In Trinity’s December HRMM article we provided our views on the first 6 of the 15 questions from our November HRMM article.
- These 15 questions are ones that your organization’s senior leadership team should periodically review about its compensation strategy and the related plans, policies and practices
In this article, we’ll provide our responses to the remainder of the 15 questions.
RESPONSES
7) Should we have a single target for all jobs or different targets for selected jobs?
- We believe that an organization should identify certain positions for which the targeted %ile to the market place exceeds its normal target. As stated previously, the most common target is the 50%ile.
- In identifying these positions, we suggest that you consider ones which are:
- n high demand in the market place
- Of special significance to your organization
- One of a kind positions requiring an unusual skillset
- Held by key contributors
8) Where is our actual compensation in comparison to our target?
- When Trinity establishes salary ranges, we calibrate the midpoint of the range to be aligned with the client’s market target. As a general guideline, a fully competent incumbent should be around the midpoint of their salary range.
- In the absence of formal salary ranges reflective of the market place, it is recommended that the 50th %ile of the market be the general target, with the actual salary being somewhere between somewhat below to somewhat above it.
- For an exceptional incumbent, some place between the 50th %ile of the range (or market) and the 75th %ile is appropriate. In some instances, compensation at or even above the 75%ile is also appropriate.
9) Which is better—higher salaries or higher incentive pay?
- Trinity believes that the answer can be found by looking at several things, such as:
- An analysis of an organization’s actual base pay in comparison to its marketplace target.
- A review of its total cash compensation (fixed plus variable pay, but excluding benefits & perquisites [“perks”]) relative to market data.
- Payroll expenses by type & in total—in recognition that base pay impacts expenses differently in that it has a carry forward effect.
10) Which positions should be eligible for incentive compensation?
- Again, it is dependent upon an organization’s pay philosophy. However, here is some information to help guide you:
- Throughout this decade, the practice has been to extend incentive compensation to positions beyond the executive level. Most commonly, managerial and supervisory positions have been included. It is not unusual for positions in the professional category to be included as well.
- We’ve done work with companies to have all employees eligible for incentive compensation.
11) Does one type of incentive compensation work best for all those eligible?
- Although it can, it is more common for there to be at least 2 different plans.
12) What’s the right mix between base pay and incentive pay?
- For incentive eligible positions, the answer depends upon an organization’s overall pay philosophy. It is vitally important for your organization to get right the mix between fixed (salary) & variable (bonus) compensation.
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13) Should we use a short-term or long-term incentive pay plan?
- Our answer is embedded within the following information:
- Short-Term Incentive Plans (STIPs) are far more prevalent than Long-Term Incentive Plans (LTIPs).
- LTIPs are used much more extensively in publically owned companies. In great part this is due to privately-owned (especially family-owned companies) normally have a high degree of sensitivity about their revenue, profits & other financial numbers.
- Trinity has successfully designed both STIPs & LTIPs to enable privately-owned companies to implement them, while at the same time protecting the confidentiality of their financial information
14) How many metrics should our incentive plan(s) have?
- There are multiple mistakes that organizations make in designing incentive plans without the benefit of external expertise, including having:
- The wrong metrics
- Too many or too few metrics
- The most effective STIPs have 3 to 5 metrics at most.
- Metrics that are too hard or too easy to be attained
- Inappropriate reward levels
15) Should those metrics remain the same or vary from year to year.
- Trinity recommends that the metrics be reviewed each year to ensure they reflect what the organization wants its employees to focus on.
- Even if the metrics from the prior year are the right ones, your organization should review the weight assigned to each metric.
An effective compensation philosophy and properly structured pay plan allows your organization to:
1) Adhere to legal requirements
2) Strategically impact your bottom line by driving individual, team/functional & overall performance
3) Link salary to performance objectives and business strategy
4) Reflect the organization’s values through compensation
5) Attract top talent
6) Retain high-value employees
For more information about how Trinity’s Team can help you with your compensation needs (regardless of how big or how small):
- E mail Trinity at info@TrintyHR.net
- Visit our website at www.TrinityHR.net
- Call us at 856.905.1762 or Toll Free at 877.228.6810
You have HR challenges…Trinity has solutions!