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Manager Forum:

Compensation Essentials

Gina Argus

Assistant Vice President, Total Rewards,

University Human Resources

Heidi Mukamal

Director, Staff Compensation,

University Human Resources

May 2024�

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Agenda

1:00 - 1:05 pm |Welcome

1:05 - 1:10 pm |Partnering Together

1:10 - 1:30 pm |Compensation Philosophy and Administration

Externally Market Competitive
Internally Equitable
Recognize Performance

1:30 - 1:40 pm |Pay Conversations

1:40 - 1:55 pm |Questions

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Partnering Together

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Partnering Together

Managers

Assess and communicate employee performance

Talk with employees about pay and explain positioning

Collaborate with employees on how they can grow their career

Request review of job changes or reclassifications

Plan and recommend salary adjustments

School/Unit HR

Consult with managers on compensation related matters

Administer the salary planning program

Provide guidance to managers on performance management

Assist managers with reclassifications and job changes

Partner as needed with UHR Compensation

University HR Compensation Team

Establish University Compensation Philosophy

Conduct rigorous market analysis and ensure pay equity

Establish and maintain job structure and salary structures

Develop Salary Planning Program

Partner and consult with HR on compensation matters

While we are here today representing the overall Compensation program for the university, we recognize we are part of a partnership and consulting service relationship with our HR colleagues at each of the schools and units that support and assist you on a day-to-day basis.

As managers, you have responsibility for various compensation matters, a few of which are listed here. Your primary point of contact for assistance, guidance, support, and partnership is with your school or unit’s human resources department.

Your Human Resources department, in turn, has various responsibilities related to compensation strategy and administration and partners not only with you but also partners with UHR Compensation

UHR Compensation has the responsibilities listed here and also has an important client partnership with your Human Resources department. Through that partnership we seek to meet and exceed your service delivery expectations.

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Compensation Philosophy

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Polling Question

How would you describe your confidence in talking about the essential elements of compensation?

Compensation “Guru”
Very confident
Somewhat confident
Not very confident
Compensation? Is that the new Marvel superhero?

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Stanford’s Compensation Philosophy and Program Objectives

Stanford is committed to providing a fair and competitive staff compensation program that will attract, retain and reward high-performing employees at all levels. The university is also committed to providing a total staff compensation package tied to the attainment of individual and group results and the achievement of organizational goals.

Externally Market Competitive: Reflect market-competitive pay rates for comparable jobs based on the market benchmarks in the geographic region where work is performed, role requirements (scope and complexity), education, and relevant experience of individuals in roles, as well as demand for such roles within the relevant labor market. Stanford targets its overall position to market for staff pay at the 50th percentile (median) of the reported range of values in the relevant labor market.

Internally Comparable: Provide pay guidelines that ensure similar jobs are paid equitably across the University. Pay differences may reflect variations in compensable factors such as experience, subject matter expertise, performance, regional assignment, and other acceptable reasons, without regard to gender, race, age, disability, sexual orientation, or other legally protected categories.

Recognition: Reward performance through salary increases, bonuses and incentives; extraordinary performance and contributions are further rewarded at a level that signifies the value of the employee to the organization and encourages retention.

Transparency: Leadership has the information, tools, and support needed to effectively communicate pay decisions to staff. Compensation policies, procedures, and assistance services are available and accessible. Stanford includes an expected pay range on every job posting. Employees are entitled to request and receive the pay range for their current position.

Fiscally Affordable/Sustainable: Pay decisions are fiscally sustainable, affordable, and aligned with the current and projected availability of budgeted resources.

Flexibility: Support a diverse, decentralized organization to accommodate differences and changes in job requirements, job market and economy.

Legally Compliant: Pay decisions adhere to applicable federal, state, and local laws, as well as contracts and policies governing compensation.

Thank you for the polling response. It will be interesting to find out if we feel at little bit different after today’s session.

We’re going to start our session by grounding ourselves in our current staff compensation philosophy which you see stated here.

Within this philosophical framework. there are 7 program objectives (please click)

The first three objectives are listed and defined as you see - to be externally competitive and internally equitable, and to provide recognition. You see each of the definitions stated here and we’ll talk more about each of them in our session. I will note that while bonuses are included as a part of recognition, we are not going to focus on them today. (please click)

The fourth objective is transparency, and we’ll spend a few minutes later discussing what this objective means because this objective is becoming more and more prevalent and important for managers (please click)

The 5th through 7th objectives are expected objectives in an organization like ours; we are not going to speak on those today

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Objectives of Compensation Philosophy

Externally Market Competitive

Internally Equitable

Recognize Performance

Objectives must be balanced together to ensure our ability to

recruit, recognize and retain within fiscal affordability

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Externally Competitive

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Compensation at Stanford is competitive:

We evaluate what the external market pays for comparable roles and use data to ensure our pay is competitive to organizations with which we compete for talent.

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Externally Market Competitive

We benchmark roles against peer organizations and industries to ensure our pay practices are competitive

We leverage up-to-date, verified data, including updated compensation surveys focused on both general and specific industries and higher education, conducted by reliable third-party market data organizations.

We seek feedback from our HR partners in schools and units to understand what they and hiring managers are experiencing with candidates for their jobs

We utilize market data based on geographic regions (for remote employees) because our philosophy is to pay market-competitive rates where the job is being performed

To meet our objective of being externally competitive, Stanford leverages reliable compensation survey data, which enables us to evaluate what the external market pays for specific jobs.

We use a multitude of compensation surveys to cover the diverse jobs that exist across Stanford. As you can understand, the credibility of the data that we gather is incredibly important, as is gathering the right cohort of data. For this reason we use verified published surveys from third party organizations who specialize in creating the ability in the market to gather and warehouse specific industry job data for use in highly reliable ways.

Where possible, we benchmark against specific groupings of the data. These can include IVY+ higher education institutions, select universities, development, information technology, research, scientists and engineers, healthcare, and academic medical institutions) to ensure precision with our market matching. We also request custom surveys where needed, and gather information from associations and other sources of verified data as well.

Our work also include market analysis of the Bay Area and other geographic areas across the country

Let’s look at how this data is applied to a job. Next slide please

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Stanford anchors the market median (50^th percentile) as the midpoint for the Job Market Salary Range for each job; market median data is collected for each job from Stanford’s talent target markets

The market 25^th and 75^th percentile data:

is a useful reference to understand the magnitude of variability around the market median
can vary widely around median for one job versus another
is not a standard distance from the median or from the minimum and maximum and can be different for one job versus another

Market ranges include values below the 25^th and above the 75^th percentiles

EXAMPLE – Life Science Research Professional Job Market Salary Range
Minimum	25^th Percentile	50^th Percentile (Midpoint)	75^th Percentile	Maximum
$90,498	$104,978	$120,664	$155,798	$168,930
25% below median	13% below median		29% above median	40% above median

Job Market Salary Ranges

We want to share how Stanford develops job market salary ranges for each job, which are utilized during salary planning and at other times when there is a need to determine an offer or appropriate pay adjustment.

Stanford’s job market salary range midpoints are determined based on the market 50^th percentile in keeping with our Philosophy. The job market salary range also includes the 25^th and 75^th percentiles of the market data.

The purpose of showing the 25th and the 75th is to reflect how variable the data is around the market midpoint. If there is little variability in the 25th and 75th %tile to the midpoint then we understand that most incumbents’ pay in the job are grouped very tightly around the median. If there is significant variability in the 25 and 75% to the midpoint, it means that incumbents’ pay are spread out across the range.

Understanding this and understanding where your employee’s pay falls within the range is helpful information to you when salary planning, and will be information you might be asked about by your employee.

There are a few things to keep in mind about a salary range for our understanding to be accurate:

The 25^th and 75th^th percentiles to the market midpoint can be and are very different from job to job, so there is not one set standard of relationship to the midpoint for all jobs, it varies by job.
Second, there is not a standard distance progression from each percentile of the range to the next higher percentile, it too can vary by job.

So, we need to be careful about making broad assumptions or adopting a singular approach in our application.

We do not expect managers to go this deep in the knowledge of salary ranges; your HR partner and UHR Compensation is here to assist you, but we want to demonstrate and equip you with the knowledge that there is rigor, precision and accuracy in establishing correct salary ranges for the jobs our employees hold. Just that information may be important for an employee to hear.

Lastly, Stanford utilizes job market salary range minimums and maximums. The example above shows a salary range for one of our jobs and demonstrates the concepts we just shared. When managers are doing salary planning or working on a pay adjustment, the full job market pay range is available for use in accordance with our pay administration guidelines. Your HR partners have those and can assist you in that regard.

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Internally Equitable

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To ensure pay decisions are equitable internally, Stanford utilizes an organizational job structure which allows us to relate all jobs to each other:

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Internally Equitable

Job Family

Broad groups of jobs that use similar skills and knowledge to accomplish work

Job Series

Grouped roles based on the nature of their related work

Job Level

The level that identifies where the job fits, from entry level to the most senior/expert level

Job Description

Defines the specific knowledge, skills, abilities and competencies, as well as duties and responsibilities and leveling factors (i.e. scope/impact, etc.)

Job Title

Is the system name of the job, reflecting the industry-accepted short name of the work of the job

Job Code

The system numeric assigned to a unique Job/Job Title

Job Market Salary Ranges

Represent the full range of pay for a specific job and are anchored in market data and are attached to the Job Code

Position

The employee’s seat in the job title, specific to the school/unit, department, business title, geographic location and employee attributes (i.e. FTE, pay, date of hire, etc.)

Being internally equitable is our second Compensation Philosophy objective

It is the organization’s job structure that provides the framework for how all jobs relate to each other within an organization. (vertically, horizontally).

The structure by which Stanford organizes its jobs is shown on this page and each part is defined. You will note that this is not a people reporting organization chart or structure. It relates to job, not the people in the jobs.

The job structure is consistent across an organization for all jobs. Further, it is the job structure that allows us to understand what is a promotion or career pathing, etc. within our organization, specifically at the job code/job title level.

It starts at the top, with the Job Family definition (the major function of a group of jobs), and then each related component is nested under the one above, as we become more specific – all the way down to the position that the employee holds.

I will give you a few more seconds to peruse this and then we’ll move to the next slide to show an example.

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Job Series and Job Description

A Job Series Matrix describes the job series and provides a job description for each job level within the job series. It includes:

Series Summary
Job Purpose
Core Duties
Education and Experience

Job Family

Finance

Job Series

Accounting

Job Level

Accountant 1

Knowledge, Skills and Abilities
Competencies
Certifications and Licenses
It can also include factors such as Scope/impact, Authority, Leadership, Strategic/Operational, Complexity

This is a more graphical example of what this looks like and how, as a manager, you might see it.

In our example the Job Family is Finance and under that family there might be a number of different job series. One those series is the Accounting Series. Within the accounting series there are a number of jobs levels, typically from entry to expert levels of the job. In our example, the Accounting series has 5 levels of a related job.

At the job level, one of those 5 levels is a job titled Accountant 1.

For each job then, we have a job description that contains descriptive information about a job, You see in the box to the upper right, the typical things included in the job description.

Compensation uses the job description to market benchmark the job to the market place, looking to match it to job data that has the same scope, core duties, education, experience, etc. and that is how we attach a job market salary range to a job. We do not go by just job title, we look at the actual job description details.

Now that we have some understanding of the context of our jobs, let’s look at how we analyze whether an employee is paid internally equitable to others within a job.

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Internally Equitable Pay

How equitable is pay

among

employees in the same or similar job

factoring in

differences in knowledge, skills, abilities, experience, time in position and performance

Employee Name	Job Code	Job Title	STF Service Date	Time in Position	Performace	Base Salary	Minimum	25th Percentile	50th Percentile�(Midpoint)	75th Percentile	Maximum
Page, Larry	2964	Stanford Analyst 2	6/13/2005	9.6	Outstanding	$130,499	$93,609	$110,396	$124,812	$137,964	$174,736
Steinbeck, John	2964	Stanford Analyst 2	3/6/2006	16.2	Exceeds	$158,726	$93,609	$110,396	$124,812	$137,964	$174,736
Woods, Tiger	2964	Stanford Analyst 2	7/18/2022	1.8	Trial Period	$108,750	$93,609	$110,396	$124,812	$137,964	$174,736
Ride, Sally	2964	Stanford Analyst 2	3/29/2004	4.5	Meets	$124,523	$93,609	$110,396	$124,812	$137,964	$174,736
Sunak, Rishi	2964	Stanford Analyst 2	4/1/1990	6.7	Meets	$138,779	$93,609	$110,396	$124,812	$137,964	$174,736
Connelly, Jennifer	2964	Stanford Analyst 2	3/27/2017	4.1	Improvement Needed	$116,533	$93,609	$110,396	$124,812	$137,964	$174,736

When assessing internal equity, which a manager will typically do during annual salary planning, or when they are considering an offer for a candidate or when they are considering a promotion of an employee, we ask this question:

How equitable is pay among employees in the same or similar job, factoring in differences in knowledge, skills, abilities, experience, time in position and performance of those employees.

Note that equitable does not mean equal or the same. Equitable means fair, based on the particulars of the circumstances, because employees are not the same relative to the factors above. They are in a position with different experience levels, different knowledge and skill levels and different performance levels.

Certainly, if you had two employees who had the same experience, knowledge and performance, you would expect their pay to be very close. But more often, experience, knowledge and performance is different, and the manager needs to calibrate for this when reviewing internal equity.

In the example, we have 6 employees in the same position, but with different amounts of experience in the job and different performance. So, you would expect to see their pay at different places with the job market salary range. Those with greater experience and higher performance should be higher in the range. Further, though, when you review Larry Page you see he is an outstanding performer with 9.6 years of experience in the position, but his pay is below Rishi Sunak’s who has 6.7 years and is a meets expectations performer. You may want to review this and determine if a greater adjustment needs to be given to Larry to not only recognize his performance but to improve internal equity across your team.

Next, let’s bring the third objective of recognizing performance into our picture.

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Recognize Performance

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Recognizing High Performance Through Compensation

Base Salary

Bonuses

Variable (Retention, Incentive, Premium)

Non-cash Benefits and Perquisites

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Recognizing performance at Stanford starts with our performance management process

Stanford’s compensation philosophy and Annual Salary Planning process and guidelines support the recognition of performance.

The salary planning process begins following the completion of the performance management cycle.

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Recognize Performance

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Merit Increase Budgets

Merit increase budgets are reset each year. The budget for the merit pool is determined by several factors, including the

economic context (i.e. cost of living),
external year-over-year job value growth,
comparator industries’ planned wage growth forecast, and
an analysis of Stanford’s overall base compensation comparison to published market values of jobs.

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Base salary increases are intended to recognize an employee’s performance and address the employee’s position within the job market salary range.

The allocated budget for merit represents the total dollars allocated for the merit pool available at the school and unit level. The budgeted percentage of salaries does not indicate a standard increase to be applied at the employee level.

Managers have flexibility to discretionarily provide a base pay increase to employees based on their job performance, their position in the job market salary range, and our pay guidelines. Increases can typically range from 0% to 12%.

We recognize that many of you have entered or will be soon entering the performance management and/or salary planning process. Today’s conversation is not about salary planning, we know that you are well supported by your HR partners and we are available to support our HR partners as they administer the process with whatever needs or questions may arise.

We wanted to share this slide with you so that you have a high level understanding of how the base salary increase budget is requested each year to the budget office. A comprehensive and thorough market analysis is conducted in 4 categories of factors:

The economic context: cost of living, cost of labor, living wage, unemployment, inflation, labor statistics nominal growth, Consumer Price Indexing, and is specific to the Bay Area, etc.
The year over year job value growth in the marketplace (i.e. November 2022 vs November 2023), every year there is normal modest job growth and that is expected, but we pay attention to job value growth year over year because it is indicative of trends that can impact the position of our employee’s pay to the market, if they are placed low in the range (below the 50th percentile or the midpoint), especially if left unattended - that gap can become wide and be difficult to easily make up.
What our comparators are forecasting for their planned wage growth (and what they forecast over the last 3-5 years vs what they actually did) Again, we go back to our comparators (Ivy+, healthcare, for profit, not for profit, technology, higher education, academic medical institutions, etc.)
And lastly a market analysis of where our employee pay sits relative to the expected upcoming year’s market

The result of this analysis, which includes a very long and detailed report, identifies our “gap” to market and informs our request to the budget office.

The second concept that we like to mention is that we need to understand that when the budget office states the amount of the authorized budget in terms of a % of base pay, that is a short-hand way of referring to the total amount of payroll dollars available. For example if a school has a total payroll of $200M and the merit authorization is 4% = the total dollars available at the school for merit increases is $8M.

That does not indicate that the standard or expected increase for an employee is 4%. The school or unit can allocate that $8M however they wish as long as they stay within that budget amount. Increases for individual employees can typically range from 0% to 12% and can vary widely within the salary planning guidelines. There is no standard merit increase.

Let’s take a look at an example of how a manager might salary plan, putting this into practice.

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Merit Pool Application Example

Manager, who is responsible for compensation planning for six employees:

Manager’s Employees	Salary	Performance	Position to Market	Recommended Merit Inc $	Recommended Merit Inc $
Employee 1	$52,000	Exceptional	Below 25^th Percentile	$4,680	9.00%
Employee 2	$55,000	Very Successful	25^th to 40^th Percentile	$3,300	6.00%
Employee 3	$57,000	Very Successful	40^th to 60^th Percentile	$2,850	5.00%
Employee 4	$58,000	Successful	25^th to 40^th Percentile	$2,320	4.00%
Employee 5	$58,500	Successful	60^th to 75^th Percentile	$1,170	2.00%
Employee 6	$60,000	Unsatisfactory	40^th to 60^th Percentile	$0	0.00%
Manager A Total Salaries	$340,500		Merit Spend	$14,466
Manager A Merit Pool (4.25% of Salaries)	$14,471		Total $ Remaining	$151

Refers to the Guidelines for Merit Base Pay Increases
Remembers the budget does not indicate a standard increase per employee when determining a merit increase, and

Avoids giving the same increase percentage to all employees, understanding that employees are not all in the same job, with the same performance, and the same pay position within their job market salary range.

Calibrates employee performance and highlights high performers to allow more meaningful base pay increases, and
Leverages the overall merit pool of $14,471 to plan for the entire team.

As a result, Manager can differentiate performance and position to job market salary range to award meaningful increases to high performers and address employees whose pay is too low in the job market salary range.

The manager refers to the guidelines, remembers the budget allocation, avoids giving the same increase which can which can potentially cause dissatisfaction and disengagement for high performers, calibrates performance and leverages the $14,471 budget to plan for the team

In the chart below, you see the performance rating, the employee’s position in the job market salary range, and the differentiated merit increase the manager submits.

In this example, the Exceptional performer who is positioned below the 25^th percentile was recommended a 9% increase. The employee is recognized for their performance and their pay is progressed further into their job market salary range as it should be

The successful performer whose pay is already at the 60th to 75th percentile is receiving a recommended 2% increase because their pay is above the market median while their performance is not commensurate with that of a high performer. We would expect to see a consistently high performer paid between the 60^th and 75^th percentile and less so for a consistently successful or meets expectations performer. We would expect that performer to be closer to the 50th percentile. Thus, in this case the manager elected to submit a smaller merit increase (to slow progression) and spend the dollars elsewhere in his team where additional dollars were needed to address performance and position in range (market competitives or internal equity).

By prioritizing high performers, as well as individuals who appear too low in the job market salary range, the manager did differentiate performance, and progress employees’ pay appropriately for those that were of a concern

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Pay Conversations

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Transparency

Performance ratings provide transparency for both managers and employees.
Performance ratings support alignment between pay and performance.

Employees seek to understand:

Why their pay is what it is, relative to market
Whether pay is equitable compared to peers
How performance factors into pay
How pay level is determined

Employee Transparency

So, we’ve covered three primary objectives of our Compensation philosophy and this section addresses the fourth: Transparency

Before, we talk about talking about pay, I want to share with you how recent laws are changing the pay conversation in dynamic ways. California adopted as of January 1, 2023 a pay transparency law which places the requirement on employers to be transparent about pay and provides the entitlement to employees to request and receive their job’s pay range. Stanford, like other employers, must post the expected reasonable pay range for the job in a job posting.

A number of other states have followed suit and we see this is not only expanding rapidly across the U.S. but globally as well.

This changes the dialogue with candidates, and employees are increasingly seeking to understand the items listed on this slide.

While we can understand the context of the above, I recognize that it’s difficult for a manager to explain the nuances of compensation, especially since it is not your area of expertise and not what you do every day; we need to continue and enhance our support of managers in this regard with meaningful education and tools.

So let’s move to our final area today and share tips on Talking about Pay

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Talking About Pay

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Context (what you say and how you say it) is important, because perceptions are:

Prepare for the conversation by reviewing:

The employee’s job specific attributes and their pay position in their job market salary range
How you might help them grow in their position,
How they might react

Opaque performance expectations and opaque understanding of organizational job structure and pay structures and how they work are often the root cause of conflict

It is a critical part of a manager’s job to have authentic and open discussions with employees about pay

Talking about pay with employees can be uncomfortable for both the manager and the employee because pay is personal and emotive; and there is a risk of conflict

54% of high performers don’t feel their pay is differentiated to the scale that their performance is differentiated

50% of employees believe they are paid below the market when they are not

35% of employees who paid above market have no idea that this is the case

77% of employees believe that pay decisions are not based on objective criteria

Talking about pay can be uncomfortable

73% of leaders don’t feel very confident.

It still a bit “taboo” because for many years it was surrounded by secrecy and confidentiality
Not knowing what to say and feeling nervous about conflict

But Avoidance is not an option.

(Please click)

However, the root cause of conflict is something we can address (the topics we discussed today) Further, preparing for the conversation can be helpful

Review their knowledge, skills, abilities, competencies, experience, time in position, and performance so you can talk specifically about them
Review the target market median for their position, understand their job’s pay range and where their pay sits

There is also some interesting statistical data about the importance of context that can give us confidence.

(Please click)

(Review the statistics.)

This means the problem isn’t necessarily about money itself, it’s about the way we communicate it and the lack of understanding about it.

I want to close our session today before we go to our polling and questions, with 6 tips to talking about pay.

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The Conversation

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Share the increase and provide context

In a manner that is sensitive and empathetic, yet still clear and direct.
Ground your words in fact, don’t apologize or rationalize. Your increase is $X,XXX, which is a X% increase to your base pay, and it is based on your performance of “XXXX” as well as the time you have worked in the position, and your demonstration of knowledge, skills, abilities and competencies on the job.”
Explain target market, and why they are paid fairly in the range and how the decision behind the numbers was made.
Don’t engage in comparisons of their pay to other employees; if raised answer “I’m only willing to talk with you about your pay and performance. It’s not fair to talk about others.”

Ensure psychological safety

Communicate the employee’s value

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Be ready for a reaction, listen more than you talk

Don’t rush to judgment or defense
Ask open ended questions “How do you think about your current pay relative to the market for your position?” “What are your thoughts about your performance?”
Hear them without interrupting and recognize their emotions but don’t yield; “I hear you and understand it is a concern for you, my goal is also to help you understand your current pay position.”
If, based on what they share, you want to investigate further, offer to get back to them once you review; but don’t set an expectation unless you intend to act.
If the conversation becomes too heated and has ceased to be productive and is making you or the employee feel overly frustrated or psychologically unsafe, it is okay to suggest a break and to schedule a follow-up conversation.

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The Conversation (continued)

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Explain our compensation philosophy, the three objectives:

externally competitive,
internally equitable
and to recognize performance.

Be ready to speak about how we gather market data and benchmark jobs to confirm a competitive job market salary range

Be curious and focus the conversation forward

Expressions of dissatisfaction might be opportunities to understand the employee’s perceptions of their pay. Listen calmly and be honest about their options, be clear and objective with your reasons as you respond,

“What about this pay range feels inaccurate to you? (avoid “why” questions) “what has changed to suggest that your pay should increase?”
“Are there things other than pay that are valuable to you? What is most important or valuable to you?”

Offer other non-monetary recognition that reflects how you value the employee (opportunity to work on a more challenging project, be a team lead, work on a visible initiative, gain new knowledge, skills or abilities)

“Is there a different job you compare yourself to?” “What are your expectations for your pay growth?” “You may not be able to achieve your desired pay level in this job; let’s talk how I can support your growth to jobs where that earning potential might be available.”
“What aspect of your current job to you enjoy most?” “Are there other positions of interest to you where you feel you can expand or grow in ways you enjoy most?”
“Is there a career path or career job you aspire to?”

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Polling Question

How would you describe your confidence in talking about the essential elements of compensation?

Compensation “Guru”
Very confident
Somewhat confident
Not very confident
Compensation? Is that the new Marvel superhero?

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Questions?