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The Compensation Planning Roadmap By Peyton Liu

Posted on 24 Nov 15 by Tom McKeown

It is time of the year to start your compensation planning, are you ready for this?  Do you often hear from your employees: "Sam and I started the exact same day in the same position, why is his salary 30% more than mine? I need a raise!" While we would love to assume our employees don’t know what others are making, the reality is – people talk and often share this information. As a compensation professional myself, I always say: Plan for the worst, hope for the best, and be prepared for a surprise.

Compensation Planning is a process that has many moving parts. It is the result of decision making, negotiation, communication, analysis, and listening.  But, to launch successfully you need a roadmap. I recommend a four step process to ensure success.

1) Outline the Plan- In this step, you start by asking several questions:

  • When do we start planning?
  • When should the plan end?
  • How much budget do I have this year to apply toward the plan?
  • Is the plan negotiable?
  • What’s my company’s compensation strategy?
  • How does the company rate, and desire to rate, compared to the market for individual jobs and categories?

Once you have solid answers to these questions, you can craft your overall strategy and put your plan in writing for executive sign-off.

2) Preparation- Once the executive team has approved your plan you can go about filling in the details.  You need to make sure you have the most current and detailed data on the following items:

  • Job Descriptions- This is extremely important. Having updated job descriptions is not just about reminding employees of their own job responsibilities, but it also makes your task easier and more efficient when conducting job evaluations, benchmarking positions, and participating in market compensation surveys.
  • Job Evaluation- Job evaluations are based on job descriptions. You need to verify that your job descriptions are up-to-date to assist in determining the positions value and worth compared to other jobs within the organization. Job Evaluations attempts to make a systematic comparison between jobs for the purpose of establishing a relational pay structure. Based on the evaluation results, we can then rank the jobs within each department, or between departments, to create or adjust job grades and salary ranges appropriately.
  • Market Survey- It is a good practice for a company to regularly participate in compensation surveys held by major Human Resources consulting companies. By participating in a survey, you could obtain the most up to date compensation data and compare your company data with that of your peers in the marketplace. Additionally, you may receive recommended methodologies and shared knowledge from those consulting companies.
  • Performance Reviews/Scores Finalized- Performance scores are usually tied with salary and bonus recommendations; however, the scores need to be confirmed (signature or E-signature) by management before you import them into the compensation system.

3) Communication and Approval- Once our job matrix and market data is ready, you need to engage the line managers.

  • Communicate with line managers about job grade values for both their employees and any positions that report to them, as well as the salary ranges for those positions.
  • Participate in a market competitiveness and internal fairness analysis by job, job grade, etc.
  • Establish a company Trend Line.
  • Propose merit increases, promotions, and market adjustment percentage increases.
  • Develop incentive plans.

At this point in your compensation planning process, you will have a "real" operational budget to compare with the rough budget made in step one. With your "real" operation budget in hand, you can communicate those details with executives, and obtain final approvals.

4) Kick Off and Monitor the Process- After the company executives have approved the compensation plan, the kick-off process begins by assigning the budget and guidelines to line managers, building the hierarchy, and setting up the soft and hard rules. By monitoring the feedback from the managers, you can make necessary changes to guarantee the plan's success.

A compensation plan can’t stand alone. As a compensation professional, you must consider how it will fit into your company’s overall strategy as it applies to recruiting and retaining employees, controlling costs, and ensuring equity. The "kick off" phase will likely bring some surprises, but with proper planning and execution you can put your company on the road to success!