Compensation Budgeting Part II:
Determining Raises
We will be sending out slides and accreditation information following the presentation
Mykkah Herner, MA, CCP
Manager of Professional
Services
PayScale, Inc.
www.payscale.com
14,000 Positions
3000 Customers
11 Countries
40 Million Salary Profiles
250 Compensable Factors
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Three-part Series on
Compensation Budgeting
Part I: Managing Pay Inequities
Part II: Determining Raises
Part III: Putting it all together with
PayScale Insight
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Agenda
Recap of Part I
Part II
What do you want to reward?
o Market, Performance, Proficiency, Tenure, etc
Can you streamline your increase process?
How to calculate pay increases.
o Paying to Market
o Merit Matrix (Pay-for-Performance)
Putting it all together for budget recommendations
Next month: putting it all together with PayScale Insight
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o Start with a plan
o Know your comp Philosophy, Strategy, and
Policy
Recap of
Part I
o Get reliable market Data
o Identify comp inequities at Org, Dept,
Position, and Individual levels
o Org/Plan level: fair pay to market
o Dept level: fair pay across departments
o Position level: have some positions move faster
than others?
o Employee level: are you paying according to
your policy? Fairly based on EEO status?
o Develop solutions
http://resources.payscale.com/hr-webinar-budgetingpart-1-managing-internal-pay-inequities.html
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What do
you want to
reward?
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What do you want
to reward?
You can base increases on…
o Market
o Performance
o Proficiency
o Tenure
A note on COLA
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Streamlining
the Increase
Process
Considerations for your increase
process & timeline
Depends on your organizational values around
transparency and inclusion
Determine on what you’ll base increases
Create a timeline
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7/1-10/15
10/15-10/31
Salary
Adjustment
Process &
Timeline
11/01-11/15
11/15-11/30
12/01
12/15
12/20
1/1
• Complete market study
• Create spreadsheet with suggested increases
• Train Managers on Compensation Process & their
roles; deliver spreadsheets to managers
• Have a period of time for edits (managers, HR)
• Finalize increases / approval
• Communicate to employees
• Process adjustments in payroll
• New pay is live with 1/1 payroll
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How to Calculate Pay
Increases
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Market-based Increases
 Tier increases by position in range
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
o Create spreadsheet
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Increase Spreadsheet
Name
Job Title
Alexander, Maria
Account Manager
Current
Range
Annual Base Min
Range
Mid
Range
Max
CompaRatio
New
Range
Increase Annualized Annual
Penetration %
Increase
Base
New
Compa- New Range
ratio
Penetration
$45,900
$46,300 $57,100 $67,900
0.804
-2%
3.80%
$1,744
$47,644
0.83
6%
Arnold, Alexandra Driver I
$29,600
$29,300 $35,700 $42,100
0.829
2%
3.80%
$1,125
$30,725
0.86
11%
Baker, Nicholas
Account Executive
$46,500
$40,400 $49,800 $59,200
0.934
32%
3.80%
$1,767
$48,267
0.97
42%
Allen, Ryan
Program Manager
$86,700
$73,600 $93,300 $113,000
0.929
33%
3.80%
$3,295
$89,995
0.96
42%
Bailey, Sara
Senior Account Executive
$64,000
$54,700 $68,400 $82,100
0.936
34%
2.80%
$1,792
$65,792
0.96
40%
Anderson, James
Customer Service Rep
$45,500
$34,900 $42,500 $50,100
1.071
70%
1.90%
$865
$46,365
1.09
75%
Andrews, Vincent
Senior Account Executive
$76,700
$54,700 $68,400 $82,100
1.121
80%
1.90%
$1,457
$78,157
1.14
86%
Adams, Christina
Account Manager
$63,800
$46,300 $57,100 $67,900
1.117
81%
1.90%
$1,212
$65,012
1.14
87%
0.967625
41%
2.96%
$13,257
$471,957
1.00
49%
Total/Average
$458,700
SUM
•
•
•
•
•
•
AVG
AVG
AVG
SUM
SUM
AVG
AVG
Compa-Ratio = Current Annual Base / Range Mid
Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)
Annualized Increase = Increase % * Current Annual Base
New Annual Base = Annualized Increase + Current Annual Base
New Compa-Ratio = New Annual Base / Range Mid
New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
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Using a Matrix (Merit or Proficiency)
 Tier increases by position in range & performance
o Start with a budget increase %
o Allocate increases to EEs based on range penetration
and performance
o Create spreadsheet
o Note: Proficiency, or another factor, can work like
performance in this example
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Increase Spreadsheet
Name
Job Title
Current
Annual
Base
Performance Range
Rating
Min
Range
Mid
Range
Max
New
Compa- Range
Increase Annualized Annual
Ratio Penetration %
Increase Base
New
Compa- New Range
ratio Penetration
Adams, Christina Account Manager
$63,800 Meets
$46,300 $57,100 $67,900
1.117
81%
1.70%
$1,085 $64,885
1.14
86%
Alexander, Maria Account Manager
$45,900 Meets
$46,300 $57,100 $67,900
0.804
-2%
3.90%
$1,790 $47,690
0.84
6%
Allen, Ryan
$86,700 Meets
$73,600 $93,300 $113,000
0.929
33%
3.90%
$3,381 $90,081
0.97
42%
Anderson, James Customer Service Rep
$45,500 Meets
$34,900 $42,500 $50,100
1.071
70%
1.70%
$774 $46,274
1.09
75%
Andrews, Vincent Senior Account Executive
$76,700 Meets
$54,700 $68,400 $82,100
1.121
80%
1.70%
$1,304 $78,004
1.14
85%
Arnold, Alexandra Driver I
$29,600 Meets
$29,300 $35,700 $42,100
0.829
2%
3.90%
$1,154 $30,754
0.86
11%
Bailey, Sara
Senior Account Executive
$64,000 Does not meet $54,700 $68,400 $82,100
0.936
34%
0%
$0 $64,000
0.94
34%
Baker, Nicholas
Account Executive
$46,500 Does not meet $40,400 $49,800 $59,200
0.934
32%
0.90%
$419 $46,919
0.94
35%
Barnes, Paul
Customer Service Rep
$38,600 Exceeds
0.908
24%
7%
$2,702 $41,302
0.97
42%
0.961
39%
2.74%
$12,608 $509,908
0.99
46%
Totals/Averages
•
•
•
•
•
•
Program Manager
$497,300
$34,900 $42,500 $50,100
Compa-Ratio = Current Annual Base / Range Mid
Range Penetration = (Current Annual Base – Range Min) / (Range Max – Range Min)
Annualized Increase = Increase % * Current Annual Base
New Annual Base = Annualized Increase + Current Annual Base
New Compa-Ratio = New Annual Base / Range Mid
New Range Penetration = (New Annual Base – Range Min) / (Range Max – Range Min)
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Developing Budget
Recommendations
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Putting it all Together
Part I
o Org Level Solutions – Range Adjustments
• Cost of changing ranges (adjusting green outliers)
o Position Level Solutions – Market Adjustments
• Cost of adjusting positions or adding temporary
position premiums
o Employee Level Solutions – Equity Adjustments
• Cost of correcting individual pay inequities
Part II
o Increase Budget – Pay Increase Adjustments
Org Level Solution Costs
Range Adjustments
o If you decide to maintain compa-ratios, this cost will be equal to the % you
are increasing your ranges.
For example, if your total base pay budget is $15,000,000 and you increase your
ranges by 2%, the total impact is $300,000
o If you decide to ensure no green outliers, this cost is equal to the
adjustment necessary to keep all EEs in range at the low end
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Position Level Solution Costs
Market Adjustments
o Moving positions to a new grade
o What will be the cost of ensuring all incumbents are in range
o For example, Driver I and CSR = 100 + 400 = $500
o Offering a market premium
o Calculate yearly market premium payment to all incumbents in the role
o For example, Software Engineer = 21 * $1000 = $21,000 www.payscale.com
Employee Level Solution Costs
Equity Adjustments
o Determine the amount to resolve critical issues
• For example, bump HRM/F to 73,600 ($3700)
o Calculate amount to resolve compression issues – increases to existing?
o Any necessary market adjustments for individuals?
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Pay Increase Adjustments
Pay Increase Adjustments
o Typically this is the easiest to budget as it is usually a
percentage of total salary budget.
o For example, if your budget is $15,000,000, a 3% increase
would be $450,000.
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Summary of Comp Budget Requests
2014 Compensation Budget Requests
2014 Range Adjustments
2014 Market Adjustments
2014 Equity Adjustments
2014 Pay Increase Adjustments
Total Increase
2014 Salary Budget
Total Salary Budget:
$15,000,000
Percent
0.06%
0.14%
0.02%
3%
Dollar Amount
$9,200
$21,500
$3,700
$450,000
$484,400
$15,484,400
Detail for comp budget request is in the following attachments
Costing for Range Adjustments
Costing for Market Adjustments
Costing for Equity Adjustments
2014 Pay Increases
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Next Month:
Using PayScale’s Insight and
Insight Expert to support
compensation budgeting
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Mykkah Herner, MA, CCP
Manager of Professional
Services,
PayScale, Inc.
www.payscale.com