Building a Compensation Program
Strategic Objectives: Cost Controls & Real Life
Solutions
Michael F. Maciekowich
National Director
Astron Solutions, LLC
michaelm@astronsolutions.com
917-714-0317
Understanding and Developing a Comprehensive
Compensation Strategy
• Compensation Strategy is one of the most important strategies in
the HRM Function as it influences the costs of the organization and
potential bad decisions can lead to very serious damages to the
organization.
• A compensation strategy is derived from, and therefore has to be
fully aligned with, the overall HRM Strategy.
• When the HRM Strategy sets the main objectives for the HRM
Function, the compensation strategy must follow.
Understanding and Developing a Comprehensive
Compensation Strategy
• The compensation and benefits strategy sets the position of the
organization in the job market and defines the items in the total
cash in the organization and their role.
• The role of different compensation components is very important as
the role of these compensation components can differ.
• For example, the role of bonuses can be primarily in ‘performance
reward’ or ‘retention’ and the organization has to decide.
• The compensation strategy has to reflect the reality in the industry
and the surrounding job market.
Total Rewards “Tools”
External Position
Equity
• Competitiveness in
terms of Geography.
• Competitiveness in
terms of industry.
• Level of
competitiveness by
organization and
position.
•Recruitment and
Retention Trends.
Internal Position
Equity
• Determine
organizational value of
positions regardless of
market value.
•Determine value of
positions not matched
to the market.
Employee Pay and
Recognition Equity
•
•
•Determine the
differences among
“families” of jobs.
•
Total “Non-Cash”
Compensation –
Benefits/ Retirement
Ability to Fund all
Aspects of the
Program
Determine
internal pay levels
of employees
based on
seniority,
performance, or
other methods.
• Addressing the rising
cost of insurance in
plan design.
•Funding all aspects of
the program
understanding the
impact of current
industry trends.
Determine
appropriate
methods to
recognize
employee
performance and
contributions.
•Understanding
pressures from
organized labor.
Understanding
the impact of
“Generations” in
compensation
decisions.
• The need to have
more employee cost
sharing.
•The need for
flexibility in
addressing
“generational”
differences in both
benefit and pension
design.
•Impact of fluctuating
stock market on
pension design
strategies.
4
•Determining the
“ROI” of all programs
to demonstrate the
impact on effective
recruitment and
retention of staff
required for the
organization to
succeed.
•Proactively
developing strategies
that reduce cost
impacts while
remaining effective.
Total Rewards Philosophy and Strategy
•Compensation Philosophy is a statement of the organization's
Human Resource strategy as it relates to pay and provides a
blueprint to follow in the design and implementation of the
program.
•Successful compensation programs have a formal statement of
compensation philosophy or beliefs.
•These beliefs ensure an alignment between the compensation
program and the success strategy of the organization.
5
Defining a Total Rewards Strategy
• The purpose of various organization compensation programs
and benefit plans
• A statement of how compensation and benefit programs are
intended to support human resources and overall business
objectives
• Provision that establishes a parameter of costs of compensation
and benefit programs
• A statement on whether compensation and benefit programs can
be tailored to meet the needs of individual business units
• Guidelines for communicating compensation and benefit program
objectives
• Requirement for annual review to meet change business and
external market needs
6
Total Rewards Strategy Design Team
• Strategic Planning Professionals
• Tap the expertise of planners so that appropriate performance goals and measures are
included in pay plans.
• Financial Planners and Administrators
• The overall cost of total compensation programs should be determined through joint
efforts of financial and compensation experts.
• Legal Expertise
• Legal staff can add considerable value to compensation strategy design by reviewing
the tax and legal implications of various elements of the total compensation program.
• Human Resource Professionals
• Labor relations, management development and HRIS staff should be involved to
determine the short and long term impact of total compensation decisions on the
overall Human Resource strategic plan.
• Line Management
• Little hope for success if line management is not consulted. They must be comfortable
with all aspects of the program to communicate to staff.
7
Key Components of Total Rewards and Strategic
Decisions Required
• Base
Cash Compensation
• Determining Job Value
– Internal Focus
– External Focus
• Determining Employee Value
– Seniority
– Performance
– Skill/Competency
•Variable Cash Compensation
• Short Term Incentives
– Linkage to Organization
Success
– Linkage to Business Unit
Success
– Linkage to Individual
Success
• Long Term Incentives
– “Golden Handcuffs”
– Need to “Re-Qualify” for
Incentive
•Non-Cash Rewards
• Recognition Programs
8
Key Components of Total Compensation and
Strategic Decisions Required
• Benefits
• Reasons Benefit Programs are Provided
– Legal
» Social Security, Medicare, Family and Medical Leave
» State Workers’ Compensation
• Labor Organizations
– Mandatory subject for bargaining
• Competition
– Be at a disadvantage competitively in the current
marketplace
• Tax Advantages
– Benefits enjoy tax exempt or tax deferred status.
• Employee Desire
– Employees count on benefits
• Support Employer Strategies
– May be more effective than pay in recruiting or
retaining staff
9
Discussion on Total
Rewards Strategy Design
Using Compensation
Strategies to Control
Organization Costs
Linking Strategy and
Compensation
The Balanced Scorecard
Approach
The Balanced Scorecard
Translating Strategy Into Action
Financial
To succeed financially, how
should we appear to our
stakeholders?
Growth
Customer
To achieve our vision and
carry out our mission, how
should we appear to our
customers/community?
Organization
Success
• Objectives
• Measures
• Targets
To achieve our
vision, how do
we sustain our
ability to change,
grow, and
improve?
• Initiatives
Quality
Human Resources
To satisfy our stakeholders
and customers, in what
services must we excel?
To achieve employee
satisfaction, what human
resource programs do we
need to provide/excel?
13
The Balanced Scorecard
Setting Targets/Measuring Performance
Financial
• Operating margins
• Capital budget
Growth
Customer
• Satisfaction
surveys
• Sales/volume
Organization
Success
• New
product/service
development
• Expanded
regions/markets
Quality
• Process
improvement
• Outcome
measures
Human Resources
• Employee
feedback/surveys
14
The Balanced Scorecard Job Content Evaluation
Model
(For Both Traditional Job Analysis or New “One Job per Person” Model)
Financial Accountability
• Direct or Indirect
• Revenue or Expense
Growth
Customer
Accountability
• Direct or Indirect
• Direct or
Indirect
Organization
Success
• Internal or
External
• Internal or External
• Process or
Outcome
Quality
Accountability
Human Resources
Accountability
• Direct or Indirect
• Direct or Indirect
• Process or
Outcome
• Individual or Team
15
The Balanced Scorecard Competency Based
Performance Management Model
Financial Performance
• Utilization of Resources
• Core Competencies Required
Customer
Performance
• Customer
Interactions
• Core Competencies
Required
Quality Performance
• Process
• Core Competencies
Required
Growth
Performance
Organization
Success
• Process
Improvement
• Core
Competencies
Required
Human Resources
Performance
• Teamwork/Interaction
• Core Competencies
Required 16
The Balanced Scorecard
Individual Incentive Model
Financial Performance
•Utilization of Resources
• Outcome or Result
• $ Value
Customer
Performance
•Customer
Interactions
Growth
Performance
• Process
Improvement
Organization
Success
• Innovation
• Outcome or Result
• Outcome or Result
• $ Value
• $ Value
Quality Performance
•Process
• Outcome or Result
• $ Value
Human Resources
Performance
• Teamwork/Interaction
• Outcome or Result
• $ Value
17
Key Compensation Strategies and Their Impact on
Overall Cost Control
•
With a prolonged economic downturn looming, it is important for companies to
carefully manage their compensation expenses.
•
Companies that freeze or cut salaries or pay below market rates will risk losing
valuable employees and will struggle to attract the best new talent.
•
On the other hand, companies that pay too much will risk damaging their financial
health and ability to hire the employees they need to thrive in difficult market
conditions.
•
Key compensation strategies and their impact on overall cost control include:
–
–
–
–
–
Base Salaries
Short Term Incentives
Sales Compensation
Long Term Incentives
Hiring Pay Strategies
Base Salaries
Current Strategies
Future Strategies
•
•
•
•
•
•
General Increases
– Breathing Pay
Traditional Merit Systems
– Performance Level = % Increase
Skill-Based Pay
– Increased Skill = Additional Salary
Freeze Current Pay Levels
– Retention Issues
Reduce Pay Levels
– Retention Issues
– Productivity issues
•
•
•
Link Performance Pay to Range Position
– Reward high performers below the
market
Individual Performance Incentives
– Flat $ Bonus for top 20% Performers
Only
Pay for Competency
– Link Pay Adjustments to
Combination of Increased
Competency and Job Complexity
Decentralize Pay Decisions
– Develop Different Strategies for
Strategic Positions
Short Term Incentives
Current Strategies
Future Strategies
•
•
Gainsharing
– Incentive Funded by a Share of
Gains Between Company and
Employee
•
•
Discretionary Bonus
– End of Fiscal Year Decision
•
Formal Executive/Management/ Staff
Formula Based Programs
– Usually % of Base Pay
•
Goal Sharing
– Incentive Pre-Budgeted Based on
Reality Usually Tied to the Strategic
Objectives
Single Target Annual Incentive
– An Incentive Tied to a Single
Objective That All Have an Impact
On
Simplified Formula Based Incentive Plans
– Limited to 3 - 5 Strategic objectives
– 3 Levels of Accomplishments:
• Threshold
• Target
• Optimum
Sales Compensation
Current Strategies
Future Strategies
•
•
Traditional Base/Quota/Commission
–
Base Pay Set on Market
– Quota Based on "Cost of Sales"
– Commission After Quota Based on %
of Total Sales
Total Compensation as % of Total Sales
Model
1. Determine the Appropriate % of Total
Compensation as Related to Total Sales
2. Determine the Base to Variable Pay Mix
3. Set the Base Pay Equally Among Sales
Levels
4. Move From Commission Focus to
Incentive Focus
5. Establish 3 Incentive Levels:
• Incentives For Minimum Sales Levels
• Incentives for Required Growth
Sales
• Incentives For Extraordinary Growth
Sales
Long Term Incentives
Current Strategies
Future Strategies
•
•
Stock/Equity Driven
–
–
•
Stock Options
Restricted Stock
Long Term Cash Based Incentives
–
–
Cash-Based Phantom Stock Program
–
–
Focus on Retention Issues
Tied to a Vesting Schedule Rather Than
Performance
–
–
–
Stock Grant Equivalent to 50% of Collective Base
Pay of Those Included
Stock Price Set Based on a "Per 1000" Shares
Ratio
• Collective Base Pay of Those eligible =
$500,000
• Stock Price = $500 per Share
($500,000/1000)
Stock Price Tied to Primary Company Growth
Measure (Margin/Cash Flow)
• Non Profits Can Use a Primary Non
Financial Measure
Formula Established: For Every % Increase in
Growth-Stock Price is Adjusted
Stock Usually Held For 5 Years
Hiring Pay Strategies
Current Strategies
Future Strategies
•
Link Years of Service to Pay Range
position
•
Competency Assessment Conduct on
Potential New Hire
•
Determine Start Rate Based on Internal
Equity Review
•
Results Determine Hire Rate
•
Establish Separate Market-Based Pay
Ranges for Market Sensitive/Strategic
Positions
•
Conduct 3-6-9-12 Month Competency
Assessments with Adjustments As
Appropriate
•
Supply & Demand or Market Pressures
•
Usually 1 Year Until next Adjustment
Discussion on Alternative
Strategies
General
Questions/Discussion
Thank You!
Bonus Information
2011 Compensation Planning
Information - WorldatWork
United States Overall
Actual 2009
Projected 2010
Actual 2010
Projected 2011
Mean
Median
Mean
Median
Mean
Median
Mean
Median
1.2%
0.0%
1.6%
2.0%
1.4%
1.0%
1.8%
2.0%
Merit
Increase
1.9%
2.5%
2.7%
3.0%
2.7%
3.0%
2.8%
3.0%
Other
Increase
0.9%
0.5%
0.9%
0.5%
0.9%
0.5%
1.0%
0.5%
Total
Increase
2.2%
2.5%
2.8%
3.0%
3.0%
2.5%
2.9%
3.0%
General
Increase
/COLA
27
Welcome to the World of
Astron Solutions, LLC
Michael F. Maciekowich
National Director
(212) 792-8886
(917) 714-0317 Cell
michaelm@astronsolutions.com
www.astronsolutions.com
505 8th Ave Suite 2200
New York, New York 10018
Overview of Astron Solutions
Astron
Solutions
Total
Rewards
Base PayIncentive
Compensation
Performance
Management
Exit Analysis
Retention
Strategies
Flare™ Web
Based
Solutions
Employee
Opinion
Surveys-360
Surveys
First
Impression
Surveys
E-Learning
FLSA
Performance
Management
Job Description
Writing
Michael F. Maciekowich
Michael Maciekowich is a National Director for Astron Solutions. His areas of expertise include the development, design, and
implementation of executive, physician, and employee total cash compensation and performance management systems in
all industries. His primary focus is the integration of compensation and human resource strategies with organization-specific
missions, visions, values, and strategic operating plans. Michael has twenty-five years of consulting and industry
compensation experience.
Prior to Astron, Michael was the National Director of Healthcare Rewards Consulting and the Metro NY Operations Manager
for Rewards Consulting for the Hay Group. He was a compensation consultant with a number of consulting firms, including
Towers Perrin, Hartstein Associates, Adams, Nash & Haskell, The Omni Group, and Modern Management. He has assisted
over four hundred organizations in his twenty-one year consulting career. Prior to his consulting career, Mike was
responsible for compensation services at the American Hospital Association, Honeywell International, and Zenith
Electronics.
Michael is an active member of WorldatWork (former American Compensation Association), American Society of Healthcare
Human Resource Administration, Society for Human Resource Management, and SHRM’s Consultants Forum. He is also a
member of various local and state human resource associations in Massachusetts, Connecticut, Upstate New York, Greater
New York City, and Louisiana.
Michael is a member of the International Who’s Who of Professionals. He received a lifetime achievement award from
WorldatWork. In May 2003, Michael was interviewed by SHRM's HR Magazine regarding the successful design and
implementation of an innovative, self-funded incentive plan in a non-profit healthcare organization. In 2004 Astron Solutions
was recognized by the American Association of Healthcare Human Resource Administration with a “Best Practices Award"
based on Michael's work in developing innovative career-path programs for healthcare workers. Michael received a
bachelor’s degree in political science / philosophy and a master’s degree in industrial relations from the Loyola University of
Chicago.