisfactory 0% 18

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Why Use Lump Sum Payments?

Encourages managers to accurately assess performance against desired results

Recognizes significant contributions made by high- performing staff

Limits the impact of extra reward dollars on payroll and benefits budget

made by high- performing staff  Limits the impact of extra reward dollars on payroll and

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Sample General Increase with Lump Sum

Performance Rating Level

General

Lump

Total

Increase

Sum 1

Far Exceeds Expectations

2%

3%

5%

Exceeds Expectations

2%

1.5%

3.5%

Meets Expectations

2%

0%

2%

Needs Improvement

0%

0%

0%

Unsatisfactory

0%

0%

0%

1 Recommended by manager, approved by senior management.

0% 0% 0% Unsatisfactory 0% 0% 0% 1 Recommended by manager, approved by senior management. 20

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Promotions

Define Term: “Assumption of distinctly higher-level

responsibilities, resulting in an increase in pay grade.”

New title not necessarily required

Identify How Increase Determined:

Increase to at least minimum of the new pay grade

Increase above minimum may depend on:

Timing of promotion in relation to annual salary review

Qualifications in relation to other staff in the new grade

Approved by senior management but in no case will exceed xx%

Define Timing and Limits:

Restricted to annual salary review, or any time during the year

May not be promoted again for at least 12 months

Restricted to annual salary review, or any time during the year • May not be promoted

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Special Adjustments

New Range Minimum: When salary ranges updated, assures

staff brought to at least new range minimum

Identify if that is before or after any annual increase is applied

In-Grade Adjustment: Assumption of additional duties that expand role, but don’t warrant promotion.

Adjustment within current range, not to exceed xx% (e.g. 5%)

Equity Adjustment/Reclassification: No change in duties, but

market data suggests higher pay warranted.

Increase within current grade, or reclassification to higher grade

Demotions: Usually based on performance issues, position is

lowered in salary grade

If salary above new range maximum, is it reduced or “red circled”?

issues, position is lowered in salary grade • If salary above new range maximum, is it

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Temporary Duty Assignments

Define Eligibility: Long-term assumption of duties of

another position expected to last a minimum of six weeks or more in cases of:

Long-term absence (FMLA, parental leave, etc.)

Vacancy

Identify How Paid:

Salary supplement throughout assignment; or

Lump sum payment at successful completion of assignment

Pay Basis:

Percentage of employee’s base salary

Percentage of covered position’s base salary

t  Pay Basis: • Percentage of employee’s base salary • Percentage of covered position’s base

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Special Recognition

Do you offer?

“Meritorious Achievement Award”

Discretionary bonuses

“Spot Awards”

Service Awards

Other cash or non-cash recognition awards

Define eligibility

Establish limits

Dollar limits

“Management’s sole discretion”

“Based on available finances”

“Discontinued at any time with or without notice”

sole discretion” • “Based on available finances” • “Discontinued at any time with or without notice”

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How to Communicate

Once adopted, salary administration procedures should

be communicated:

To Supervisors/Managers assure all staff with supervisory

responsibility who hire, review and develop staff are provided

copies of complete procedures manual.

Non-Supervisory Staff should receive a summary of key components of the procedures:

Compensation Philosophy

Hiring Salaries

Annual Salary Review

Process/Timing for Requesting Salary or Job Classification Review

Update and reinforce regularly

Maintain on company intra-net

Requesting Salary or Job Classification Review  Update and reinforce regularly  Maintain on company intra-net

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Questions?

Contact:

Jim Rocco, Principal Consultant

Larry Beers, Lead Consultant

JER HR Consulting LLC 36 W 44 th St. Suite 707A

New York, NY 10036

646-453-7560

jerocco@jerhrconsulting.com

http://www.jerhrconsulting.com

New York, NY 10036 646-453-7560 jerocco@jerhrconsulting.com lfbeers@jerhrconsulting.com http://www.jerhrconsulting.com 26

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