Washington HR Academy Compensation Administration

10/23/2019

© Compensation Connections LLC 1

Washington HR AcademyCompensation Administration

Shannon DrohmanCompensation Connections LLC

November 13, 2019

Shannon Drohman, MS, SPHR, SHRM‐SCP, CCP

20+ years in HR and Compensation

Shannon has developed compensation strategies and designed comprehensive total reward programs

as an internal partner and external consultant. She serves a variety of clients, including non‐profit organizations.

Shannon is a past President of LWHRA. She has taught numerous HR classes, including the Compensation course for the UW HR Certificate Program.

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• Your name• Your role and organization• Why did you sign up for the HR Academy?

About You

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Agenda

• Applicable Laws• Strategy• Compensation Philosophy• Establishing the Value of Jobs• Pay Structures• Pay Administration• Linking Pay and Performance• Trends

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Applicable Laws

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Laws Affecting Compensation

1930s 2000s1980s1970s1960s1950s 1990s 2010s

1890 Sherman Anti‐Trust Act

1931 Davis‐Bacon Act

1936Walsh‐Healey Act

1938Fair Labor Standards Act (FLSA)(Wage and Hour Law) – Major revision in 2004

1947National Labor Relations Act (NLRA)

1963Equal Pay Act (EPA)

1965Service Contract Act

1964The Civil Rights Act (Title VII)

1967Age Discrimination in Employment Act

2009Lilly Ledbetter Fair Pay Act

2010Dodd‐Frank Wall Street Reform and Consumer Protection Act

1940s

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Sherman Anti‐Trust Act

• Passed in 1890

• Applies to all employers

• Intended to preserve a competitive environment

• Prohibits “wage fixing”

• Administered by US Department of Labor

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Davis Bacon Act

• Passed in 1931

• Applies to all federal construction projects >$2,000

• Requires “prevailing wage” for public works projects

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Walsh‐Healey Public Contracts Act

• Part of the new deal in 1936

• Extended provisions of Davis‐Bacon Act

• Federal contractors

• Requires overtime pay

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Lily Ledbetter Fair Pay Act

• Passed In 2009

• Amendment to Civil Rights Act of 1964

• Resets 180‐day Statute of Limitations

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Exempt Salary Threshold

Federal Labor Standards Act• Current: $23,660

• 1/1/2020: $35,568

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WA Laws Affecting Compensation

Washington Minimum Wage Act

• 2020 WA Minimum Wage: $13.50/hour

• After 2021: Annual increases tied to CPI

Proposed Exempt Salary Threshold• 7/1/2020: $49,140

• $35,100 for employers with 50 or fewer employees

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WA Laws Affecting Compensation

Equal Pay Opportunity Act

• Passed and signed March 2018

• Effective June 7, 2018


• Prohibits discrimination in compensation between “similarly

situated” employees

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Oregon Equal Pay Act

Oregon Equal Pay Act of 2017

• Signed June 2017

• Effective January 1, 2019


• Outlaws discrimination in all compensation for work of a

comparable character on the basis of any protected

characteristic

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City Ordinances

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Strategy Is A Big Deal

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Business Strategy

Every organization has a business strategy.

Even if you’ve never seen a written strategy, there is one.

It’s the basis for how decisions are made.

When in doubt, ask, “Why are we in business?”

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Strategy CompassResults: (GE)

Establish roles and goals, reward for getting the job done. Exit those not

on the same page.

Mission: (Theo Chocolate)When a company practices what they stand for, their

brand becomes a movement.

Customers: (Nordstrom)Create a great customer experience and customers

will be loyal to us.

Institution: (Johnson & Johnson)People are lucky to have a job here. We are the leaders in our industry. The company founders gave us a proud

tradition.Execution: (UPS)

We know this business – get the details right and the rest will follow.

Work Team: (Quicken Loans)We are team driven. There is no “I” in team. Work together, win together.

Shareholders: (PACCAR)We are here to serve the

shareholders of this company.

Workforce: (Southwest Airlines)Our people are our greatest asset. Be loyal to

them and they will be loyal to us.

Management Compass concept courtesy of David Cichelli of the Alexander Group Inc.

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Customer Focus: Nordstrom

“We believe fashion is a business of optimism, and in that spirit we continue to grow and evolve. Free shipping and free returns, mobile shopping and exciting new retail partnerships offer us continued opportunities to serve more customers in more ways with a fresh, relevant shopping experience and inspiring style. Fashion changes. Shopping changes. Our commitment to happy customers doesn't.”

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Workforce Focus: Southwest Airlines

“Our Culture is woven into all aspects of our business and our Employees’ lives, from the way Employees treat each other to the way that our Company puts our Employees first. Three vital elements of our Culture are appreciation, recognition, and celebration.”

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Mission Focus: Hopelink

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“Hopelink's mission is to promote self‐sufficiency for all members of our community; we help people make lasting change.”

Compensation Philosophy

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What Is A Compensation Philosophy?

• Grounded in business strategy

• Foundation of an organization’s compensation program

• Creates a shared understanding and framework for program

design decisions

• Who is involved in developing the philosophy?

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Compensation Philosophy Components

• Mission and values

• Competitive market

• Market position – lead, lag, meet

• Jobs difficult to recruit or retain

• Benefits and intangibles

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Let’s Do It!• Review the philosophy statement

• Determine “your” organization and the business strategy

• Discuss the compensation philosophy questionnaire

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Establishing the Value of Jobs

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Job Descriptions

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Internal and External Value of Jobs

Internal Value External Value

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Internal Job Value: Job Ranking

• Simple ranking

• Paired comparison

• Alternation ranking

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Internal Job Value: Point Factor

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External Job Value

Why Use Market Pricing?• Changes in scope of jobs

• Changes in market conditions

• Benchmark new positions

• Account for “hot jobs”

• Help establish job hierarchy

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External Job Value



Relevant External Market• Competition for talent

• Industry

• Size of organization

• Geographic area

• Lead, lag or match the market

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Salary Data Sources• Consulting firms

• Trade/industry groups

• Professional organizations

• Government data sources

Participate in surveys to save money!

External Job Value – Survey Options

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Survey Job Matching

• Focus on job content and qualifications

• Want a good match, but nothing is perfect

• May be easier to work by job family

• Best practice is at least three survey matches per job

HR Manager

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Survey Job Matching – Job Summaries

Economic Research Institute (ERI)

HUMAN RESOURCES MANAGERDevelops and/or implements human resource policies and programs within the policy guidelines formulated by top corporate human resource or general management. Typically directs the following human resources functions: staffing, affirmative action, wage/salary and benefit administration, training and development, safety and health, and employee services. Usually supervises the activities of professional and clerical Human Resource staff. Typically requires a degree and 5‐8 years experience.

HUMAN RESOURCES MANAGER• Manages Human Resources staff and plans, develops, recommends, and implements human

resources activities, policies, procedures, and programs for an organization, assisting upper management as requested.

• Manages activities relating to staffing, employee education and training, management development, labor relations, affirmative action, benefits administration, and salary administration.

Milliman Compensation Survey

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Survey Market Data

Milliman Compensation Survey36

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External Job Evaluation

Let’s Do It!• Review salary survey data

• Discuss which data to use

• Fill in the worksheet with your group's data

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External Job Evaluation

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Which Is Better?

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Internal Value External Value

Pay Structures

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Pay Structure Types

Types of Structures• Step structure

• Traditional/discretionary

• Broadband

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Minimum Midpoint Maximum ‐‐‐‐ Pay Range ‐‐‐‐

50th Percentile of Market

Market Data and Midpoint

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Market Data Trend Line

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Pay Range Midpoint

Pay Grade2

Pay Grade1

Midpoint $38,500

Midpoint $35,000

• Market data trend line (pay line)

• Types of jobs

• Entry: 5% to 10%

• Mid: 10% to 15%

• High: 15% to 20%

• Exec: 20% +

More than one structure?44

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Pay Range Spread

Types of Jobs• Entry: 30% to 40%

• Mid: 40% to 50%

• High: 50% to 60%

• Exec: 60% +

Creating or Updating a Pay Range Structure

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• Initial placement based on market data, closest to the midpoint

• Example: Jobs that pay $47,000 in the market would be placed into grade 61

• Validate based on internal value of the job• Jobs of similar responsibility and scope• Within own department/group and across the organization• Could perform regression analysis if point factor system

Placing Jobs in a Pay Range Structure

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Pay Range Structure ‐ Example

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10 28,080 30,888 33,696 36,504 39,312 Groundskeeper

Hourly 13.50 14.85 16.20 17.55 18.90

11 30,888 28,746 37,066 37,835 43,243 Custodian, Data Entry Clerk, Receptionist

Hourly 14.85 13.82 17.82 18.19 20.79

12 33,977 28,746 40,772 37,835 47,568 Admin Asst I, Maintenance Tech

Hourly 16.34 13.82 19.60 18.19 22.87

13 37,374 28,746 44,849 37,835 52,324 Admin Asst II, Bookkeeper, Program Asst

Hourly 17.97 13.82 21.56 18.19 25.16

14 41,112 28,746 49,334 37,835 57,557

Hourly 19.77 13.82 23.72 18.19 27.67

15 45,223 28,746 54,268 37,835 63,312 Program Coordinator

Hourly 21.74 13.82 26.09 18.19 30.44

16 49,745 28,746 59,695 37,835 69,644 Facilities Supv

Hourly 23.92 13.82 28.70 18.19 33.48

17 54,720 28,746 65,664 37,835 76,608 Program Manager

Hourly 26.31 13.82 31.57 18.19 36.83

18 60,192 28,746 72,230 37,835 84,269

19 66,211 28,746 79,453 37,835 92,696 Facilities Manager

20 72,832 28,746 87,399 37,835 101,965 Program Director

Job TitleGrade Minimum 25th Midpoint 75th Maximum

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Evaluating the Results

• Green circles and red circles• Pay compression• Pay equity analysis

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What’s A Compa‐Ratio?

Range Minimum

Range Midpoint

Range Maximum

$36,000 $45,000 $54,000Compa‐Ratio Compa‐Ratio Compa‐Ratio

0.80 1.00 1.20

Formula commonly used by compensation professionals

to assess the competitiveness of an employee’s pay level.

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Using Compa‐RatiosCompa‐ratio Matrix

Years of Experience Place‐In‐RangeExample

Compa‐ratios0 ‐ 2 years 1 .80 to .873 ‐ 4 years 2 .88 to .955 ‐ 8 years 3 .96 to 1.049 ‐ 12 years 4 1.05 to 1.1113 ‐ 18 years 5 1.12 to 1.2019+ years Maximum 1.20 (top of range)

Other factors to consider:‐ Job performance‐ Potential‐ Value to the organization

Note:Years of experience includes relevant experience prior to

working at company + years with company.51

Using Compa‐Ratios

Employee Name Job TitleCompa‐ratio to

Market

Current Pay

Level

ENTER New

Compa‐ratio

Langer, Reita Administrative Assistant 0.90 Under 1.00

Morones, Simona Administrative Assistant 1.03 In Range 1.03

Jelley, Edyth Receptionist 1.06 Slightly Over 1.06

Batdorf, Holly Office Manager 1.11 Slightly Over 1.11

Bookman, Angelo Accountant 0.90 Under 1.00

Canning, Reena Accountant 1.03 In Range 1.03

Boyers, Mathilda AP/AR Clerk 0.98 In Range 1.00

Mikesell, Gabriela Accounting Manager 0.89 Under 1.00

Farnum, Ronna LPN 1.01 In Range 1.01

Grieco, Hildred LPN 0.99 In Range 1.00

Hennig, Yajaira LPN 1.20 Slightly Over 1.20

Linder, Kerstin LPN 1.23 Over 1.23

Matsuda, Lenny LPN 1.23 Over 1.23

Meraz, Jong LPN 1.02 In Range 1.02

Pribble, Colleen LPN 1.21 Over 1.21

Stoll, Harrison LPN 1.01 In Range 1.01

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Pay Administration

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Pay Range Adjustments• How often?

• How much?

• What time of year?

World at Work

JOB TYPENATIONAL ALL INDUSTRY

2016 2017 2018 2019 2020

Exempt 2.00% 2.10% 2.00% 2.20% 2.20%

Non Exempt 2.00% 2.10% 2.00% 2.10% 2.20%

Average Pay Range Adjustments

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Integrating New Jobs

If This Happens:• New job is created

• Existing job changes

Use One of These Methods:• Internal value approach – “slot” the job

• Market approach – use external market data

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Market Adjustments

When HR researches the market value of a job and finds that the

market is paying (significantly) more than the organization:

• Should there be a grade change?

• How much should someone’s pay change?

• Should pay for everyone in that job be adjusted?

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Setting Pay For New Hires

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Step Increases

• Periodic increases in employee’s rate of base pay

• Standard for government employers

• Adopted by private sector unionized organizations

• Set by schedule or bargaining• Unrelated to job performance

• Intent is to keep up with inflation

• At top of scale: What then?

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Promotions

How much money should someone receive for a promotion?

Job Group 2010 2012 2014 2016

Nonexempt 7.0% 7.4% 7.6% 8.1%

Exempt 8.3% 8.7% 8.8% 9.3%

Management 9.5% 10.2% 10.1% 9.6%

Promotional Guidelines Report, World at Work, 2016 (most recent)

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Transfers

How much money should someone receive for a transfer?

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Counter Offers

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Total Compensation Statements

• Demonstrates transparency• Reinforces your employer brand• Helps employees understand the overall value of their

compensation• Gives employees a chance to ask questions (eek!)• Is data readily available?

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Pay Guidelines

• Establish written pay guidelines

• Consistent application and decision making

• Transparency

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Compensation Budgets

How Much To Budget?• Typically annual amount

• Includes current amount + additional pay

• Include all pay changes throughout the year:• Market adjustments

• Merit increases

• Promotions

• New positions

• Unplanned changes64

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Linking Pay and Performance

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Motivation Theories

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Maslow’s Hierarchy of Needs

Physiological

Safety and Security

Belonging and Love

Esteem (Self and Others)

Self‐Actualization

Hierarchy of Needs67

Herzberg’s Motivation‐Hygiene Theory

Hygiene Factors

Pay

Status

Security

Working Conditions

Benefits

Relationships

Motivator Factors

Meaningful Work

Challenging Work

Recognition

Feeling of Achievement

Opportunity for Growth

Responsibility

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Vroom’s Expectancy Theory

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Differentiating Pay by Job Performance

Merit Increases

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Average Increase by Performance % of Workforce in Each Performance Rating

Mercer’s US Compensation Planning Survey 2019‐2020

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Merit Matrix: formalize the linkage between merit adjustment and job performance

Merit Increases

Position in Salary Range(Increase as a % of Salary)

Performance Rating

Lower Third Middle Third Upper Third

Exceeds Expectations

5% 4% 3%

Meets Expectations

4% 3% 2%

Nearly Meets Expectations

3% 2% 0%

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Firing the Performance Review

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Merit Increases vs. COLA

3.6% 3.6%

1.6%

2.3%

2.7% 2.7%2.9%

3.0% 3.0% 3.0% 3.0%2.8%

3.8%

‐0.4%

1.6%

3.2%

2.1%

1.5% 1.5%

2.1%

1.3%

2.1%

‐1.0%

‐0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Merit COLA 73

Trends

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Flat Merit Budgets…

… are leading to an increased use of incentive pay75

NATIONAL ALL INDUSTRY

2017 2018 2019 2020

3.1% 3.1% 3.2% 3.3%

3.1% 3.1% 3.2% 3.3%

World at Work 2019‐2020 Salary Budget Survey: Top‐Level Results

Minimum Wage Map

Economic Policy Institute and Wolters Kluwer, 201876

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Living Wage Map

MIT Living Wage Calculator 77

Pay Equity

The State of the Gender Pay Gap 2018, PayScale 78

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Pay Equity

Disappointing Facts About the Black‐White Wage Gap, Federal Reserve Bank San Francisco, 2017

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Personalized Rewards

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THANK YOU!

Shannon DrohmanPrincipal at Compensation Connectionswww.compensationconnections.com

206‐946‐8056

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