Pub. 6 2016-2017 Issue 6

8 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S Being Strategic with Base Salary Compensation BY KRISTEN KOSTNER AND LAURA ROTH, BLANCHARD CONSULTING GROUP D ecisions related to compensation are inherently emotional in na- ture as employees often link their pay to a sense of personal status and identity within an organization. This makes it even more important for human resource professionals to develop and com- municate policies related to compensation. Historically, banks have granted similar salary increases to all employees, regardless of individual performance or strategic factors. However, with both hiring and turnover on the rise in 2017 it makes sense for banks to take a more strategic approach regarding the use of their salary budget dollars. In order to accomplish this, human resource professionals are tasked with developing a compensation philosophy, creating and managing salary grades/ ranges, and conducting market research. Developing a Compensation Philosophy Developing a formal, written compensation philosophy is an industry best practice. It provides the foundation for different rewards programs and systems, and helps eliminate impromptu decision-mak- ing. The compensation philosophy should focus on the total compen- sation package and address base salaries, incentives (cash and/or eq- uity), benefits, and perquisites. The most common philosophy will target paying base salaries at the external market median (50th percentile) for fully proficient employees. This ensures the bank can attract and retain talent, decreasing the costs of recruitment and training associated with high employee turnover. The Bank should document and review the compensation philosophy, and evaluate how well it is executing the plan on an annual basis to ensure alignment with the overall business strategy. Creating and Managing Salary Grades/Ranges The purpose of a salary structure is to manage salary budget dollars while remaining internally equitable and externally competitive. Salary structures are composed of salary grades/ranges, which are used to group jobs of similar value based on the level of discretion and judgment that is exercised, and the knowledge, skills, and abilities that are required for satisfactory performance. They also provide market ranges for posi- tions that are difficult to benchmark using industry survey information. In order to reduce the administra- tive burden and costs, the salary structure should limit the grades/ ranges to a manageable number but still allow an appropriate spread for each grade. Salary grades/ranges should be large enough to accom- modate entry level employees while still recognizing and compensating employees who are high performers and bring more experience to their position. Each salary grade has a minimum, midpoint, andmaximum salary level. The total distance from minimum to maximum is called the range spread. Range spreads tend