Compensation Planning 101 for Growth Businesses

ON THIS EPISODE OF HIGH GROWTH MATTERS

While compensation planning falls under HR’s purview, many HR leaders lack expertise in its ins and outs.

In this episode, we chat with Julia Dow, VP of Compensation Advisory at OpenComp, who has over a decade of experience working in global compensation at companies like VISA and Forrest Point before her current role as VP of Compensation Services at OpenComp. Her team works with thousands of the world’s fastest-growing organizations to scale their businesses with compensation, and today we’ll dive into a 101 primer into how to approach compensation planning.

Join us as we discuss:

• Compensation planning and why is it so important
• Common areas of oversight budgeting and compensation review process
• Steps to creating a salary bands
• How to make adjustments when pay inequities are discovered
• How to handle Pay For Performance within your organization

LISTEN TO THE EPISODE

TRANSCRIPT

CAITLIN ALLEN: Good morning, everyone. Welcome back to open comps podcast high growth matters for HR leaders that are growing badass businesses. Today we are going to dive into compensation planning. While that falls underneath hrs purview. Many HR leaders lack expertise in its ins and outs. And so in this episode, we're going to chat with Julia Tao, who has over a decade of experience working in global compensation at companies like Visa and forced point before her current role as VP of compensation services at open comp. Her team works with 1000s of the world's fastest growing organizations to scale their businesses with compensation. And I'm excited to get a one a one on one primer with her Julia, welcome.

JULIA DOW: Thanks, Caitlin. Glad to be here.

CAITLIN ALLEN: It's good to have you. So let's kick it off with something personal. What is one thing that is your coworker and other co workers don't know about you?

JULIA DOW: Personal Well, I would say I used to this is still kind of work related. But I used to want to have a career in recruiting. And I tried that out for a little while and realized that is not for me compensation is definitely where I need to be. On a personal note, probably workout like every morning pretty religiously, just so that I can try all the good restaurants that are in Austin, so

CAITLIN ALLEN: I can identify with that. I love it. Let's dive into compensation planning, which spans many things, salary bands, working with finance, so on and so forth. What is compensation planning Julia.

JULIA DOW: So it's really the process of understanding how you're going to award pay for this either previous year that you just completed. And in terms of maybe bonus payouts, and planning for the next year in terms of new salaries, what equity awards you want to give. And so all in all, how are you going to plan your total spend for your compensation for the next year?

CAITLIN ALLEN: And why is it such an important topic?

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JULIA DOW: It's because it touches almost every employee and that's they look forward to every year it's it's something they've come to expect. And it really makes a difference in their livelihoods and what they would they're able to do with their with their money and their lives on a day to day basis. So it's a big deal.

CAITLIN ALLEN: Yeah, well put it it impacts every part of our lives. It's also something I know as business leaders we're all thinking about right now. because it's such a big part of our budgets, yeah, diving into to best practices where, before companies work with your team, where do most companies get compensation planning wrong? What are common areas of oversight?

JULIA DOW: I would say the biggest one is probably they don't start planning early enough. I think a lot of people underestimate the time and resources it takes to really run a successful budgeting and compensation review process. The other one is probably not bringing in stakeholders early enough, you're coordinating across a lot of a lot of people, whether it's business leaders who need to plan for their employees, or whether it's finance, who needs to plan for the company's resources and how they're going to spend that. Or whether it's various HR HR roles that are going to help move the process along.

CAITLIN ALLEN: That makes a lot of sense. And in terms of collaborating, I imagine finances is pretty up there in terms of a team or a partner that that you need to have alignment with on the HR side, where where do you see your How can HR teams align with finance effectively when they're planning compensation.

JULIA DOW: So there's a few different ways you want to bring them in early, there's typically a little bit of a top down bottom up planning process that you go through where you take a look at the market. And you say, What is everyone else kind of planning from a salary budget perspective, usually, it's salary that needs the most planning, because bonuses you've accrued for stock, you have a pretty good handle on, we're really looking at to the market for for salary budgets, and understanding how compensation is going to move over the next year, then you typically submit a proposal to finance or maybe they've started by giving you a budget, you kind of have to work within it. But usually you subset something over them with the outline of how you, if you were to give competitive increases or the budget that you wanted to your employees, what that would cost for the organization.

CAITLIN ALLEN: That makes sense. And from what I understand an important part of aligning with finance and just a foundation for compensation planning in general is creating pay bands or salary bands, some people call them pay ranges, what are the steps to creating those.

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JULIA DOW: So there can be a ton of steps leading up to them. So I'll just assume that you've done all of the work from a market analysis and compensation philosophy perspective, so you understand how you currently are paying against the market, you know how you want to align to the market, and how you want to think about rewards as a company. So once you have salary ranges, really the first step is taking that market data that you've used, and grouping it in a way that makes sense for your organization. There are tons of different ways that you can build salary ranges. So there are things like more of a traditional job catalog that where every job family has its own range, or waterfall methodology where there are various grades with all of your roles slotting into them, or more formal or traditional structures where you group roles with similar market values together, and they're all slotted into a pay structure by level. So taking that market data, grouping it into ways that makes sense for your organization on how you want to pay, then taking a look at normalizing some of that data. Because whenever you're working with market data, there's going to be anomalies that you have to solve for whether it's not having appropriate progression between levels, maybe when you're building traditional salary ranges, usually you're putting a range around a midpoint or a market reference point. So you want to make sure your mid points are typically aligned to that market reference point you've chosen as a company and build a range around that as well because a lot of times, using percentiles as mins and maxes for those ranges, causes a lot of inconsistencies. So you want to put a standard percentage around that midpoint to make it ideal for how you want to administer pay. And so once you take a look at that, make sure the market data is getting in your ranges really nicely. Making sure that your roles are grouped in a way that makes sense for your organization. So you don't even have the market data might say that two roles should be paid similarly, but internally you're you're you realize that makes no sense. You might want to adjust your pay ranges. So once you get to good place on that, then you want to map your current employee population into it.

CAITLIN ALLEN: Thank you. So then how should our listeners think about factoring in things like pay for performance,

JULIA DOW: pay for performance is usually a really big one that comes into compensation planning. So there are some some companies that choose to do it in a very direct way. So it might be you have this performance and this position in the in the range, therefore, you get this increase according to our budget. Some companies are a little bit more informal about it. And they might have informal guidelines, or they might just allow that judgment to lay in the managers hand and the manager gets to spend their budget based on on performance and how much they have to give. But usually they do correlate in most organizations, because pay for performance is definitely a trend that most companies value in regards to rewards. There's also the element of where performance really, really comes into play is bonus payouts. And granted, this isn't always applicable to all companies, especially early stage startups. But once you get more mature as a company, and do you have a bonus program in place, your measurement or performance period is usually that fiscal year, that prior fiscal year, right. So you are looking across performance for that year, and really allocating bonus based on to cut typically company for performance for the funding of the bonus overall, but then also individual performance for the payout of that bonus. And so you definitely want to see, Higher Performers get a much higher than target reward if you have if, if your plan has funded that way. So bonus is a big one, you can also weave in a lot of pay for performance into equity grants as well. So there's a lot you can do with performance. I'd say salary is one where companies choose to balance proficiency and performance because someone could still have a really steep learning curve to their role. They could be performing really well. But there's still a lot to learn. And so they might not want to put them very high in the range because they still want to allow proficiency to develop over time. And so then that again, goes back to performance plus position range, a

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CAITLIN ALLEN: lot of times I follow that makes a lot of sense. One of the things, the question I'm gonna ask you is around calibration. One of the things that I appreciated a lot when I was at lift in particular was how effectively they ran calibration sessions. I would go sometimes into a discussion thinking that a team member on on my my team was either an underperformer or a high performer and then after talking with Amanda yours was similar focus on their teams maybe adjust my my thought process. And I think it's a great in my experience, it was also a great way for ensuring equity, that that bias wasn't creeping into the process. So I'm curious how you would advise our HR listeners to what cadence they should plan for calibration sessions in today's marketplace where things are changing really quickly.

JULIA DOW: Yeah, I think most companies still layer in calibration sessions as often as they do performance reviews. And so before you go and finalize that rating, it's makes sense to calibrate across the broader team. And make sure just like you said, there are no blinders on when it comes to management viewpoints on performance and how well they work with others or within your team. And also, there can be different standards. So the the force distribution is something that's not as prominent nowadays. But there used to be a force distribution, a lot of organizations where you had to go through that calibration session, because there were only going to be three people that made it to the top right. And it couldn't be every manager saying, well, all my employees are star performers. But it is so good to get that gut check and understand how people are measuring others and just have that mirror as management peers to see what they're considering for finalizing those performance ratings.

CAITLIN ALLEN: Your team helps growth companies execute all of the kinds of projects that we've talked about so far, with, with what we hear is industry leading excellence. As we close out, second to last question, what are the most popular services that your team offers today? And how can people get in touch with you?

JULIA DOW: Yeah, so we do a lot. Our most popular is probably competitive analyses comp philosophy and developing pay ranges, a lot of our companies come with very little framework or being unsure about the framework because it was developed. A year ago, it was developed by a different team. And so they really want to level set or the our companies grow and, and move so fast. It might just make sense to scrap their old framework and start fresh. So those are the main ones, but we touch everything. So executive comp is a really common one for us as well. Leveling frameworks and job architecture, pay equity analyses, incentive plan design, when to convert from options to RSU, and what that conversion looks like. So we really travel with almost everything under the sun when it comes to compensation.

CAITLIN ALLEN: Thank you. And then in terms of getting in touch with you what's the best email or other route? Yeah,

JULIA DOW: people can just shoot me an email at Julia at open comp.com where they can connect with me on LinkedIn can find me there. But happy to connect and help help people develop some really cool comp programs that also help their businesses and help their employees.

CAITLIN ALLEN: Awesome. And for the listeners today to like Julia's LinkedIn. URL will be in the notes as well, the website page open comp.com/compensation services, you can see what her team offers. Julia closing it out. You've shared a lot of great tidbits with us today. What is the most important thing that our HR listeners should remember and act on from what they've learned?

JULIA DOW: For me, it's always consistency when it comes to compensation. So the biggest thing that is hard to correct and can also get you into some trouble is not being consistent in your decision making, in how you lay out compensation plans, etc. So really making sure that you're consistent is going to at least give you a really solid foundation to work from and when you make decisions. It allows you to move in there in the same direction with the broader group versus having to Frankenstein everything. So really, consistency is always key. Compensation.

CAITLIN ALLEN: Thank you. And thank you for being on today's podcast. Julia was great.

JULIA DOW: Yeah, of course. It's fun. Thanks for having me. My pleasure.