XYZ Company Market Competitiveness Analysis:

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XYZ CompanyMarket Competitiveness Analysis

• Senior Management Presentation
• December 30, 2003

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• Prepared by
• Jennifer C. Loftus, SPHR, CCP, CBP, GRP
• National Director
• Jason Mitchell
• Statistical Analyst

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Original Project Charter

• Assist XYZ Company in the analysis of all
  positions to determine the organizations
  competitive position.
• Develop market based pay ranges for the
  positions.
• If warranted, recommend potential realignment
  with the market.

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Market Pricing Methodology
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Selection of Market Data

• Nine compensation surveys were selected for use
  in the market analysis.
• A total of thirty-seven positions were reviewed
  and compared to the market.
• Job matches were made based on comparability of
  duties and requirements, not job titles.
• Salary survey data for New York City were
  selected as a first priority for use.
• If local data were not available, national
  not-for-profit salary survey data were utilized
  and factored for the New York City area.
• The geographic wage factor for New York, NY is
  119.0 of the national average.
• Wage differentials are similar to, but not the
  same as, cost of living differentials.
• For example, if a person earns 20,000 in Tulsa,
  OK (100 of the national average), an equivalent
  wage in New York City would be 23,800 (119.0 of
  the national average).
• All survey data were aged to 1/1/04 using a
  prorated 4 annual figure.
• Comparisons are based on the 50th and 75th
  percentiles of the average base pay reported.

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Survey Data Sources

• 2003 Abbott-Langer Compensation in Nonprofit
  Organizations
• 2003 BLR Northeast / Middle-Atlantic Survey of
  Exempt Compensation
• 2003 BLR New York Survey of Nonexempt
  Compensation
• 2003 CompData Surveys Compensation Data New York
• 2003 / 2004 Watson Wyatt ECS Geographic Report on
  Accounting Finance Personnel Compensation
• 2003 / 2004 Watson Wyatt ECS Geographic Report on
  Human Resources Personnel Compensation
• 2003 / 2004 Watson Wyatt ECS Geographic Report on
  Office Personnel Compensation
• 2003 / 2004 Watson Wyatt ECS Industry Report on
  Top Management Compensation
• 2003 Mercer Metropolitan Benchmark Compensation
  Survey

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Results of the Base Pay Market Pricing Process
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Important Considerations When Reviewing Market
Pricing Results

• Titles falling between -10 and 10 of market
  average are generally considered to be market
  competitive.
• Generally, XYZ Company strives to be market
  competitive with base pay.
• Market competitive tends to equate to the 50th
  percentile (P50) of the market.
• P50 means that in the salary survey data for a
  specific job, one half of the respondents pay
  below the P50 rate. One half of the respondents
  pay above the P50 rate.
• Market data do not take into consideration years
  of experience of reported incumbents in the
  position or their job performance.
• Organizations with high or low turnover may
  appear off of the market due to length of service
  differences from survey participants.

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Percentile Example
Data Points Percentile

200,000
150,000
100,000 100,000 is the 75th percentile (average of 100,000 and 100,000)
100,000 100,000 is the 75th percentile (average of 100,000 and 100,000)
99,000 94,000 is the 50th percentile (average of 99,000 and 89,000)
89,000 94,000 is the 50th percentile (average of 99,000 and 89,000)
86,000
85,000 80,000 is the 25th percentile (average of 85,000 and 75,000)
75,000 80,000 is the 25th percentile (average of 85,000 and 75,000)
70,000
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Results of Market Pricing Process50th Percentile
Base Salary Data
Based on a comparison of XYZ Company average
salaries and 50th percentile blended market
average data
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Results of Market Pricing Process75th Percentile
Base Salary Data
Based on a comparison of XYZ Company average
salaries and 75th percentile blended market
average data
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Conclusions Based on the Market Pricing Process
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Conclusions Base Pay Market Competitiveness

• On average, when current average salaries are
  compared to P50 average pay market data, XYZ
  Companys average salaries fall at the market.
• 2.3 above the market
• On average, when current average salaries are
  compared to P75 average pay market data, XYZ
  Companys average salaries fall below the market.
• 15.0 below the market

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Proposed Market Based Salary Ranges Developed
From Market Pricing Results
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Development of Market Based Pay Ranges

• The job titles under review were broken into four
  families with similar work duties, recruitment
  market trends, and pay market trends.
• Administration
• Clerical
• Client Services
• Management
• Top seven executives not part of todays
  discussion
• Within each family, the positions P75 market
  data were sorted from high to low.
• Approximate 15 breaks between market levels were
  made to create a grade.
• The average market P75 rate of pay within each
  grade was used as the midpoint of the salary
  range.
• When current XYZ Company pay range minimums were
  higher than the prevailing market rate, the
  current XYZ Company range minimum was used as the
  salary range minimum.

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Pay Range Spreads

• Range minimums and maximums were constructed
  around each midpoint.
• Range spread is the distance between the range
  minimum and the range maximum.
• In the proposed XYZ Company ranges, the range
  spread for the Administrative and Client Services
  positions is 50.
• In the proposed XYZ Company ranges, the range
  spread for the Clerical positions is 30.
• A typical range spread of 50 allows for
  flexibility in placing employees in the range and
  future room for growth, while controlling payroll
  costs.

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Sample Salary Range (50 Range Spread)
10.00
15.00
12.50
11.25
13.75
Start of Q4
Start of Q2
Minimum (Start of Q1)
Range Maximum
Midpoint (Start of Q3)
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General Anatomy of a Salary Range
Generally, the target zone for seasoned,
consistently satisfactory performers, or newer
employees with hot technical skills or a
uniquely impactful role.
Minimum
Midpoint
Maximum
Generally, the target zone for employees
relatively new in this position (less than 5
years), or longer service employees with some
performance deficiencies.
Generally, the target zone for seasoned
outstanding performers or selected individuals
who, because of hot technical skills or a
uniquely impactful role, need to be paid at or
above market average in order to attract and/or
retain.
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Important Considerations When Reviewing Market
Based Pay Ranges

• The proposed ranges do not take into
  consideration any incentive compensation,
  benefits, or perks incumbents in the positions
  may receive.
• Placement in the range is dependent on a number
  of factors, uniquely weighted by each
  organization.
• Performance
• Length of service with the organization
• In the same or similar positions
• In a different position
• Prior experience in similar positions at other
  organizations

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Important Considerations When Reviewing Cost
Implications of Market Based Pay Ranges

• Three cost levels have been provided for each
  family.
• Bring to minimum only
• The cost to bring each employees pay, if
  necessary, to the minimum of the new range.
• This is the minimum cost XYZ Company will incur
  to implement the new ranges.
• Placement in the range assuming a 10 years to
  midpoint scenario
• The cost to bring each employees pay, if
  necessary, to a point in the range, assuming it
  takes 10 years to bring each employees pay to
  the midpoint of the range.
• Placement in the range assuming a 5 years to
  midpoint scenario
• The cost to bring each employees pay, if
  necessary, to a point in the range, assuming it
  takes 5 years to bring each employees pay to the
  midpoint of the range.

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Sample Placement in the Salary RangeEmployee
with 5 years experience
10.00
15.00
12.50
11.25
13.75
Placement under 5 years to midpoint scenario
Placement under bring to minimum scenario
Placement under 10 years to midpoint scenario
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Cost Implications of the Proposed Market Based
Pay Ranges

• Bring to minimum only
• Seventy-seven of 166 current employees pay will
  require bring to minimum adjustments.
• Assuming current payroll levels, this approach
  would cost an additional 205,859, or an increase
  of 2.9 of the current payroll of 7,020,238.
• Placement in the range assuming a 10 years to
  midpoint scenario
• One hundred forty-two of 166 current employees
  pay will require adjustments.
• Assuming current payroll levels, this approach
  would cost an additional 426,502, or an increase
  of 6.1 of the current payroll of 7,020,238.
• Placement in the range assuming a 5 years to
  midpoint scenario
• One hundred fifty of 166 current employees pay
  would require adjustments.
• Assuming current payroll levels, this approach
  would cost an additional 734,856, or an increase
  of 10.5 of the current payroll of 7,020,238.

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Looking AheadBase Pay Recommendations
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Recommendations

• XYZ Company should review the proposed costs to
  determine if such a program is fiscally
  responsible.
• If current fiscal concerns preclude implementing
  the ranges in their entirety, a phased-in
  approach over two years may be advisable.
• If fiscally possible, bring the incumbents base
  pay at least to the minimum of the range.
• XYZ Company may want to consider the use of
  variable incentives to provide additional
  compensation opportunities to employees without
  adding fixed salary costs to organizational
  budgets.