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Defining a Compensation Structure for the Dairy Workforce

Felix Soriano, MS, PASAPN Consulting, LLC

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Importance of a Well Defined Compensation Package

• Can be a powerful management tool for recruiting and retaining the best

• Foundation to building a highly committed, productive, and efficient workforce

• Reduces headaches due to constant requests for raises

• Can reduce the number of unhappy employees

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Defining the Compensation Philosophy

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Compensation Structure

Direct Pay Indirect Pay

Variable Pay BenefitsBase Salary

•Goal based bonus

•End of the year bonus

•Seniority based bonus

•Informal bonus

•Base salary

– hourly

– salary

•Health insurance

•Housing

•Paid vacations

•Boots and clothing

•Use of farm truck

•Cellular phones

•Professional & personal advancement

•Farm produce, meat, etc

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Defining the Base Salary

• Pay Grade: A group of jobs that share the same wage levels

• Jobs are allocated in different pay grades depending of their value assessment

• Job descriptions are very important!

• Rate of Pay: Represents the lowest and highest pay within a pay grade.

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Assigning Jobs to Pay Grades

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Resp

onsi

bilit

y

Educ

atio

n

Phys

ical

req.

Skill

s

MilkersFeedersSupervisors

• Requirements for the position

• Rate the jobs according to the relative importance

Poin

t val

ue

Adapted from G. E. Billikopf, 2003.

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Pay Grades & Rate of Pay Examples

Job Value

Rat

e of

Pay

($)

Adapted from G. E. Billikopf, 2003A

B

C

D

A=MilkerB=Shift leaderC=FeederD=Herdsperson

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Hourly or Fixed Wages?

Employees feel is more fair

More common for higher pay grade jobs

Employees tend to work faster

People are willing to work more hours

Sometimes employees take longer to do chores

Important to clearly define expectations for each task

Harder to find employees willing to

stay longer hours

Quality of work may be diminished

Hourly Salary

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Variable Pay – Bonus Programs

• Effective way of compensating people who does an excellent job

• Excellent opportunity for improving

communication and praise

• Effective way for setting goals and expectations

• Helps keep people motivated

• Effective for team building

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Merit/Goal Based Bonus

• Helps employees stay focused and increase performance

• Helps create a sense of ownership of their job

• Helps develop better team work and a team culture

• Can improve labor efficiency and productivity

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Merit/Goal Based Bonus

• Should be specific and monitored periodically

• Should be simple (ideally not more than 3 performance parameters to evaluate)

• Should have a positive impact in profitability, herd health, etc

• Employee’s work should have a direct impact on those goals

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Example of Goal Based Bonus

Milkers Bonus

Item $60 $35 $15

PLC <5,000 <10,000 <10,000

SCC <100,000 <150,000 <200,000

Cooling/ Antibiotic

Negative Negative Negative

•Bonus is per week per employee

•To achieve this bonus, shift must average at least 150 cows per hour for the week

•Also, cows must not get mixed up between groups in order to obtain the bonus

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Example of a Goal Based Bonus Milker’s bonus

SCC (thousands) Bonus<100,000 $150.00

<150,000 $100.00

<200,000 $50.00

Milk flow (lbs 30-60 sec) Bonus

7.0 – 7.9 $25.00

8.0 – 8.5 $50.00

8.6 – 9.0 $100.00

*A minimum of 200 cows / hour must be achieved in order to get the bonus. *Cows must not get mixed between pens in order to get the bonus*Standard plate counts (SCP) cannot exceed 5,000 CFU/ml in order to get the bonus

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How to Get the Most Out of a Goal Based Bonus Program

1. DON’T implement a bonus program until performance is at least at your standards

2. Define SMART goals

3. Keep it simple, use only a few performance parameters (3-4 max)

4. Keep track of performance daily – be consistent

5. Give people all the tools and support they need

6. The bonus plan should be flexible

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How to Get the Most Out of a Goal Based Bonus Program

7. Have conditions to be eligible for the bonus

8. Workers must be properly trained

9. Communicate and explain the bonus structure

10. Separate incentive pay from regular pay

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Seniority Based Bonus

• Effective way to reward loyal employees with long tenure

• Perceived as more fair in some cultures

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Seniority Based Bonus Program Example

• Giving longevity bonuses for employees on the anniversaries of their employment with the company

• Example:• After 2 uninterrupted years with the company $250• After 3 uninterrupted years with the company $350• After 4 uninterrupted years with the company $450• After 5 uninterrupted years with the company $550

• Every additional year after 5 years with the company: 10-15% increase over the previous year’s bonus will be awarded every year.

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Other Types of Bonuses

End of the year bonus:• A fixed $ amount for each worker• A % of the profits of the company• A variable bonus amount

depending on the employee’s pay grade

Informal bonus:• Recognizing someone who goes

the extra mile due to unforeseen problem or project

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Indirect Pay - Benefits Package

• Define what the company can afford

• Can help recruit good quality candidates

• Should match the demographics of the workforce and needs/wants of the employees

• Can help promote employee’s personal and professional growth and well being

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Benefit Examples

•Health insurance

•Housing

•Paid vacations

•Boots and clothing

•Use of farm truck

•Cellular phones

•Professional & personal advancement

•Farm produce, meat, etc

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Communicating the Salary Structure Plan

• Document the program in writing and explain to all employees

• Meet individually or in group with every employee to explain pay structure and $ raises

• Describing and communicating benefits to employees is a must

• Putting a $ figure to each benefit can be an eye opener for employees

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Itemized Pay and Benefits Example

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Final Thoughts

• A well-designed compensation program can be a great start to building a committed, highly productive workforce

• A compensation program must be clearly communicated to all employees to be effective

• Bonuses and salaries must be paid on time

• Defining and communicating when raises will be given can reduce uncertainty and will help employees stay focus on their jobs

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Thank You!