Laying the Foundation for Your Compensation Strategy

Q&A Session – A Guide to Laying the Foundation for Your Compensation Strategy

Questions and Answers from Our Compensation Strategy Webinar

The following is a transcript of the question and answer session that followed PayScale’s webinar, A Guide to Laying the Foundation for Your Compensation Strategy. The topics covered in these questions include strategic compensation planning, red circling, and determining salary ranges. Answers are provided by PayScale’s webinar leader and director of customer service and education, Stacey Carroll, M.B.A., SPHR.


Q: What are the typical HR resources required to start up a compensation program where none exists?

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A: In addition to thinking about your compensation philosophy, it is important for you to have access to salary market data. This provides information about your competitive set and what it’s doing for particular jobs that you’re wanting to benchmark in your organization. Accurate salary market data is certainly key.
You may also want to create a compensation program which combines similar jobs into pay bands. And if that’s the case, then you’re going to want a tool or resource that helps you group jobs within certain bands. Some common examples include things like point-factoring or hold-job classification systems.

When you’re calculating turnover ratio, what are the variables that you look at?

When you’re looking at employee turnover ratio, not only are you going to want to look at your turnover in terms of people who leave the organization, you also want to break that down into voluntary resignation versus involuntary – in other words, you asked them to leave.
You also want to look at retirement, and wherever possible, you want to do some workforce forecasting.

If you have employees that are above the maximum for their job’s salary range, how do you address this?

In a best case scenario, you red circle those employees and wait until the market catches up. Some organizations I’ve worked for did not feel comfortable doing that, in which case you can keep giving that person the scheduled increases that they’re eligible for.
The other idea, which is sort of a partial implementation, would be to break out employee incentives between merit increases and standard cost of living adjustments, and only give red-circled employees costs of living adjustments, not market adjustments.

What pitfalls should one consider when creating a compensation strategy in a retail environment?

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A:  The retail industry has to deal with the complexity of very high employee turnover and, probably, a large portion of the workforce being paid on the lower-end of the pay scale. This adds some additional complexity in terms of complying with all sorts of minimum wage laws, as well as looking at ways to possibly decrease employee turnover if it could have an effect on your bottom-line.
In addition, retail positions could be more susceptible to market fluctuations, such as what’s happening in our economy right now. So it’s really important to decide how you want to handle these factors, and whether you want to respond, or ride them out.

Q:  What position evaluation factors do you recommend?

A:  If you’re going to use something across the board within your organization, then you need to stick to those position factors that can be applied to most positions. So, whether it’s decision-making authority or mental demands, it’s really important to choose those things that can be applicable to many different areas.

Q:  Are books on strategic compensation relevant given the most recent changes in the economy?

A:  Handling compensation issues ultimately comes back to having a good compensation philosophy and having a good program. Those factors are not dependent on the current economic condition and always need to be there. That said, you need to decide how much you’re going to respond to what’s happening in the economy right now.

Q:  Do you have any advice on assessing executive or leadership compensation plans?

A:  This is a tough area, and this new economic environment has made it even tougher. The best compensation strategy would be to use external assistance and there’s a reason for that; this can be very political, and it’s best to use an outside HR consultant.
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