Posts Tagged ‘salary planning’

How to Improve Compensation Committee Effectiveness

Finding the time and resources for board and committee development is an ongoing challenge.  But enhancing the effectiveness of your Compensation Committee can be done with a few key actions.  This blog and ones that follow will address:

  • Setting a workable Committee calendarCompensation Committee Calendar
  • Selecting membership
  • Continuing education on executive compensation

The beginning of the year is a great time to update or set up a calendar for your Compensation Committee.  Committee responsibilities and activities need to be spelled out in advance and scheduled throughout the year to:

  • Balance the Committee’s workload
  • Allow sufficient time for review before decisions are required
  • Ensure that decisions are well-timed for effectiveness as well as meeting any regulatory requirements

The first step in building the calendar is listing and grouping activities.  You may be surprised at how many issues need to be addressed when you write them all down.  Our basic categorized list includes:

  • Compensation Philosophy Statement
    • This roadmap for guiding Committee decisions should be reviewed at least annually.
    • If you don’t have one, you would be surprised how helpful having written principles can be.
    • Market and Peer Group Review
      • Update the peer group for relevancy.
      • Gather compensation data from surveys and proxies.
      • Monitor performance versus peers.
      • Performance and Salary Review
        • Board/Committee review of CEO performance; and CEO review and report on other senior officers.
        • Committee review of CEO salary and adjust based on market/peer pay levels and executive job performance.
        • Committee review of CEO recommendations for other senior officers.
        • Annual Incentive Plan
          • Update plan in terms of participation, payout ranges, objectives, weights, and performance ranges.
          • Review performance and potential payout levels at mid-year.
          • Complete end-of-year review and approve payouts.
          • Long Term Incentive Plan (if you use stock)
            • Review existing grants and remaining share reserve.
            • Determine any need for updating plan and/or share reserve.
            • Determine new grant (type of grant, total shares, terms, CEO allocation).
            • Review and approve CEO recommendation for grants to other officers.
  • Compensation Risk Assessment
    • Conduct at least annually – ideally just after the end of the year so the Committee can look back at the prior year and plan for the year just beginning.
    • Director Compensation
      • Determine frequency of review (we recommend an annual review; but at least every third year as a minimum).
      • Conduct review and recommend changes to Board.

Of course, companies participating in government programs like TARP or those who are required to report to the SEC have a number of other requirements and activities that we won’t try to cover here.  Suffice it to say that these requirements are a significant expansion of the previous list.

Filling out the calendar is best done using a grid with the major categories of work down the left side of the calendar, and the months across the top.  This approach allows you to schedule the items in each category in logical order as well as look at the volume of Committee work in each month.

Finally, this is a task best completed by the Committee Chair, CEO, and outside compensation consultant if you have one.  You may also want your CFO and Chief Human Resources Officer involved if they interact directly with the Committee.

Please add comments below, and if you want to know more about how we can help, call me at 919-644-6962 or ask us to contact you at

Why are Salary Surveys Important?

The short answer is that Salary Surveys provide the necessary market data to build competitive pay structures for your organization.  While there are many objectives to a properly formulated compensation strategy, the two most commonly referenced are:

  1. Ensuring our plans are internally equitable, and
  2. Ensuring our plans are externally competitive.

Meeting both of these criteria enables your organization to attract, retain and motivate the right numbers of the right kinds of employees.  Good Salary Survey data (i.e.  from competitive sources like your State Bankers’ Association’s Salary Survey) provides you with the information needed to ensure your bank’s compensation plan is competitive.

Comparing roles to Salary Survey market data is important, but it’s not the only step to creating a competitive compensation program.  First, before you can tailor a compensation strategy to your organization, you should have an understanding of your organization’s compensation philosophy and strategy (How do we want to pay?).

Second, you should clearly define the key roles within your organization including current and accurate Job Descriptions for each position.  Accurate job description detail facilitates the comparison of market data to how you’re currently paying your people (Pay Practices vs. Market).

Taking this information into consideration, you can build one or more salary structures, as appropriate, with grades and control points (Grade Minimum, Midpoints and Maximums) customized to our unique organization’s needs.   By combining your salary structure(s) with performance management ratings, you can pay for performance delivered as well as accurately anticipate, budget and plan for total compensation costs.

Because building an effective compensation strategy is a nuanced process with varied approaches that depend on your organization’s unique priorities, Matthews, Young Consulting is offering a new Learning Lunch Compensation Webinar Series this fall to help you turn salary data into insight and ensure your organization attracts and retains the staff necessary to achieve your goals.  The topics and dates are listed below:

  • September 7th – Using Survey Data to Value Jobs
  • September 13th – Building Effective Job Descriptions
  • September 21st – The Compensation Audit: Do your pay practices match market and your intent?
  • October 5th – Using Job Values to Build Salary Structures
  • October 19th – Principles of Merit Pay
  • November 2nd – Merit Pay Budgeting

All webinars will start at Noon and last for about an hour.

We’re currently discussing the topics on Twitter; send us your questions and suggestions @MatthewsYoung!

Members of the GBA, NCBA, SCBA, TBA or VBA can receive a complimentary invitation by emailing me at  If you are not a member of the State Bankers Associations listed above but would like to attend the webinars, the fee is $300 per session and you can register at  We look forward to working with you to craft a current, competitive and most importantly effective  compensation strategy!

Market Information Helps With Tough Salary Planning Decisions.

In a recent blog, we talked about taking a broader perspective when planning salary increases for 2011.  We were also waiting for better forecasts for 2011.  More comprehensive reports are now available and suggest the following:

  • We are seeing a clear increase in the percent of employers and banks granting pay raises.  While two-thirds of employers gave increases in 2009, nearly 85% gave increases in 2010.  And we expect this percentage to increase for 2011.
  • U.S. employers report they are budgeting  average raises of 3.0% in 2011, as are banks and other financial institutions.
  • The middle 50% of employers report  2011 salary increase budgets between 2.6% and 3.5%.
    • Again, financial institutions are very similar – ranging from 2.5% to 3.2%.
  • History shows some fluctuation between forecast and actual increases among general industry as well as financial institutions:


2008 Actual

2009 Forecast

2009 Actual

2010 Forecast

2010 Actual

2011 Forecast















If this fluctuation between projected and actual continues, banks may give less than 3% in actual raises in 2011.

In addition to the broader questions we raised in our previous blog, budgeting for pay raises eventually comes down to practical questions:

  • What’s your best estimate of what the competitive market will do?
  • How long has it been since your last round of raises?
  • What can you afford to do, considering your expected financial performance?
  • And as we pointed out in an earlier blog, how do your overall salary levels stack up against current market salaries?  If you haven’t checked the market lately (perhaps because you didn’t grant raises), then you lack important information on competitiveness and whether (a) you are still paying competitive rates or (b) a gap has opened between your organization’s salary levels and the market.

We have also seen a couple of other techniques to mitigate the cost of salary raises:

  • Postpone the effective date of raises until later in the year.  Granting raises on July 1 rather than December 1 saves half the expense for the calendar year.
  • Grant merit pay in a lump-sum to employees high in their salary ranges but performing at a superior level.   While the lump-sum payment is a current expense, it does not increase the employee’s future pay rate.

These are challenging times for compensation planning.  If we can be of help, please don’t hesitate to contact the firm at (919) 644-6962 or me direct at (404) 435-6993.

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