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Rusty LindquistVP Strategic HR InsightsBambooHR Mykkah HernerHead of Professional Services PayScale
5 steps to set up your compensation plan Gain executive support. Define your compensation strategy. Develop a market-based pay structure. Build pay ranges. Implement a total rewards plan.
Step 1: Gain Executive Support
Payroll is, by far, a company’s biggest expense; the cost of getting it wrong is tremendous.
Pay is the number 3 reason people quit jobs [BambooHR study]. If employees aren’t being paid what they’re worth, they will find it somewhere else. Executives must care about compensation if they care about retention.
Top Compensation Mistakes Not updating compensation regularly Not empowering managers to fix problems Not being transparent Giving across-the-board raises Not having a structured plan
Compensation plans help the bottom line. They make good business sense. They help attract and retain talent. They support your company’s mission, strategy and culture.
“If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it, you almost don’t have to manage them.” —Jack Welch
Step 2: Define Your Compensation Strategy
Questions to ask: What is your market? What are your goals? How competitive do you need to be? What should you reward? Is your current strategy working?
What is the right compensation mix for your company?
—Harvard Business Review “Keep the plan simple. It should be extraordinarily clear which outcomes you are rewarding.”
Step 3: Develop a Market-Based Pay Structure
Decide on the correct job evaluation method. Market Pricing v. Point Factoring
Aging is great… for wine and cheese.
Step 4: Build Pay Ranges
Identify Market Differentials Schedules preserve both competitive pay to local markets and internal equity.
Determine Your Pay Grades The number of pay grades you use will influence your midpoint differential and should sufficiently distinguish difficulty levels of different jobs.
Some considerations include How wide should my ranges be? How much overlap between pay ranges is good? Build Pay Ranges
Evaluating employee placement in range. Developing guidelines or policies for movement. Using Pay Ranges
Use market data Verify internal alignment Assign Jobs to Grades
Build Career Path
Step 5: Implement Total Rewards Plan
Compensation Plan Element Philosophy Strategy Structure Policy Process
Budgeting for Increases
Deal with Outliers
Strategies: Equip Managers Educate them Give them the big picture Give them tools
What can we do now? Talk with executives about the need for an updated compensation plan. Research market data for your employees’ jobs. Create a pay structure to ensure internal equity. Review your current compensation policies and decide where updates are needed.
Follow BambooHR and PayScale on social media: bamboohr.com/blog | payscale.com/compensation-today Thank you!
Questions? BambooHR Receive a free job posting on our ATS and full HRIS for one week. We will contact everyone within the next few days to set this up. Download our free eBook: Communicating Compensation: Your guide to tackling tough conversations about pay PayScale