W W W. W A T S O N W Y A T T. C O M Salary Planning Revised April 2006

W W W . W A T S O N W Y A T T . C O M

Salary PlanningRevised April 2006

2

What Do We Mean by Salary Planning?

Salary planning is budgeting or forecasting how much it will cost to give employees additional money

Topics covered:– Salary planning concept

Analyses Models

– Managing performance management systems– Creating a “bring to target” analysis – Creating a merit matrix analysis– Creating other types of analysis

Note: April 2006 brings major change to this function. Comparisons to previous will be tagged > like this

3

What Do We Mean by Analyses and Models?

Each analysis answers a single question, e.g.:– How much will it cost to:

implement a merit matrix? bring employees to minimum of range? bring employees to market? bring employees within 10% of market? deliver an annual incentive?

Models are a chain or sequence of analyses– So any of the above analyses may be part of a model

4

What’s So Great About THAT?

YOU decide how the puzzle pieces should fit together

No model is predetermined

Models may consist of:– One bring to target analysis– One merit matrix– Multiple bring to target analyses– Multiple merit matrices– A combination of merit matrix and a bring-to-target

analysis– A combination one or more merit matrices and one or

more bring-to-target analyses

5

Salary Planning in REWARDIn the Abstract

Multiple types of analyses can be developed

– Merit matrix

– A distribution based on rating alone, or salary division alone

– Bring-to-target, where target can be: A point in a job’s pay range. How much would it cost us if we

brought employees in this job to:

minimum? midpoint? maximum? % range penetration?

A job’s market value or the market value aged to a particular date. How much would it cost us if we brought employees in this job to a current market value?

A fixed increase. How much would it cost us if we gave everyone $500? If we gave a 4% increase?

6

Salary Planning in REWARDin the Abstract

Another type of analysis is modeling annual incentive pay– Percent increase is aligned to salary structure grade– Target percentages are aligned with performance ratings

Threshold Target Cap

Increases can be based upon current programs or on “what-if” scenarios– Using a current salary structure– Developing what-if scenarios/structures

Lump sum may be used in lieu of adding to base pay

7

Is There An Orderly Way to Do This?

YES!!!– Determine which employees will be included within each

analysis– Ensure you have the appropriate performance rating

system(s) in REWARD—both target incentives and merit matrices are tied to performance ratings

– Ensure that target incentive percentages have been included in any salary structures you are using

– Develop your analyses independently of one another– Group analyses into models and run the models

8

How Will Employees Be Grouped?

Some examples of employee groupings:– Business Unit, Division, or Department– Location/Country– Management/Non-Management– Job Family– Incentive Plan– Structure, or Grade

Employees may overlap in analyses– You’re trying different “what if” scenarios

For the best budgeting, do not put analyses with employee overlap into the same model— you may count the results for the same person twice, or even more!

9

What You Need to Begin

For a matrix, performance rating system and/or codes entered into REWARD– Multiple rating systems may be added– Codes may be numeric or character

For range-based increases, salary structures or pay/market ranges in the REWARD system– May also be bands and/or zones

To run scenarios regarding annual incentives, you will need incentive plan percentages:– Cap/Maximum– Target – Threshold

10

Getting There

Click on Analysis or Models

11

Analyses Screen

Analyses may be copied from other users. You can delete yours.

Name your analysis!

Each analysis contains the date, time and person who created the analysis

You have the capability to filter on specific employee groups

Dimensions tell you it’s a bring-to-target (0), distribution (1) or merit matrix analysis (2)

The comment column allows you to describe the analysis more fully

12

Viewing Analyses

Clicking on an analysis name brings up the Analysis View screen.The screen is made up of the following sections:

13

Viewing Analyses

The screen is divided into 4 major sections:

* For merit-matrix type analyses only

Section 1: Header. Defines the parameters.

Section 2: Run stats. (If you have run this analysis at least once, under the headers you see a notice of the results.)

Section 3: Guidelines* and Cost Summary figures for the run.

Section 4: Truing options*

14

Viewing Analyses


> NEW: Four parameter sets replace the long scrolling edit pages for both bring to target and merit matrix.

To run, click on calculate cost

15

Viewing Analyses

Section 2: Run stats. If you have run this matrix at least once, under the headers you see a notice of the results:

Tells you date/time of last time YOU ran it

You can create a label for each run

Rerun the analysis after tweaking parameters, or after a new data feed

You can print the analysis and results. > NEW: You no longer have to go to the Print tab to print results. Now you can print right from here.

16

Viewing Analyses

Section 3: Summary figures for the run.

General statistics regarding the run

Cost results for the selected, eligible employees

Use this section to quickly create a

print-friendly pop-up view of selected components of the

analysis

17

Viewing Analyses

Section 4: Truing options (matrices only)

Overall info on eligible employees.

There are three different approaches to truing the matrix. We’ll talk about them later.

18

Viewing Analyses

Now for some detail on sections 2-3:

* For merit-matrix type analyses only

Section 2: Run stats. (If you have run this analysis at least once, then you’ll see the date and time of the most recent run, plus a drop-down listing historical runs.)

Section 3: Guidelines* and Cost Summary figures for the run.

19

Viewing Analyses

Click print here to bring up the report-

settings panel. Configure the

settings, and hit print.

(Section 2) Printing

20

Viewing Analyses

(Section 2) Report

21

Viewing Analyses

Section 3: Summary figures for the run.

Specific info on eligible employees whoactually received an increase.

In our example, 1,527 employees were selected (by

means of the filter). Of these, 110 met

the criteria for a pay increase.

22

Viewing Analyses

(Section 3) then Summary by employee

For list of the employees behind the numbers, click on any of these employee counts.

Then click on a letter to pop up the employee detail panel for all the employees whose last name starts with that letter…

23

Viewing Analyses

(Section 3) then Further detail by employee

To show the details of the calculations for each employee, click

button for additional info

24

Viewing Analyses

Once the analysis is run, each cell displays the number of employees (clickable) and the increase amount:

Click to see employees by column, by row, or by cell

#ees$amt

(Section 3) If the analysis is a matrix, you see the guidelines

25

Viewing Analyses

Clicking on a row or column label, or an employee count, pops up a detail view:

Tells us which row/column each employee fell into -- and the conditions that got them there

(Section 3) View guidelines – placement in row and column

•Increase Amount•Lump Sum

button for additional info

26

Viewing Analyses

Detail view shows each line item calculation:

Proration amounts, if any, are broken out separately.

(Section 3) View guidelines – calculation details

27

Viewing Analyses(Section 3) Summary can also show you the results of any previous run.

Select from previous runs to see results

...or Delete previous runs

28

Creating Analyses

Click here to add a new analysis—of any

kind.

29

Creating Analyses

For a bring-to-target analysis, choose this. This is in effect a single-cell matrix, which is

why we say it has 0 dimensions.

Define new analysis in

“Basic Settings” pop-up

30

Before creating a bring-to-target analysis, define your target, which may be– Current base pay plus a fixed-dollar amount, or– Market data aged to a specific date , or– A point within the pay range: e.g.:

Minimum Midpoint Maximum Range penetration

Annual incentives may be modeled with a bring-to-target analysis

Creating A Bring-To-Target Analysis

31


Analyses may be adjusted by percentage or dollar amounts

What-if and bring-to-target analyses may use different salary structure scenarios

Target amounts can be delivered as lump sums, which is significant when chaining analyses together as models

32


In our example, we will ask the question: what would it cost to bring all US employees to within 95 percent of the minimum for their job’s pay-range?

For every employee in the selected group, we’ll ask:

What’s your job? What is the minimum of the pay-range for your job? What is your pay?

If we can’t answer any of these questions, then we’ll put this employee into the “insufficient data” pile.

Otherwise, we’ll subtract pay from 95 percent of range-minimum, and if the result is positive (i.e., the employee is below our target), then we’ll add that difference to the total cost of the analysis.

This part of the document will detail the creation of such an analysis.

33


>Not this:


> NEW: Four parameter sets replace the long scrolling edit pages

>Now this:

34


Header. Defines the parameters.

4 major sections: Basic, Cell, Costing, and Definitions.

35

Creating an AnalysisHeader. Defines the parameters.

section1 : Basic

Click to define the set of employees to select for this analysis

36


section1 : Basic – Define population

Brings up the filter expression builder— > format not NEW: Same as before...

37


section1 : Basic– Define population

Define employee set, click add

expression...

> NEW: Structure now available for filters!

38



> NEW: Structure fields now available for filters!

Fields available for filters: • basic EE and job fields • job properties• employee propertiesplus• annual hours worked• annual incentive pct (from the grade)• compa-ratio• grade code• grade rank• hours in a standard year• market ratio• max• mid• min• pay (as defined by the analysis)• range penetration• structure code• structure name• structure version

39

Creating an Analysis

Enter filter description...

Then press save



40


Basic settings are defined...

Click on text


Section 2 : Cell

So now define the cell.

41


Enter a general

description of the analysis

It’s important to be clear and simple here.


Section 2 : Cell – What is being calculated?

42

Click to enter the cell and

add formulae

Then click to add the first

element

Each cell has its own formula. The formula can have many steps, or cell elements.

Since this is a bring-to-target analysis, this analysis will have only one cell.



Section 2 : The formula (for the single cell) that calculates the cost for each employee

43

This brings up the screen to define the formula for a cell.

These are the things a cell element can be

These identify the cell element



Section 2 : Elements of the formula

These modify the result of the calculation

44

Cell element identified.

First operator is always “Starts with”



Section 2 : Elements of the formula: FIRST ELEMENT

Possible values for this element of the formula

Click “define” to define pay or market, if chosen

Adjustments to the value of this element

45

Add multiplier for 95%



Section 2 : Cell – Formula elements - multiplier

46

Click save to save this

element of the cell formula



Section 2 : Cell – save this formula element

47

Click add to enter the next element of the

cell formula

Now we have the first element of the cell formula



Section 2 : Cell – Formula element added

48

New Cell element identified.

Subtract operator

What to subtract



Section 2 : Cell – Formula element - adding the next one

We are subtracting because we want the difference between 95% of range-minimum and base pay.

49

Pay defined as pay type = “Annual Base Pay (Local)”



Section 2 : Cell – Formula elements – defining pay

Click save

50

Click Save here to keep all elements

of the cell formula

Now we have all the elements of the cell formula


Summary of specification

Specification


Section 2 : Cell – Formula – two elements added

51


Basic Settings and Cell are defined...


Section 3: Costing

So now define Costing.

Click edit

IMPORTANT: The default values for costing work great for annualized, non-prorated analyses. So the costing tab is optional.

52


> NEW !Save increases to pay types


Section 3: Costing: storing results, choosing a view

If you create a pay type called, for example, “proposed merit increase,” you could write the results of this analysis to each employee, and use that pay type for analysis elsewhere.

53



Section 3: Costing: calculating costs and proration

> NEW Turn off proration, prorate for part-times

54



Section 4: Definitions

Master Configurator dashboard is behind this screen...

Click edit

Note that the default values may work for your analysis. So you may not have to edit these.

55

Creating A Bring-To-Target AnalysisHeader. Defines the parameters.

Section 4: Definitions (overview)

Master Configurator dashboard

Selection of pay types General options

Choices for ratings (if the analysis is 1- or 2-

dimensional)

56



Section 4: Definitions – Selection of Pay Types

Here “pay” and “market” are used only to determine which cell the employee falls into. For an analysis with only one cell (such as a bring-to-target analysis), these have no meaning.

Example: in a merit matrix analysis, we might define columns as quartiles. How do we calculate quartiles? By determining where somebody’s “pay” falls within a pay-range. Well...what do you mean by “pay?” That’s why you have to define “pay” for the matrix.

57



Section 4: Definitions – General options: aging, comparator choice, link type, etc.

Settings for market calculations

Note that you can override your current REWARD settings for match year and aging date, and even make all the jobs use a particular comparator, if you like.

Set a particular job-grade link type

58



Section 4: Definitions – Lump sum

“Lump sum” is a way to characterize part of a merit increase differently, so that it can be handled separately from the dollars that go towards a pay increase. This is particularly important when chaining analyses together to form a model.

Example: you may wish to give merit increases only up to a particular crossover point (such as pay-range maximum). Increase-amounts that would put the employee’s pay above that point would be characterized as lump sum values, and computed separately from the increase.

59



Section 4: Definitions – Choices for ratings

Since ratings are used only for analyses of more than one dimension, we’ll come back to this later...

If you’re not using performance ratings in your analysis, you can ignore this part.

60

To run, click on calculate (or recalculate) cost


Now we have a Bring-to-Target Analysis.

61


Calculating arrow box indicates work in progress...

62


Finished calculation shows results.

When the run finishes, the results display

And the results of this run are archived for future retrieval

63

Creating a Matrix

Flush with success from building our Bring-To-Target analysis, we will now build a Merit Matrix analysis:

We want to give all US employees a pay increase. We will base the percent increase for each employee on a combination of:

•Range penetration (how the employee is paid relative to the pay-range for their job, often divided into quartiles), and

•Performance rating

We want to give the biggest raises to high-performing employees whose pay is near the low end of their pay range.

We want to give the smallest pay increases to low-performing employees who are near the high end of their pay range.

We’ll express this desire by creating a two-dimensional matrix, with one row per performance rating, and one column per quartile (range penetration, divided into four sections). Each cell in the matrix will have a specific increase percent, to be applied to the pay of each employee who falls into that cell.

64

Creating a Matrix

Define new analysis in pop-

up

For a matrix, choose one of

these two.

Step 1: Basic Settings

65

Creating a Matrix


up

This is a distribution matrix, dimension = 1.

66

Creating a Matrix

Use a one-dimensional matrix when distribution depends on only one attribute, such as performance, without respect to position in grade.

Or for stock distribution based solely on grade.

67

Creating a Matrix


up

This is a standard matrix, dimension = 2.

68

Creating a Matrix

Basic settings work the same as for the bring-to-target analysis.

For a matrix, define rows and

columns.

Step 2: Define rows and columns for the two dimensions

Note that we’ve set a 5 percent budget. This is optional, but can be very useful, as we’ll see after we run the analysis.

69

Creating a Matrix

Click “define” to select an attribute for rows.

Your choices include most job and employee properties, plus pay and pay-range fields. Here we’ve chosen Performance Rating, assuming that a performance rating value has already been loaded into REWARD for each employee.

70

Creating a Matrix

Define each row

Step 2: Define rows and columns for the two dimensions: define ROWS

71

Creating a Matrix

Row order Row label

Employees with performance ratings of less than 1.5 will end up in a cell on row 1.

Employees with higher performance ratings will be assigned to cells in higher rows.

After new pay reaches this range penetration,

increase goes into lump sum

72

Creating a Matrix

Click add new to save

Then define next

rows...

73

Creating a Matrix

Design the rows the way you want them:

Note that you have complete control over the labels and how they’re defined.

Vary lump sum thresholds by level

Your degree of control allows you to do some cool things. For example, you could combine “Adequate” and “Good” into a single row, which you could call “OK”, which would contain all ratings less than 3.

74

Creating a Matrix

Click on

pencil to edit a row

Click update to keep

edits

Editing existing rows:

75

Creating a Matrix

Press save to keep rows definitions

76

Creating a Matrix

Rows defined!

77

Creating a Matrix

Auto-populate creates one row for each distinct value in the data

> NEW !Auto populateoption

Let’s go back a few

steps... instead of

add for each row,

Auto-populate rows

78

Creating a Matrix

> NEW !Auto populateoption

REWARD has brought in all actual values for this variable and made a row for each.

This is useful because it allows you to quickly see what’s in the REWARD data for the property that you’ve chosen. Unexpected values (e.g. last year’s ratings) will show up here. Note that, if your rating system has more values than are in the data, only the values that are actually in the data will appear automatically.

79

Creating a MatrixProviding descriptive labels and setting orders

Auto-populate sets default labels from the data. They may not make much sense. In this example, we need to provide labels. To do so, click on a pencil…

…and provide meaningful labels for the values from the data. You also get to dictate the order in which the rows will appear.

Click update to save each row’s

changes

80

Creating a Matrix

Check values

to delete

We want to use only

whole values, so

As we saw with range-penetration, you can clump data together to reduce the number of rows. We might decide to consolidate rows. In this case, by deleting, we could roll “Adequate” into “Good,” and “Outstanding” into “Indispensable.”

81

Creating a Matrix

Check ‘all’ to delete

all values

or

82

Creating a Matrix

Check ‘all’ to invert

all values

Note: checking “all” works as “invert.” Handy if only some checked:

AfterBefore

83

Creating a Matrix

Click here to define columns for the

matrix

84

Creating a Matrix

Choose a field that

define column

s

85

Creating a Matrix

1. Enter column

definitions

2. Click add

new for next

column

3. Enter more

column definition

s

Etc.

86

Creating a Matrix

Click save

Columns defined!

In this example, we’ve decided that we want to carve up range penetration three ways, plus over-maximum and under-minimum.

Bear in mind that this is up to you: you can make quartiles, or quintiles, or asymmetrical isocahedriles…

87

Creating a MatrixChoices for dealing with bad data

Not everybody’s data is perfect. What if the analysis comes across an employee for whom the Range Penetration cannot be determined?

You get to decide what happens.

You can choose to ignore that employee (she’ll be added to the Insufficient Data group, and won’t contribute to the calculations). This is the default behavior.

OR you can have REWARD assign that employee to a cell. In this case, we’ve decided that, if we can’t figure out what an employee’s range penetration is, we’ll assign him to the “Top Third” column.

88

Creating a Matrix

What’s going on? Where’s my matrix?So far, we’ve defined the rows (Performance Rating) and columns (Pay-to-

Range Index, divided into tri-tiles). So where’s the matrix?

We have one more step: For each cell that our matrix defines, we need to say what calculation we want to do to employees who fall into those cells. Just as we did with our one-cell bring-to-target matrix, we need to define elements of the formulas that will appear in each cell.

89

Creating a Matrix

Now click edit to add a master

formula

Then add

We’re creating a master formula, which will be applied to all the cells in the matrix.

90

Creating a Matrix

Click link to define pay

When creating a merit matrix formula, we usually start with pay

We need an abbreviation because we want a tiny bit of text to show in each cell

91

Creating a Matrix

Click add for the second element in the formula

First element

defined

We’re starting with pay. As the next element in the formula, we’re going to want to multiply pay by something… In this case, an increase factor.

92

Creating a Matrix

In each cell, we’ll enter a range of increase percents

Second formula element: the increase percent

Note that, if we didn’t want a range of percents, we could enter a single percent increase here.

Default values are optional, but you may wish to use them to pre-fill the grid.

93

Creating a Matrix

Click save to keep

All elements of the formula are now defined

In English: we’re starting with Annual Base Pay, and then multiplying that by a value that will be specific to the cell that each employee is assigned to (based on the intersection of range-penetration and performance rating). We’ll set these values in a minute.

94

Creating a MatrixWe have a matrix! At last!

Note that the increase-percent ranges are all set to the default values that we specified.

95

Creating a Matrix

Click edit

guidelines to set the

individual increase percents

> NEW !Now populate the whole matrix, not just one row at a time

96

Creating a Matrix

> NEW !Now populate whole matrix, not just one row

Enter increase percents (also called guidelines), and click save

97

Creating a Matrix

guidelines for each cell’s

formula

displayed in grid

Click calculate cost to run the matrix

Example cell: employees whose pay is in the middle third of their pay range, and who are rated “Very Good” will be given a 4.0%

increase.

98

Creating a Matrix

REWARD is assigning each employee to a cell, based on range penetration and performance rating, and then multiplying pay by the selected percent for that cell.

99

Creating a Matrix

The grid populates with cost and employee count. You can click an employee

count for a list.

The summary counts are also click-able.

And below...

Example: 25 employees rated “Excellent” are in the first third of their pay range. The cost of this analysis for them (at 5 percent of pay) is $38,397).

100

Creating a MatrixTruing options

Bring to budget using different Sum of current pay

for differently defined employee groups

1. Use pay for Ees selected and

eligible and got increase

2. Use pay for Ees selected, and

eligible, whether got increase or not

3. Use pay for all Ees selected.

Recall that we set a 5 percent budget when we set up this analysis

101

Creating a Matrix

What’s going on? Why are there multiple results?We see that of the 1,527 employees analyzed, only 482 got a raise as a result

of this analysis (mostly because we didn’t give raises to low-rated employees).

So when we say “our budget is for a 5 percent increase,” we need to ask: 5 percent of what?

5 percent of the pay of the employees who got a raise

5 percent of the pay of all employees, including ones that didn’t get a raise

102


Same budget percent with different Sum of current pay

Produces different increase budget






103


Same total increase with different Sum of current pay

Produces different increase ratios






104


Click on atrue to budget

We’ve decided that a 5 percent budget means: 5 percent of the pay of the employees that got a raise. We see that we’re only a little over budget, and so we’ll click this “true to budget” button to automatically adjust all the increase percents so that our analysis provides the desired 5 percent increase.

105

Creating a Matrix

Truing Results

Original (before truing)

Trues to(after truing) :

106

Example: Employees whose pay was below minimum, but who were rated “Very Good,” received a 5 percent increase before we hit the button.

REWARD adjusted the increase to 4.3 percent, which made our results match the desired 5 percent overall budget.

Creating a Matrix

Etc. Etc.

Truing Results

Original (before truing)

Trues to(after truing) :

107


Click on atrue to budget

> NEW !Don’t have to copy the matrix

analysis first !

> REWARD saves it for you...

108

Creating a Matrix

> REWARD saves previous runs

Here

109


> REWARD saves previous runs

They are labeled, so you know which run

you’re looking at.

110


Restores original % and all other values

Click on aDate/time to

display previous run

111

Creating a Matrix Analysis

Optional Matrix Settings

Section 4: Definitions – Part 3: automatic use of ratings

Click to create or maintain rating systems

> NEW !

You can also automatically

assign ratings to either rows

or columns

112


Section 4: Definitions – Manage ratings


113


Section 4: Definitions

> not NEW: Same as before

Click on the name of the performance

management rating system to edit it

Click here to add a new performance management rating system to

REWARD


114

Adding Performance Rating System Detail

Add your Performance Rating System code

here (e.g., 1, 2, 3, A, B, C, etc.)

Describe your Performance Rating

System code here (e.g., 1 = Exceptional, 2 = Outstanding, etc.)

Rank is the order in which you want the Code + Description to appear on

your screen, once input of performance ratings is complete


115

Adding Performance Rating System Detail

How much of the employee population should fall into this

rating

If you want to model a cost analysis for an annual incentive plan, enter the

Threshold, Target and Cap percentages here


116

Results of Adding Performance Ratings


117

The Old Tool (before Flex Matrix)

Run the merit matrix analysis

Edit the merit matrix analysis

parameters

Merit matrix parameters

It may be useful to review what the old merit matrix tool looked like, as a comparison.

118


Merit Matrix Parameters

Merit Matrix Results

119


Based on the first merit matrix iteration, here are the percentage and dollar cost.

Documents

W W W. W A T S O N W Y A T T. C O M Salary Planning Revised April 2006