Developing & Implementing a Compensation Structure

What is the question?

April 20, 2010

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Discussion Points     

Philosophy Total Rewards Elements Company Statistics Compensation Basics Communication

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Philosophy  Do you want to have a philosophy?  What do you want to accomplish with your rewards & recognition program(s)?  Link to company’s mission & values?  Link to Talent objectives / needs?  Link to Performance?  Do you want to pay at Market, below, above?  What else?

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Rewards & Recognition Philosophy Example A Rewards and Recognition Program that supports our performance culture that aligns individual performance with the achievement of our business goals and individual rewards. Employees who perform at higher levels receive greater rewards.

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Compensation Basics  Market     

Surveys Analysis Ranges Geographic differentials/zones Minimum wage rates

 Job Evaluation  Salary Analysis  Hiring; promoting; equity

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Total Rewards & Recognition Elements Benefits

Spot Awards

Base Salary

Safety Awards

Commissions

SPIFFS

Service Awards Bonuses / Incentives

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Total Rewards & Recognition Elements - Competitors

In du B u e s z i s t S I r n y y n e a s p – s y n m a m un Ho w Co ” I t n t e r e f s if

Who are your “d u o y o d s n u o i ito s o p y competitors? o ? d e e v a r h e h L ? o W ui t c a r t c i o re n

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Total Rewards & Recognition Elements - Positions  List of all positions  Basic job description to be used to match surveys  Evaluation system  Various – point factor, internal equity, market  Use market for today’s examples

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Total Rewards & Recognition Elements – External Equity  Competiveness     

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Total Compensation Base Salary Incentives Commissions – $ per lease, % of lease value Mix – lower base and higher incentive

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Market Comparisons / Mix

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Other Considerations  Minimum Wage Rates  National - $7.25 http://www.dol.gov/dol/topic/wages/minimumwage.htm

 States Vary

 Geographic Differentials  Impact on Pay  References:  NMHC survey  ERI (Economic Resources Institute) http://

www.erieri.com/

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NMHC

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Base Salary Issues  Attract, Retain, Motivate  Competitive Pay Level  Pay for Results (Performance), Knowledge, or Team Membership

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Base Salary Issues    

Pay for Job or Person (Skill Sets) Performance: Team Role Control vs. Decentralize Lateral vs. Vertical Movement

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Questions, Questions and More Questions . . .      

Affordable vs. conventional Transaction vs. operations Accountant vs. community manager Degree required vs. no degree Sales vs. non-sales Internal customer service vs. external customer service  Union vs. non-union

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Compensation Structures  Kinds of structures unlimited  Driven by several factors:  Company size  Objective  Positions – career path

ONE SIZE FITS ONE 4/20/2010

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Pay Structures – Traditional Example Grade

Minimum

25th

Midpoint

75th

Maximum

6

$12.00

$13.00

$14.00

$15.00

$16.00

5

$10.80

$11.60

$12.40

$13.20

$14.00

4

$9.80

$10.40

$11.00

$11.60

$12.20

3

$9.00

$9.45

$9.90

$10.35

$10.80

2

$8.40

$8.75

$9.10

$9.45

$9.80

1

$8.00

$8.25

$8.50

$8.75

$9.00

Entry Newly Promoted

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Market

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Highly Experienced SME

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Structure Examples Traditional $ P A Y

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Grades 4/20/2010

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Pay Structures – Modified Traditional Example Grade

Minimum

1st Third

2nd Third

Maximum

6

$12.00

$13.00

$15.00

$16.00

5

$10.80

$11.60

$13.20

$14.00

4

$9.80

$10.40

$11.60

$12.20

3

$9.00

$9.45

$10.35

$10.80

2

$8.40

$8.75

$9.45

$9.80

1

$8.00

$8.33

$8.66

$9.00

Entry Newly Promoted

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Market

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Highly Experienced SME

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Structure Examples Modified Traditional $ P A Y

1

2

3

4

5

6

7

8

9

10

11

12

13

14

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Pay Structures – Band Example Band

Minimum

Maximum

4

$18.00

$40.00

3

$13.00

$24.00

2

$9.80.

$16.00

1

$8.00

$10.80

Entry Newly Promoted

1

2 3

Market

4

Highly Experienced SME 4/20/2010

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Structure Examples Band $ P A Y

1

2

3

4

5

Band 4/20/2010

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Pay Structures – Step Example

Steps can be earned by tenure, demonstrated experience , specific skills, certifications or any combination of these..

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Pay Structures – Position Example Position

Minimum

Midpoint

Maximum

Tech

$9.00

$10.00

$11.00

Leasing Consultant

$7.25

$8.00

$8.75

Bookkeeper

$12,000

$15,000

$18,000

Community Manager

$35,000

$50,000

$65,000

Regional Property Manager

$50,000

$70,000

$90,000

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Pay Structures – Position Example

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Pay Grade Development The salary and grade structure is reflective of the internal equity, external equity and individual equity of the organization. This combined with your willingness and ability to pay, determines the career ladder that will give us the appropriate allocation of pay dollars across all job categories.

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Pay Grade Development

Minimum

Midpoint

Maximum

Entry Level

Fully Competent

Extraordinary Skills

New and Performance undetermined

Fully Satisfactory Performance

Superior Performance

Inexperienced

Market competitive

25th

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Seldom Used

75th

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NHMC Data

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Data Selection  Surveys       

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Many available Select to fit your need Compensation Data Industry Function Policy Data Metrics

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Survey

Area

Type

NMHC – National Multi Housing Council (Towers Watson)

National

Apartment Professionals

NAREIT – National Association of Real Estate Investment Trusts (FPL & Assoc)

National

Executive, Global, Senior Management, Corporate Services, Asset Management, Capital Markets, Construction, Development, Engineering/Security, Investments, Leasing, Marketing, Property Management, Technology, Transactions

Towers Watson – Reports Package Comp Data Bank

National

General Executive, Accounting/Finance, Human Resources, Information Systems, Administrative Services, Marketing, Property Management, Security, Maintenance, Brokerage & Leasing, Legal, Business Development, Acquisitions & Asset Management, Construction, Real Estate Appraisal

National Real Estate (CEL & Assoc)

National

Corporate, Office/Industrial, Residential, Retail

Mercer – Benchmark

National

Executive & Non-Executive

MSEC – Mountain States Employers Council: Front Range & IT

Colo

Executive, General Support, Financial, Human Resources, Legal, Sales/ Marketing, Engineering, Scientific & Technical, Maintenance & Facilities, Procurement/Material Handling, Information Technology

RIMS – Risk & Insurance Management Society

National

Risk Management; Claims

Empsight

National

Legal

ACR – American Compensation Resources Inc: Tax Planning & Tax Compliance

National

Global, Domestic, International, Sales/Use/Property,

ACR – American Compensation Resources Inc: Investor Relations

National

Investor Relations, Shareholder Services

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Survey Data What information are we going to use?

1. What positions? a. All b. Benchmark positions

2. Philosophy a. Average / Mean b. Median c. 75th ile

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NHMC

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Example – Maintenance Positions

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NMHC Survey All Orgs.

Base Salary

Total Comp

Position

Weighted Avg

50th Percentile

Weighted Avg

50th Percentile

Maintenance Tech

$31,900

$31,300

$32,700

$32,500

Make Ready

$28,900

$28,500

$29,800

$29,100

Groundskeeper

$23,700

$22,500

$24,400

$23,100

Painter

$30,400

$29,500

$31,100

$30,300

Next step is charting or graphing.

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Survey Data  When conducted  When needed  Adjust for market movement by: Aging the Data

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Survey Data – Aging the Data  Three stances:  Lead – Lead  Lead – Lag  Lag - Lag

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Collect & Analyze Survey Data

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Survey Data - Midpoint  Regression analysis (linear trend line)  Best-fit straight line that is used with simple linear data sets  Pay and Assigned grade or position

 Estimate  Use the charted data and draw the line.

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Collect & Analyze Survey Data - Midpoint Trendline

Drawn Midpoint

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Survey Data - Range  Basic Considerations  In deciding the range from min to max – think about the time you would expect someone to stay in the range.  The shorter the time, the closer you would pay to

market at hire or promotion.  The longer someone is in a position, the greater the range from min to max

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Pay Structures – Traditional Example Grade

Minimum

25th

Midpoint

75th

Maximum

Range Spread

6

$12.00

$13.00

$14.00

$15.00

$16.00

33.33%

5

$10.80

$11.60

$12.40

$13.20

$14.00

29.6%

4

$9.80

$10.40

$11.00

$11.60

$12.20

24.5%

3

$9.00

$9.45

$9.90

$10.35

$10.80

20%

2

$8.40

$8.75

$9.10

$9.45

$9.80

16.67%

1

$8.00

$8.25

$8.50

$8.75

$9.00

12.5%

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Collect & Analyze Survey Data - Range Development Maximum 75% Midpoint 25% Minimum

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Actual Pay Data – Next Step 1. Match all incumbents against the Market Data for their position. 





Watch for variances between job families and/or skill level.

Are your maintenance techs paid closer to market than your community managers?

Are the property level employees paid below market and your corporate level employees paid above?

2. Calculate the difference (dollars & percent) between actual pay and market pay.

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Collect & Analyze Survey Data - Actual Pay Maximum 75% Midpoint 25% Minimum

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Actual Pay Data – Next Step 3. Calculate the difference (dollars & percent) to appropriate pay based on performance / skill. 





For instance, you may not need to increase a new hire’s salary automatically to the midpoint.

Your SME may need to be paid in the upper portion of the range and may need a larger increase.

If your philosophy includes a performance factor, make sure you have all the performance ratings available.

4. Compile research from various surveys on projected merit and structure increases.

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Survey - Market Projections

Survey

Area

Type

NMHC – National Multi Housing Council (Towers Watson)

National

Apartment Professionals

Towers Watson

National

Increase Projections

World at Work

National

Salary Budget Questionnaire

The Conference Board

National

Salary Increase Survey

MSEC – Mountain States Employers Council: Planning Packet

Colorado

Salary Budget/Increase Questionnaire

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Actual Pay Data – Next Step 5. Compare the market research % against your internal calculated %.  



How close are they?

If you applied the projected market range increase, what is the $ impact?

What is your budget?

5. Decision point

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Actual Pay Data – Next Step 7. Budget is approved – How do I allocate the money? 

One approach – everyone gets the same amount, OR

8. Performance Based 

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Dollars are allocated to:  Top Performers  High Potential  Position in Range Compensation is the Answer

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Merit $ Allocation Example Potential Codes Performance Rating

1

2

3

4

5

Up to 2.5%

0%

Up to 3.25%

Up to 2%

0%

Outstanding

Up to 6% Up to 5% Up to 4%

Exceeds

Up to 5% Up to 4%

Full

Up to 4%

Up to 3.25%

Up to 2.5%

Up to 1.5%

0%

Improvement Expected

0%

0%

0%

0%

0%

Unacceptable

0%

0%

0%

0%

0%

Too New to Rate 4/20/2010

Too New to Rate

Up to 2%

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Merit $ Allocation Example Range Penetration Performance Rating

Min to 25%

25% to 50%

50% to 75%

75% to Max

Over Max

Up to 2.5%

0%

Up to 3.25%

Up to 2%

0%

Outstanding

Up to 6% Up to 5% Up to 4%

Exceeds

Up to 5% Up to 4%

Full

Up to 4%

Up to 3.25%

Up to 2.5%

Up to 1.5%

0%

Improvement Expected

0%

0%

0%

0%

0%

Unacceptable

0%

0%

0%

0%

0%

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Too New to Rate

Up to 2%

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Merit $ Allocation Example  Pay below Minimum  More frequent increases (every 9 months versus 12 months)  Increase to minimum

REMEMBER TO PAY ATTENTION TO MINIMUM WAGE

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Merit $ Allocation Example  Pay over Maximum  No Increase  Lump Sum  Increase

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Other Options to Merit Allocations  Stretch time between increases  Adjust time between increases based on performance  Outstanding performance – 10 months  Exceeds performance – 12 months  Meets performance – 15 months

 Delay range adjustment  Adjust “Aging” factor 4/20/2010

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Communication  What are we communicating?  Job title?  Grade?  Range structure – minimum, midpoint, maximum?  Pay ?  Opportunity for advancement?  Career paths?  More?

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Communication  Several Forms         4/20/2010

Town hall Webcasts Group Meetings – HR, Manager, Sr Management One-on-one meetings Pamphlets Booklet Flyer Company Newspaper Compensation is the Answer

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Communication

PRIORTY 4/20/2010

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Other Considerations  Total Rewards  Cash + Benefits

 Benefits  Health & Welfare  Retirement  Defined Benefit & Defined Contribution (401 (k))

 Paid Time Off  Others (e.g., perquisites, alternative work arrangements, etc.)

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“Usually, keeping a plan simple is stupid.�

Ed Lawler

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Compensation works best when…

IT DOESN’T GET IN THE WAY!

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Questions 4/20/2010

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For follow up questions, please feel free to contact us at: Marc M. McBrearty, CCP North American Leader, Data Services

Sherlyn Keiling, CCP SPHR Multi-Family Compensation Consultant

Towers Watson Data Services 218 Route 17 North Rochelle Park, NJ 07662

9734 Raleigh St Westminster, CO 80031

T +1 201 843 1177 D +1 201 226 3405 M +1 201 921 8850 F +1 201 843 1764 dataservices.towerswatson.com

+1 303-887-4486

4/20/2010

Sherlyn.keiling@gmail.com

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