The document provides guidance on building an effective compensation plan. It discusses establishing job descriptions, benchmarking salary ranges using market data, developing performance management systems, and creating guidelines for administering pay increases. The compensation plan aims to attract, motivate, and retain talent by linking pay to performance and career progression.

1. BUILDING COMPENSATION PLANS Creating a Comp Plan that Works!

2. BUILDING a Compensation Plan that Works Business Plan Compensation Budget Benefits Job Descriptions Salary Ranges Performance Management Market Data

3. INTRODUCTIONS Your name & title/responsibilities Company name, location, # of EEs Why are you here, your comp. issues, takeaways? Smaller Business Association of New England 3

4. Basic Fundamentals FIRST! Business Plan & budgets – compensation is a key component Define organizational culture, consider employee relations issues Develop a total Compensation strategy and budget Smaller Business Association of New England 4

5. Basic Fundamentals - continued Develop individual and organizational goals and objectives Goals should be mutually agreed upon Work toward meeting objectives of the business plan and budget. Smaller Business Association of New England 5

7. Benchmark salary ranges – based on skill sets

8. Survey data – sources & resources

9. Current salaries – base, adjustments, and increasesSmaller Business Association of New England 6

11. Performance management systems

12. Merit Increase matrix Smaller Business Association of New England 7

14. INCUMBENT:REPORTS TO: (position)

15. DEPARTMENT:APPROVED BY:

16. LOCATION:

18. NATURE & SCOPE -JOB DUTIES AND RESPONSIBILITIES

19. DESCRIBE THE MOST CRITICAL/COMPLEX TASKS/CHALLENGES CONSISTENTLY FACED

20. DECISION MAKING

21. INTERPERSONAL RELATIONSHIPS: Internal & External

22. EXPERIENCE/GENERAL QUALIFICATIONS & PERSONAL CHARACTERISTICS/SKILLS

23. EDUCATION/BASIC KNOWLEDGE

24. WORKING CONDITIONS

25. PHYSICAL DEMANDS

26. SOFTWARE, HARDWARE, MACHINES & EQUIPMENT USED:8 Smaller Business Association of New England

27. Performance Management Ongoing process of communication Investment in future profitability & success of individuals and organization Facilitates development of loyal, motivated, goal-oriented teams. Frequency of reviews, who does it? Set goals & objectives – SMART goals Developmental tool – skills, behavior Smaller Business Association of New England 9

28. CREATING a Compensation Plan that Works Business Plan Compensation Budget Benefits Job Descriptions Salary Ranges Performance Management Market Data Smaller Business Association of New England

29. Building the Compensation Plan Consider key questions Create a market analysis Build salary ranges Develop pay administration guidelines Smaller Business Association of New England 11

30. Key Questions Is My Company (“MyCo”) able to recruit, retain, and motivate talent? What is “MyCo’s” pay position in the market? What should “MyCo’s” pay position be? What is affordable and realistic? What is the typical mix of base and variable pay? What should “MyCo’s” mix be? Smaller Business Association of New England 12

31. Create a Market Analysis Get reliable data representing relevant labor market Create excel spreadsheet internal and external data Refer to handout for details Compute % difference (“MyCo” data/Market data) Compute overall averages and “slice and dice” Grade (salary range), Function, Location Weighted by “MyCo’s” population Smaller Business Association of New England 13

32. Build Salary Ranges Purpose: Communicate the range of pay for each job. Typical practice: Traditional ranges with a Minimum, Midpoint, Maximum Range widths (Maximum/Minimum-1) of 50-70% (Prof/Managers) Range widths of 40-50% (Clerical/Technicians/Production) OR Smaller Business Association of New England 14

33. Build Salary Ranges Typical practice Divide ranges into two to four parts to administer pay Smaller Business Association of New England 15

34. Build Salary Ranges Step 1: Create salary range Midpoints Take market data for lowest paying job rounded to $100 Multiply it by 1.1 at lower levels, 1.15 at higher levels and round Example: Smaller Business Association of New England 16

35. Build Salary Ranges Step 2: Next create salary range Minimums Define appropriate range width (Maximum/Minimum), i.e., 50% Divide Midpoint by 1+1/2 the width,1.25 to calculate Minimum $24,800/1.25 = $19,840 or $19.8K (rounded) Step 3: Create salary range Maximums Add (Midpoint - Minimum) amount to Midpoint to get Maximum $24.8-$19.8 = $5K; $24.8+5+$29.8K Maximum Smaller Business Association of New England 17

36. Build Salary Ranges Step 4: Slot jobs in salary ranges Start by using closest Midpoint to market data, e.g., 50th percentile “Tweak” slotting considering internal job relationships and fairness Review employee impact (< Minimums, > Maximum) Consider timing and communication of adjustments Alternative Ways to Build Salary Ranges Group jobs at same level and compute average market data to build ranges Create a unique range or “Market Reference Pay” rate for each job Smaller Business Association of New England 18

37. Develop Pay Administration Guidelines Purpose: ensure fair and appropriate pay decisions Typical practice: Facilitate “pay for performance” – “A” players paid more over time Also consider skills, competencies, relevant experience Use merit grids (matrixes) based on employee’s performance rating and pay position within salary ranges Smaller Business Association of New England 19

38. Develop Pay Administration Guidelines Step 1: Determine the budget Typical practice: separate merit and promotion/adjustment budgets Example: 2.5% merit + 1% promotion/adjustment = 3.5% total Step 2: Determine population distribution percentages % of employees with each performance rating % of employees paid in each quartile of their salary range Smaller Business Association of New England 20

39. Develop Pay Administration Guidelines Step 3: Define guiding principles, i.e., Pay for Performance No increases below “Meets”, with minimum increases of 1% At least 2X increase if rated “Far Exceeds”, paid in lower ½ of range versus rated “Meets”, paid in same or higher part of range Also consider position in range (quartile) in deciding increases Provide a range in matrix rather than one fixed number, i.e., 4.5-6.5%, rather than 5.5% Hug the keepers! Smaller Business Association of New England 21

40. Develop Pay Administration Guidelines Step 4: Calculate payouts in each matrix cell Refer to handout for details Step 5: Sum cell payouts to see if total is within budget Step 6: Communicate final matrix to management Smaller Business Association of New England 22

41. IMPLEMENTING a Compensation Plan that Works Business Plan Compensation Budget Benefits Job Descriptions Salary Ranges Performance Management Market Data Smaller Business Association of New England

42. Using it to build your business ATTRACT TALENT MOTIVATE TALENT MAINTAIN TALENT Smaller Business Association of New England 24

43. How can you use a solid compensation plan to ATTRACT employees? Recruiting Define Job Requirements and Skill Sets (Job Descriptions) Salary Pay Ranges and Other Compensation Culture!! Sell Added Value Smaller Business Association of New England 25

44. ATTRACT TALENT! Smaller Business Association of New England Toolbox Solid Interviewing Practices Interview Guides Based on Job Descriptions Candidate Evaluation Form Compensation Plan Data Use Several Sources Have pre-defined ranges Salary is only ONE piece of the pie! Market Place Position KNOW who target audience or IDEAL candidate KNOW where you are and where you want to be 26

46. 5-7 years experience

47. Manufacturing background preferred

48. QuickBooks knowledge a plus

50. How can you use a solid compensation plan to MOTIVATE employees? Performance Management Define Performance Expectations Individual Goals – Department & Company Goals Team Goals vs. Individual Goals WIIFM!!! (What’s In It For Me?) Smaller Business Association of New England 28

51. MOTIVATE TALENT! Smaller Business Association of New England Toolbox Performance Management Process Clear Expectations Discuss Performance and Salary separately Keep it real! Include good, bad and ugly! Set SMART Goals Merit Matrix Increase See Handout for example 29

52. Samuel BanePerformance Review Smaller Business Association of New England 30

53. Smaller Business Association of New England MERIT INCREASE MATRIX 31

54. How can you use a solid compensation plan to MAINTAIN employees? Employee Engagement Define Career Progression Training Gaps WIIFM!!! (What’s In It For Me?) Smaller Business Association of New England 32

55. MAINTAIN TALENT! Smaller Business Association of New England Toolbox Career Progression Show how their compensation plan builds toward future Review all facets; salary, benefits, retirement Define skills needed for “next step” Pay Grade Increase? Title Change? Training Increased “Value” as qualifications build Part of compensation 33

56. Samuel Bane Career Progression Smaller Business Association of New England 34

57. Smaller Business Association of New England

58. Smaller Business Association of New England CONTACT INFO.