Scrappy Compensation: Summer Edition
Building a framework is not a math problem, it is forming a philosophy, creating a structure, and letting your employees know about it.
Let’s get into it.
Building your pay structure
The first part of this journey is to build your pay structure. Whether you are starting from scratch or optimizing a current structure, follow these four basic steps to build out a scrappy compensation structure:
Step 1: Articulate Your Philosophy
Target market percentile: Do you want to be ‘at’ or ‘above’ market? Will it vary by compensation component and/or role?
If you are not sure, start with the 50th percentile (market median).
Compensation mix: What do you offer? Base salary and equity only? Will you include a bonus?
If it is overwhelming, start with your base salary structure first and build the other components out at another time.
Geographic differentiation: Consider if you would like to have a location-based compensation to anchor your pay bands.
If you have talent in multiple countries, each country should have its own pay structure.
Step 2: Build Your Architecture
Define job levels: Do you want 6-8 broad job levels for a flatter structure or 12+ narrower ones for more granular career progression steps?
You can leverage job levels from the compensation benchmarking database you are using, no need to create your own.
Define job families: Take the time to organize all of your jobs and employees into a defined set of job functions and job families.
You can leverage the structure from the benchmarking database you’ve chosen.
Map current roles to those levels: Take your full list of employees and map them to the structure you created based on the leveling definitions, not justjob title.
Step 3: Run Benchmarking Analysis
Create your benchmarking spreadsheet: Pull in the market data with the relevant market percentiles from the benchmarking database you are using.
If you are positioning at the 50th percentile, be sure to bring in 25th and 75th percentiles as well.
Assess employee pay against the market: This is your first look at how your current pay practice compares to your targeted market position and an opportunity to evaluate if you should shift that targeted market position up or down.
Step 4: Build Your Pay Bands
Assess how precise you would like to be: Would you like to have precise pay bands for each job family or are there natural market value groupings that you can create by employee segmentation.
Creating pay bands for every job family requires more time and effort to create and maintain vs grouping the pay structures into two to six buckets (e.g. technical, business, revenue job families etc.).
Build your pay bands: Evaluate your benchmarking data by job level and build salary midpoints with the aim of creating smooth progressions from job level to job level while trying to stay as close to the targeted market position as possible.
Assess employee pay against the pay bands: Compare current pay against the bands and take note of those that are below the minimum of their pay band and those that are above the maximum of their pay band.
Congrats! Now you have a pay structure that will set you up to make thoughtful pay decisions in the future.
Ready to take your pay bands to the next level?
Consider varying your target market position by job family or employee segment based on the competitiveness of the talent market. Go with a higher target market position for job families where it is more difficult to attract and retain the talent that you need.
Up Next
Get ready for the Fall Season
Now that you have a pay structure, you will be ready to do your budget analysis and advocate for a competitive budget to address pay equity, market adjustments, promotions and regular salary adjustments.
Be on the lookout for the Fall Edition in September where I will cover more on how to build a scrappy compensation budget.
