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Salary Administration Procedures

Webinar
March/April 2011

What are Salary Administration Procedures?


Formal, documented approaches for:
Day-to-day management of compensation program; and
Defining authority and steps for making decisions
regarding staff pay.

Why Salary Administration Procedures are Useful


Involves formal review of options, with management
discussion and approval of desired approaches
Establishes clear authority for decision-making with
regard to staff salaries
Supports consistent and equitable approaches across the
organization
Promotes greater understanding among all staff with
respect to salary actions

Followed consistently, can help reduce potential risk of


claims of unfair pay practices
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Establish Authority for Salary Administration


Chief Staff Executive
Final Authority
Deputy Executive
COO
Chief of Staff
Day-to-Day Approval
Human Resources Director
Review & Recommendation

Instant Poll #1
How many webinar participants have adopted a formal
compensation philosophy?
Reviewed/ approved by Board of Directors
Understood and communicated by senior management

Set and Articulate Compensation Philosophy


Affirmation of mission
Definition of peer organizations
Discussion of criteria for comparisons to local market:

Geographic location
Industry sector
Tax status
Revenue size

Targeted position relative to market:


Consistent for all positions?

Elements and mix of compensation:


Balance of base pay and benefits
Appropriateness of incentives
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Example #1 Compensation Philosophy


Organization Mission: Global medical research
Peers: Research institutions; biotech/pharm; NFPs
Market Criteria:

Geographic: Global influence, New York City-based

Industry Sector: Medical/scientific research; biotech/pharm


Tax Status: Not-for-Profit, but competes with for-profit
Revenue Size: $25 million

Market Target:

60th percentile for executive/senior scientific research staff


50th percentile for all other staff

Mix of Compensation:

Balance of base salaries and benefits position total compensation between 50th
and 60th percentile of market
Incentives available to senior executives to position total compensation between
60th and 75th percentile.
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Example #2 Compensation Philosophy


Organization Mission: Global relief and development
Peers: Human service, economic development NGOs
Market Criteria:

Geographic: Global influence, DC-based, international regional offices

Industry Sector: Human services, disaster relief, economic development


Tax Status: Not-for-Profit
Revenue Size: $60 million

Market Target:

50th percentile for all US-hire staff


Local market value for local hires

Mix of Compensation:

Balance of base salaries and benefits position total compensation between 45th
and 55th percentile of market
Incentives not considered to be consistent with mission and culture

Components of Compensation Program


Job descriptions the foundation of an effective
compensation program
Job evaluation formalized process to establish internal
value of jobs for purposes of classification into grades
Salary ranges established through market analysis to
assure pay opportunities consistent with market for
comparable responsibilities, skills and experience.

Instant Poll #2
What salary administration procedures are of most
interest to you?

Setting salaries at hire


Approaches to annual salary increases
Salary actions for promotions
Special salary adjustments (equity adjustments, adjustments to
minimums, demotions, etc.)
Pay for temporary duty assignments
Other please specify

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Common Salary Administration Procedures


Setting hiring salaries
Regular salary review
Promotions
Special adjustments

Adjustments to new range minimums


In-grade salary adjustments
Equity adjustments
Demotions

Temporary duty assignments


Special recognition
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Setting Salaries at Hire


Who makes decision? Hiring manager? HR?
Typically, hiring range is between minimum and midpoint
of salary grade for the position
Take into account incumbents experience
Additional education beyond minimum requirement
Directly-related experience minimizing learning curve
Prior supervisory, team leader or management experience

Consider salaries paid to existing staff members with


comparable skills and experience
Exceptions require additional review/approval, based on
legitimate business need
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Annual Salary Review


When?

Why?

Common Date fiscal or calendar year


Employee Anniversary Date
Recognize longevity
Reward performance

How?

General increase same % across the board


Merit pay - % differentiated by performance rating
Lump sum one-time payments given instead of base increase
Combination approach

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Instant Poll #3
What approaches does your organization take toward for
annual increases?
Common date or Employee Anniversary date?

Pay for Service or Pay for Performance?


General increase?
Merit increase?

Lump sum in lieu of base salary increase?


Combination

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Common Date vs. Anniversary Date


Common Date

Employee Anniversary Date

Advantages

Advantage

1. Promotes linkages between


individual and organizational
performance results.
2. Allows supervisors to evaluate the
contributions made by all staff
members at the same time.
3. Supports differentiation on the basis
of performance.

1. Allows supervisor time to focus


attention on one employee at a time.

Disadvantage
1. Time required to prepare/conduct
multiple evaluations.

Disadvantages
1. Performance results may be off
cycle, not giving full picture.
2. Requires greater focus on tracking
individual performance to assure fair
ratings for all employees.
3. May result in overspending of merit
budget early in the year.
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General Increases vs Merit Pay


General Increases

Merit Pay

Most often used in nondifferentiating organizations all


employees contribute to our success
Organization may rely on behavioral
aspects of performance, rather than
individual accomplishments.
Reduces burden on managers to
document and justify differences in
performance ratings
Reduces motivation in highperforming staff

Establishes greater rewards for high


performing staff
Recognizes the achievements of
individuals in support of
organizational goals.
Requires strong performance
appraisal system to document
individual objectives, measures and
results.
Requires managers to track progress
and manage to results.
Typically results in higher-performing
organization overall.
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Sample General Increase Guideline


All employees who are rated as Meets Expectations will
receive a base salary increase at the percentage
determined each year by XYZ organization, based on
available finances.

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Sample Merit Pay Matrix


Performance Rating Level

Merit Increase Paid

Far Exceeds Expectations

4.5% to 5.0%

Exceeds Expectations

3.0% to 3.5%

Meets Expectations

2.0% to 2.5%

Needs Improvement

0%

Unsatisfactory

0%

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Why Use Lump Sum Payments?


Encourages managers to accurately assess performance
against desired results
Recognizes significant contributions made by highperforming staff
Limits the impact of extra reward dollars on payroll and
benefits budget

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Sample General Increase with Lump Sum


Performance Rating Level

General
Increase
2%

Lump
Sum 1
3%

Total

Exceeds Expectations

2%

1.5%

3.5%

Meets Expectations

2%

0%

2%

Needs Improvement

0%

0%

0%

Unsatisfactory

0%

0%

0%

Far Exceeds Expectations

5%

Recommended by manager, approved by senior management.


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Promotions
Define Term: Assumption of distinctly higher-level
responsibilities, resulting in an increase in pay grade.
New title not necessarily required

Identify How Increase Determined:


Increase to at least minimum of the new pay grade
Increase above minimum may depend on:
Timing of promotion in relation to annual salary review
Qualifications in relation to other staff in the new grade

Approved by senior management but in no case will exceed xx%

Define Timing and Limits:


Restricted to annual salary review, or any time during the year
May not be promoted again for at least 12 months

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Special Adjustments
New Range Minimum: When salary ranges updated, assures
staff brought to at least new range minimum
Identify if that is before or after any annual increase is applied

In-Grade Adjustment: Assumption of additional duties that


expand role, but dont warrant promotion.
Adjustment within current range, not to exceed xx% (e.g. 5%)

Equity Adjustment/Reclassification: No change in duties, but


market data suggests higher pay warranted.
Increase within current grade, or reclassification to higher grade

Demotions: Usually based on performance issues, position is


lowered in salary grade
If salary above new range maximum, is it reduced or red circled?
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Temporary Duty Assignments


Define Eligibility: Long-term assumption of duties of
another position expected to last a minimum of six weeks
or more in cases of:
Long-term absence (FMLA, parental leave, etc.)
Vacancy

Identify How Paid:


Salary supplement throughout assignment; or
Lump sum payment at successful completion of assignment

Pay Basis:
Percentage of employees base salary
Percentage of covered positions base salary

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Special Recognition
Do you offer?

Meritorious Achievement Award


Discretionary bonuses
Spot Awards
Service Awards
Other cash or non-cash recognition awards

Define eligibility
Establish limits

Dollar limits
Managements sole discretion
Based on available finances
Discontinued at any time with or without notice
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How to Communicate
Once adopted, salary administration procedures should
be communicated:
To Supervisors/Managers assure all staff with supervisory
responsibility who hire, review and develop staff are provided
copies of complete procedures manual.
Non-Supervisory Staff should receive a summary of key
components of the procedures:

Compensation Philosophy
Hiring Salaries
Annual Salary Review
Process/Timing for Requesting Salary or Job Classification Review

Update and reinforce regularly


Maintain on company intra-net
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Questions?
Contact:
Jim Rocco, Principal Consultant
Larry Beers, Lead Consultant
JER HR Consulting LLC
36 W 44th St.
Suite 707A
New York, NY 10036
646-453-7560
jerocco@jerhrconsulting.com
lfbeers@jerhrconsulting.com
http://www.jerhrconsulting.com
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