A four-part process to calibrate your employee compensation policy

by on June 11, 2009 · 0 Comment POSTED IN: HR Info Center

The underpinnings of a solid employee compensation policy

There’s a four-step process that people follow who want to be logical about their employee compensation policy. You want to have a compensation policy that stands up scrutiny and straight talk so that you can pretty much open the books on it. People can disagree with this or that but you’re not a decimal point off on these things.

This is a very quick summary of what somebody does that’s going to calibrate a system for you.

  1. Benchmark your jobs and create a salary structure.
  2. You do that by describing the jobs in terms that reflect the outside world. In other words, you may have some kind of esoteric version of what your jobs are but you’re going to have to – for the purposes of benchmarking and comparing ourselves to the market, you’re going to have to say, “Well, you know, this person is half an administrative assistant in one quarter, you know, editorial assistant or something”

    You’re going to have to think about what they are and describe them in terms that reflect the marketplace. I’m not talking about, you know, very elaborate. Then you got to match your job to the outside marketplace to determine “comparable”.

  3. Find out what the replacement pool is like.
  4. Okay, what are their replacements like? What is the pool or replacements look like out there for this candidate and what’s a candidate pool look like for this particular job?”

  5. Establish distinct salary levels for your compensation policy
  6. You’re going to look at those jobs and establish a minimum group, a maximum group and you’re going to create 5 to 15 distinct salary levels. If you’re enormous, maybe you could go to 20 levels. Most companies don’t need that many levels. It depends on how broad your ranges are and your philosophy there. You can do a little bit of this, a little bit of that.

    But normally, I’d say 90% of companies I’m familiar with will have somewhere between 5 and 15 – normally 8 to 12 distinct salary levels that overlap each other.

    Once you’ve got this established is you don’t have to do this every year, you do it normally about every three years. There’s a process for aging, the date in between. Normally move the bands up in concert with inflation.
    So on the off years, the non-calibration years, you adjust these salary bands to keep up with the market forces. If market is moving fast, maybe it’s 4% year. If the market is moving slow, maybe it’s 1% or 2%. If the market is dead, it may not need move. In 2009, you may not even have to move your band at all to get to 2010.

  7. Create salary grades for your compensation policy
  8. A salary service will select some job titles. They will go to a database to make sure that they have got a good cross section of these different populations. And they go down this list. They pick a category. They pick a job title. They get into these details and they match it to market.

    They blend them when they need to — a half of this, a quarter of this, a quarter of that. In a smaller company, that happens a lot. And then you kind of define the scope. You’ve got to look at, well, who are you, I mean how big is your company?

    Usually the bigger the company and the more people and the more money and volume, especially the management jobs, that impacts the market value of the position, so does the geography, by the way.

    San Francisco pays very different than Fort Lauderdale, okay, which pays different than Santa Rosa on here or Atlanta. All those if check the different box it will show you different comparables, okay? So, when you pick different things, it’s going to tailor it to you, okay?

    Three primary factors — your company’s size, your industry and your metropolitan area. And they call it the standard metropolitan statistical area in most of these.

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