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Salary Administration Procedures

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
Promotes greater understanding among all staff with
respect to salary actions

Followed consistently, can help reduce potential risk of

claims of unfair pay practices

Establish Authority for Salary Administration

Chief Staff Executive
Final Authority
Deputy Executive
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

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.

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


Common Salary Administration Procedures

Setting hiring salaries
Regular salary review
Special adjustments

Adjustments to new range minimums

In-grade salary adjustments
Equity adjustments

Temporary duty assignments

Special recognition

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

Annual Salary Review



Common Date fiscal or calendar year

Employee Anniversary Date
Recognize longevity
Reward performance


General increase same % across the board

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


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?



Common Date vs. Anniversary Date

Common Date

Employee Anniversary Date



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.

1. Time required to prepare/conduct
multiple evaluations.

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.

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
Requires managers to track progress
and manage to results.
Typically results in higher-performing
organization overall.

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.


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





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


Sample General Increase with Lump Sum

Performance Rating Level


Sum 1


Exceeds Expectations




Meets Expectations




Needs Improvement








Far Exceeds Expectations


Recommended by manager, approved by senior management.


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


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?

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.)

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


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

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

Jim Rocco, Principal Consultant
Larry Beers, Lead Consultant
JER HR Consulting LLC
36 W 44th St.
Suite 707A
New York, NY 10036