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5 Steps To A Smart Compensation Plan

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Rusty Lindquist VP Strategic HR Insights BambooHR Mykkah Herner Head of Professional Services PayScale


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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.


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Step 1: Gain Executive Support


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Payroll is, by far, a company’s biggest expense; the cost of getting it wrong is tremendous.


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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.


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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


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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.


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“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


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Step 2: Define Your Compensation Strategy


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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?


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What is the right compensation mix for your company?


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—Harvard Business Review “Keep the plan simple. It should be extraordinarily clear which outcomes you are rewarding.”


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Step 3: Develop a Market-Based Pay Structure


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Decide on the correct job evaluation method. Market Pricing v. Point Factoring


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Aging is great… for wine and cheese.


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Step 4: Build Pay Ranges


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Identify Market Differentials Schedules preserve both competitive pay to local markets and internal equity.


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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.


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Some considerations include How wide should my ranges be? How much overlap between pay ranges is good? Build Pay Ranges


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Evaluating employee placement in range. Developing guidelines or policies for movement. Using Pay Ranges


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Use market data Verify internal alignment Assign Jobs to Grades


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Build Career Path


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Step 5: Implement Total Rewards Plan


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Compensation Plan Element Philosophy Strategy Structure Policy Process


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Budgeting for Increases


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Deal with Outliers


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Strategies: Equip Managers Educate them Give them the big picture Give them tools


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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.


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Follow BambooHR and PayScale on social media: bamboohr.com/blog | payscale.com/compensation-today Thank you!


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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


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