Solving the Compensation Puzzle: Putting Together a Complete Pay and Performance System »

Sharon K. Koss, SPHR, CCP is the president of Koss Management Consulting and a member of the Society for Human Resource Management. She lives in Seattle.

Whether creating a new system or filling in the gaps in an established business, this resource acts as a practical tool for dealing with compensation in the workplace. Linking pay and performance, this guidebook demonstrates how to improve a salary administration program and includes facts sheets, templates, and sample forms that can be customized to meet each organization's unique requirements.

Preface and Acknowledgements xi

Introduction: A Step-by-Step Guide to Designing a Pay-for-Performance System 1

What Is in This Book? 1

Whit Is Not in This Book? 2

Chapter 1 A Historical Look at Pay for Performance 5

Major Labor Market Trends 5

Workforce Trends: Generations Working Side by Side 7

Multicultural Issues 9

No Middle Class-The Haves vs. The Have Notes 9

Now What? 10

Chapter 2 Is Pay for Performance Worth the Trouble? 11

Components of a Successful Pay-for-Performance System 12

Organizational Metrics to Gauge Readiness for a Pay-for-Performance Ban 13

Myths and Facts About Merit Pay 13

Best Practices in Pay for Performance 14

Public Sector and Non-profit Organizations 15

Real-Life Example: A Tale of Two Cities: The Importance of Top Management Support 16

Compensation Boot Camp: Concepts and Definitions 19

Sanity Suggestions 20

Chapter 3 Compensation's Role in Human Resource Strategy 21

Engaging Key Stakeholders to Support the Compensation Strategy 21

The Payoff of a Pay-for-Performance Compensation Strategy 24

Important Considerations in Designing a Compensation Strategy 25

Goals for the Pay-for-Performance System 29

12 Steps for Designing a Pay-for-Performance System 29

How to Conduct a Successful Employee Survey 33

Real-life Example: The Case Study of the Dog Shelter Where Its Bark Was Worse than HP Bite 34

Compensation Boot Camp: Concepts and Definitions 35

Sanity Suggestions 35

Chapter 4 The Pay-for-Performance Foundation 37

The 500-Foot View: Where Are We Going? 37

Sticky Design Issues 41

What Are the Best Resources? 41

When Is an Employee Design Team Not Appropriate?43

Compensation Policy Decisions 45

Pay Secrecy in Private-Sector Companies 47

The Case of Pay Secrecy: The Need-to-Know Theory 47

What Is Salary Compression? 48

Can Pay Compression Be Resolved? 48

Managing Pay for Performance in Financial Downturns 48

Create a Three-Year Strategic Plan for Compensation and Benefits 49

Transformational vs. Transactional Upgrades 50

Real-Life Example: Swimming with the Sharks 51

Compensation Boot Camp: Concepts and Definitions 51

Sanity Suggestions 52

Chapter 5 How to Write a Job Description 53

Common Uses for a Job Description 53

Simplifying the Process of Writing Job Descriptions 53

Enhancing the Quality of Job Descriptions 55

Gathering Job Description Information 56

Tips for Writing Job Descriptions 56

Suggestions for the Supervisor Review Process 57

Common Issues that Arise During the Supervisor Review 58

The Necessity of Management Approval 59

Editing the Job Description: The Final Check 59

The FLSA Puzzle: Is the Position Non-Exempt or Exempt? 62

Job Descriptions and the Americans with Disabilities Act (ADA) 64

How to Keep Job Descriptions Up-to-Date 65

Employee Job Description Input Form 65

Real-Life Example: The Case of the Fishing Company Managers Who Hated Paperwork 66

Tips and Takeaways 66

Compensation Boot Camp: Job Description Terms and Job Analysis Methods 67

Sanity Suggestions 67

Chapter 6 Make Sure Employees Are in the Right Salary Range 69

External Equity-The Market Study 69

How to Prepare for a Market Study 69

Major Sources of Salary Information 71

How to Make the Salary Survey Decision 75

How to Use Salary Survey Information 77

How to Match the Organization's Jobs to Its Pay Surveys 77

Market Survey Tips 78

Matching Jobs Like a Compensation Professional 78

Example 79

Quality Assurance: The Critical Last Step 79

Make Sure the Salary Plan Fits the Organization 80

Internal Equity Challenges 81

Real-Life Examples: The Case of the Complex Collection 81

The Case of the Difficult Blood Draw 81

The Case of the Life-Saving Social Worker 81

Steps for Completing an Internal Equity Review 82

Job Ranking 83

Real-Life Example 83

Point-Factor Internal Equity System 83

Point-Factor System Advantages and Disadvantages 84

Steps for Designing a Point-Factor System 85

How to Create Salary Grades 86

Pay Range Widths: What Do You Need to Know? 87

Progression Between Salary Grades 88

Real Life-Examples: The Case of a Nice Title, But No Raise 89

The Tale of the Housekeeper vs. Janitor Market Pay 89

The Case of the Mysteriously Underpaid Tech Support Department 89

Compensation Boot Camp: Terms: Market Study 90

Sanity Suggestions 91

Chapter 7 Performance Appraisal: An Essential Step to Pay for Performance 93

Where Do We Stand? 93

What Is the Bottom Line? 94

Coaching-A Unique Opportunity to Change an Employee's Life 97

Real-Life Examples: The Case of the 20-Something Employee 97

The Case of the Drinking Employee 98

Steps far Making the Final Link to Pay for Performance 101

Real-Life Examples: The Case of the "Drive-thru Performance Appraisal" 104

The Once-in-a-Lifetime Thank-You 104

Sanity Suggestions 105

Chapter 8 How to Design, Update and Maintain the New Compensation System 107

How to Update a Salary Han for New Jobs 107

Real-Life Example: The Case of the Manager's Clever Work Around for More Employee Pay 108

Salary and Benefit Information as Part of the Annual Budgeting Process 108

Compa-ratio Examples 111

Administration of the New Compensation System 111

Promotional Adjustments 113

Approvals of Compensation Decisions 114

Maintaining the Pay-for-Performance Link in Hard Times 114

Real-Life Example: The Case of the Employees in the Wrong Place 115

Compensation Boot Camp: Compensation Administration Terms 117

Sanity Suggestions 118

Next Steps 118

End Notes 119

Index 149

About the Author 155

Figures 155

Figure 1 Key Stakeholders of a Pay System 22

Figure 2 Market Position Choices 25

Figure 3 Pay Policies: Advantages and Disadvantages 30

Figure 4 Roles for Employee Compensation Committee 43

Figure 5 Work Plan for a Small Company in a Mid-size City 44

Figure 6 Salary Survey Market Data Choices 70

Figure 7 Relevant Labor Market 70

Figure 8 Three Major Types of Salary Survey Choices 72

Figure 9 Suggested Annual Salary Increase Guidelines for FY 2009 104

Figure 10 Compensation Forecasting & Budgeting Process 117

Tools

Tool 1 Compensation Philosophy Questionnaire 121

Tool 2 Employee Guidelines for Writing Excellent Job Descriptions 122

Tool 3 Action Verb Examples 124

Tool 4 Job Description Questionnaire (Non-exempt) 125

Tool 5 Job Description Questionnaire (Exempt) 126

Tool 6 Completed Job Description Questionnaire (Exempt) 128

Tool 7 ABC Company Official Job Description (Exempt) 130

Tool 8 Job Description Resource List 132

Tool 9 Part A: Market Survey Summary Sample 133

Tool 9 Part B: ABC Company List of Exempt Jobs by Grade 134

Tool 10 Sample Salary Range Structures 135

Tool 11 ABC Company Salary Administration Manual 138

CD-ROM Tools

Tool 1 Compensation Philosophy Questionnaire

Tool 2 Employee Guidelines for Writing Excellent Job Descriptions

Tool 3 Action Verb Examples

Tool 4 Job Description Questionnaire (Non-exempt)

Tool 5 Job Description Questionnaire (Exempt)

Tool 6 Completed Job Description Questionnaire (Exempt)

Tool 7 ABC Company Official Job Description (Exempt)

Tool 8 Job Description Resource List

Tool 9 Part A: Market Survey Summary Sample

Tool 9 Part B: ABC Company List of Exempt Jobs by Grade

Tool 10 Sample Salary Range Structures

Tool 11 ABC Company Salary Administration Manual

Tool 12 How to Achieve a Successful Employee Survey

Tool 13 Completed Job Description Questionnaire (Non-exempt)

Tool 14 ABC Company Official Job Description (Non-exempt)

Tool 15 Sample Point-Factor System

Tool 16 Sample Custom Salary Survey

Tool 17 Sample Performance Appraisal #1

Tool 18 Sample Performance Appraisal #2

Tool 19 How to Deliver Quality Performance Appraisals

Tool 20 Compensation Survey