SALARY ADMINISTRATION PROGRAM



PERFORMANCE MANAGEMENT and SALARY ADMINISTRATION

MANAGER’S GUIDELINES

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TABLE OF CONTENTS

I. SALARY ADMINISTRATION PROGRAM 2

Objectives of the Salary Administration Program 2

Elements of the Salary Administration Program 3

Responsibility for the Salary Administration Program 3

I. POSITION ANALYSIS AND EVALUATION 5

Objectives of Position Analysis and Evaluation 5

Method of Evaluation 5

Position Analysis and Evaluation Guidelines 6

Position Analysis Procedure 6

Requests for Reevaluation 7

II. SALARY RANGES 8

Salary Range Structure and Application 8

Updating Salary Ranges 9

Salary Range Revision 9

I. EMPLOYEE PERFORMANCE REVIEWS 10

Applications of Employee Performance Reviews 10

Objectives of the Employee Performance Review Program 10

Attitude 10

Salary/Wage Review Schedule 10

Relating Pay to Performance 11

Performance Review Procedure 11

Employee Goals

I. SALARY REVIEWS AND ADJUSTMENTS 12

Merit Increases 12

Timing 12

Basis for Increases 13

Merit Increase Guidelines 13

Approvals for Salary Adjustments 14

Promotional Increases 15

Transfers 15

Demotions 15

Reclassifications

(Company Name) SALARY ADMINISTRATION PROGRAM

DATE

This program has been designed to support (Company Name’s) mission to provide the following:

(Company Name) recognizes that employees need to be developed and be treated as an asset to be enhanced—compensation should be viewed as a tool to allow us to hire, retain, develop, and reward the best employees and to focus them on the desired behaviors and results.

The pay program should support developmental career paths by clarifying the opportunities within (Company Name) that employees may pursue for their personal growth.

Base salary levels should be established at competitive levels, with an opportunity for the best-performing employees to be paid at premium levels.

Base pay levels should be established recognizing that some positions have an opportunity to earn additional compensation through incentive arrangements.

(Company Name) strives to maintain pay levels that are competitive with a broad range of employers in the geographic area in which it competes for employees, not just other high-technology companies.

The pay program should be thoughtfully and consistently managed, through coordination and guidelines.

The program must be flexible to allow (Company Name) to continue to evolve as the employer of choice in the (Your City) marketplace.

The compensation program must comply with both the letter and the spirit of all relevant laws and regulations.

Objectives of the Salary Administration Program

The salary administration program establishes and maintains sound, practical guidelines for effective salary administration. These guidelines are designed to create a better understanding of the principles of salary administration and our salary program, and to permit optimum delegation of authority and responsibility for the administration of salaries within the framework of the salary policy. Specifically, the objectives of the salary administration program are:

To compensate each employee based on the value of his or her contribution to the success of the organization and in relation to his or her assigned position responsibilities, and to provide opportunities for advancement, without regard to race, color, religion, age, sex, national origin, disabilities, or any other protected class under local, state, or federal law.

To pay salaries that are competitive in order to retain our own qualified personnel and to attract competent applicants.

To provide a uniform method for determining the relative value of all positions at (Company Name) and for documenting position requirements and responsibilities; a proper correlation between salaries paid for similar requirements and responsibilities within (Company Name) will provide a basis for comparing position responsibilities and compensation levels provided by other employers in the same labor markets.

To keep all employees advised of our basic salary administration guidelines and informed of compensation matters affecting their salaries to assure them that they are being treated uniformly and consistently.

Elements of the Salary Administration Program

The basic elements of the Salary Administration Program consist of:

Position Analysis and Evaluation. Documents the duties and responsibilities of each position and groups positions of similar value into the same category or grade.

Salary Ranges. Establish the minimum and maximum dollar limits to be paid each year for each position classified within a given salary grade, based on competitive salary information and the relative value of each job level to the organization.

Employee Performance Reviews. Provide a method for evaluating each employee’s current performance and translating the results into meaningful salary administration by relating pay to performance. Goals are set to improve current performance and to help the employee prepare himself or herself for future increased responsibility.

Salary Reviews and Adjustments. Establish the criteria for employee salary reviews and salary adjustments.

Analysis Considerations. Establish a method of effectively monitoring and relating salary administration activity to budgets and E.E.O. objectives.

Each of these program elements is discussed in the following sections.

Responsibility for the Salary Administration Program

President and General Manager

1. Recommends compensation budgets and structure adjustments to Corporate.

2. Directs implementation and administration of compensation guidelines throughout (Company Name) in (Your City).

2. Reviews and approves overall increases and any special adjustments for all employees.

Senior Management/Salary Administration Committee

1. Reviews and recommends adjustments to the salary structure.

2. Reviews and recommends annual merit and promotion budgets.

3. Reviews and approves all position titles and grade placements in an organized pattern such that all positions will be reviewed at least every three years.

4. Committee members will consist of senior managers designated by the President and General Manager, with the intent of assuring companywide management representation that has year-to-year continuity.

Human Resource Department

1. Develops, implements, and administers the salary program for all employees.

2. Works with all departments regarding training and implementation so that compensation policies are understood and utilized

3. Obtains or develops competitive salary data on an annual basis and recommends appropriate salary adjustments to the Salary Administration Committee.

4. Prepares or revises position documentation (descriptions and questionnaires).

5. Coordinates the activities of the Salary Administration Committee.

6. Approves individual employee merit and promotion increases within authorized guidelines.

7. Prepares, in coordination with department managers, all recommendations for salary policy changes or special adjustments before submission to the Salary Administration Committee.

8. Prepares necessary reports for the Salary Administration Committee.

Managers

1. Maintain a thorough knowledge of salary administration policies and apply them in recommending or approving salary adjustments.

2. Keep subordinates informed of pertinent aspects of the salary program.

3. Review all performance evaluations periodically as part of the compensation review process.

II. POSITION ANALYSIS AND EVALUATION

Basic Policy: In order to pay salaries that reflect assigned position responsibilities, (Company Name) will use a uniform method of determining the relative worth of each position. All positions should be evaluated and classified according to (Company Name’s) position evaluation guidelines.

Objectives of Position Analysis and Evaluation

Effective human resource administration requires that management be guided by equitable policies in appraising the contributions of individual employees and in compensating them in accordance with their contribution. In determining how much an employee is to be paid, there are two primary considerations: the relative worth of the position as compared to other positions within (Company Name) and the objective appraisal of the employee’s performance relative to the position requirements. Position analysis determines the content and requirements of each position. Position evaluation determines the worth of each position in an organization.

The objectives of position analysis and evaluation are:

1. To provide a systematic, factual, and current basis for sound ranking of positions so that all employees are compensated in relation to all other positions in their department and (Company Name).

2. To provide a basis for determining salary differentials that reflect the complexity of position requirements and responsibilities, and the proper relationship of salaries paid for similar requirements and responsibilities, both within (Company Name) and in the relevant labor markets.

3. To provide position descriptions that will aid managers, supervisors, and administrators in the selection, placement, and promotion of employees according to, among other things, their education, knowledge, skills, experience, ability, and performance.

4. To provide employees and applicants with information about positions, duties and responsibilities, qualifications to fill them, and promotional opportunities.

5. To provide managers with a starting point for realigning positions, making new position assignments, or doing an analysis of work flow.

6. To provide a framework for measuring the results of (Company Name’s) efforts in the area of equal opportunity.

Method of Evaluation

To establish and maintain equitable relationships, all positions will be analyzed and evaluated on the basis of position documentation, managerial input, and other relevant factors concerning each position.

(Company Name) uses market-pricing evaluation to compare all positions. This process relies on management’s judgment of which jobs are worth more to the company, considering the education, knowledge, ingenuity, administrative responsibility, and operating responsibility of each position.

Position Analysis and Evaluation Guidelines

When a position is to be evaluated, the immediate supervisor, through his or her manager, requests assistance from the Human Resource Department to review the position and prepare the appropriate position documentation (descriptions or questionnaires) if an existing position description does not adequately describe the position.

The manager initiating the request assigns a department position title that is descriptive of the major functions being performed. The Human Resource Department coordinates the assignment of titles in order to provide titles that will denote both function and organizational level in a consistent manner. The Human Resource Department also coordinates the internal title with a (Company Name) corporate job title.

Position descriptions should generally be prepared for jobs with more than five incumbents, noting the functions, duties, and responsibilities of the position in simple, direct statements and avoiding ambiguous terms. The description should be fairly specific and state precisely the assigned duties and responsibilities.

Most positions can be adequately described in one or two pages and should focus on the position’s essential functions and responsibilities, supervisory responsibilities and relationships, exempt or nonexempt status, and the bona fide qualifications required for incumbents to perform the job, making sure that the incumbents have input into the description. The descriptions should concentrate on the major aspects of the position and ignore incidental or nonrecurring duties.

Position Analysis Procedure

The Salary Administration Committee, using the position evaluation guidelines, which compare each job with all other jobs and, where possible, identify relevant competitive data to assist in the determination of the appropriate grade, then places each position into a salary grade. For purposes of consistency, the grade placements are to be made without consideration of individual incumbents, but assuming the level of responsibility and proficiency that is expected from a satisfactory, fully qualified employee.

After the Salary Administration Committee evaluates the position, the evaluation is then reviewed by the General Manager to approve the evaluation. If the General Manager disagrees with the evaluation for a position, the Salary Administration Committee will reconsider the position responsibility, description, and evaluation. Once a position evaluation has been approved, the position classification and grade placement will generally remain in effect until the duties and responsibilities undergo a sufficient change to warrant reevaluation.

The position documentation (description or questionnaire) and position evaluation are (Company Name’s) official record for salary administration.

Requests for Reevaluation

All managers will be informed of the individual position evaluations of their staff and of the resulting salary grades. Managers will be responsible for notifying the Human Resources Department of any and all situations in which:

Position grade assignments based on position evaluation appear to be out of line with other subordinate positions;

Positions in an area of responsibility have undergone significant changes, with specific duties being added or deleted;

Difficulty in hiring qualified individuals because of the salary range guidelines has occurred;

Unacceptable or unusual turnover in a position has occurred, which may be due to salary range guidelines; or

Existing salary guidelines indicate that an individual employee is being overpaid or underpaid.

Managers should notify the Human Resource Director, in writing, of any such situations and will make specific recommendations on proper grade assignments. The Human Resource Director will review the position documentation and the evaluation, prepare new position documentation if necessary, coordinate the evaluation committee’s review of the position, and discuss the conclusions with the manager.

Normal Review Cycle: Due to the fact that positions tend to change very gradually in ways that often go unnoticed by those directly involved, and due to the fact that managers often fail to request position reevaluations when they are needed, the Human Resource Department should routinely inquire about changes in position responsibilities. In order to maintain a manageable workload, the Salary Administration Committee should review all new positions each year, plus those positions for which reevaluation is requested and one-third of the remaining positions. In this manner, all positions should be reviewed for proper evaluation every three years, and the Human Resource Department will maintain relatively current records of position responsibility.

When jobs are being filled for the first time, the jobs may be placed into a grade based on the supervisor’s expectations for the job. When this is the case, the position’s grade will be viewed as tentative, pending a review of the way the job is actually being performed at the end of one year by the evaluation committee.

III. SALARY RANGES

Basic Policy: (Company Name) will establish salary ranges that reflect the current competitive rate of pay each year in the relevant competitive labor markets.

Salary Range Structure and Application

Position evaluation establishes a hierarchy of positions and groups positions of similar or like value into the same category or salary range. Each salary range has a minimum, midpoint, and maximum salary level. Salary ranges are further divided into treciles or quintiles to facilitate salary administration, as follows:

Minimum of the Range

The minimum will be sufficiently high to attract competent applicants to fill the positions within the range. Employees who possess the minimum qualifications for the position will be paid at least the minimum salary.

First Trecile

The first trecile generally represents the lower third of the salary range. Salaries for most experienced new hires or newly promoted employees should normally be within the first third of the range. Employees may not be hired at a salary above the first trecile without the advance approval of the Human Resource Director.

Second Trecile

Salaries in the second trecile of the range are for incumbents who are generally performing all position requirements at a satisfactory level. New hires, if their experience, ability, and potential and/or market conditions warrant, may be offered a starting salary in the middle third of the range, if the approval of the Human Resource Director is obtained. An employee may not be hired above the middle trecile without the advance written approval of the President and General Manager.

Third Trecile

Salaries in the top third of the salary range are generally reserved for experienced employees whose performance is consistently outstanding.

Maximum of the Range

The maximum of the range is the maximum dollar value that the position holds within (Company Name) and represents the maximum that the organization is willing to pay for the position. The maximum should be high enough to motivate employees to perform in an above average or outstanding manner and permit salary growth, yet low enough to prevent payment in excess of the position’s value to (Company Name). Employees will not normally progress to the maximum of the range unless they are consistently outstanding performers for many years. Employees who are approaching the maximum should be considered for promotion to a position of greater responsibility whenever possible in order to permit continued professional growth.

Exceptions: Special situations may arise that result in employees being compensated either below the salary range minimum or above the salary range maximum.

Blue Circle Rates: The Human Resource Department, in conjunction with the Salary Administration Committee, will generally provide special guidelines for those employees whose salaries are below the minimum of the salary range.

Employees who remain below the salary grade minimum for more than six months due to poor performance should be transferred to less responsible positions or considered for termination.

Red Circle Rates: Employees generally may not be paid more than the grade maximum except by authorization of the President and General Manager.

Updating Salary Ranges

In order to maintain a competitive salary structure, trends in salary levels will generally be researched each year as follows:

The Human Resource Director will participate in relevant community and industry pay surveys each year to obtain relevant competitive pay information. The surveys should be selected to obtain data that reflects relevant competitors in a broad range of positions. It is anticipated that at least one benchmark position in each department will be selected from each salary range where feasible.

Competitive salaries for positions should be measured nationwide to establish “regional average” salaries for higher-level professional, technical, and supervisory positions. Data for other positions will be gathered from a combination of regional and high-tech manufacturer competitors.

Salary Range Revision

The salary ranges may be adjusted if competitive data indicates that the general salary line has shifted upward or downward. The salary structure as a whole, rather than individual salary ranges, will generally be revised to preserve internal relationships produced by position evaluations.

It is important to note that adjustments to the salary structure are not to be passed on to the employees in the form of general increases or decreases unless this is specifically authorized by the Salary Administration Committee. Individual merit increases are to be awarded based in large part on performance appraisals.

IV. EMPLOYEE PERFORMANCE REVIEWS

Basic Policy: It is the policy of (Company Name) to evaluate employee performance periodically and systematically in order to provide a basis for equitable salary adjustments and to provide employees an indication of their strengths and weaknesses to promote further employee development.

Applications of Employee Performance Reviews

There are two basic applications of employee performance reviews: (1) providing feedback to employees regarding their performance in order to aid in their development and to improve the company’s performance, and (2) providing management with the information that is necessary to properly reward employees in relation to their contribution to the organization’s success. Both primary applications of performance reviews are desirable.

Objectives of the Employee Performance Review Program

Continued organizational growth and success depend upon the effective development and utilization of employees. Effective utilization depends upon management’s ability to recognize available capabilities. Each supervisor should therefore seek out, develop, and utilize the capabilities of employees in their present positions and point out and develop capabilities that may be properly utilized in other positions. Performance appraisals achieve the objectives of effective utilization through the mutual establishment of performance and development goals.

Attitude

All supervisors should be aware that the desired results of a performance appraisal are improved productivity, improved employee relations, and better employee utilization. With these objectives in mind, the review attitude should be one of honest, constructive criticism and/or recognition.

(Company Name) encourages each supervisor to discuss the appraisal with each employee and to discuss goals and objectives for the employee for the following year. The meetings with the employee should allow a two-way flow of information so that both parties can better understand each other and the expectations that each has regarding job responsibility.

Salary/Wage Review Schedule

All employees should receive a salary/wage review every year. Additional formal or informal reviews may be performed for developmental purposes or to document interim performance. The annual salary review will be undertaken concurrent with the determination of merit increases, as described in the following section.

Relating Pay to Performance

It is anticipated that managers will rely on employee performance reviews in recommending or approving employee merit increases and in making future promotion decisions. The employees’ performance review will serve as a guideline for granting salary increases.

Performance Review Procedure

The immediate supervisor will appraise the employee, using the appropriate forms and considering the employee’s performance throughout the year, and will discuss the employee’s performance with the second-level manager. The rating should be based on the employee’s actual performance, as compared to the desired performance for a superior employee performing the duties of the position.

The manager should rate the employee using the appropriate form and commenting on each area of the employee’s performance. Managers are strongly encouraged to obtain input from the employee regarding his or her performance before conducting the performance appraisal.

Management should be involved so that constructive evaluations occur and employees are aware of their objectives and level of achievement. In addition to the initial discussion of objectives and the employees’ year-end appraisals, managers are encouraged to conduct semiannual sessions with employees to document progress to date or modifications of objectives.

Each employee’s overall annual performance will generally be classified in one of the following categories:

Far Exceeds Expectations (FEE) (outstanding, distinguished, among the best). During the current performance period, the employee has mastered the position, and his or her performance significantly exceeds all work objectives, standards, and expectations. The employee has achieved special results that set him or her apart from others. Performance has been the best that can be obtained in the position, and was clearly a result of individual efforts over an extended period of time. The employee consistently obtained outstanding results. The employee effectively demonstrated all or most competencies or management practices that were applicable.

Exceeds Expectations (EE) (highly effective). During the current performance period, the employee’s performance has consistently exceeded most objectives, standards, expectations, and requirements. The employee has generally required little supervisory guidance compared to others doing similar work to sustain a high performance level. The employee often obtained outstanding results. The employee effectively demonstrated most competencies or management practices that were applicable.

Fully Meets Expectations (FME) (productive). During the current performance period, the employee has demonstrated an understanding of the full scope of the position and performed all elements of the job in an effective manner. The employee has achieved the results expected of the position. He or she has required normal supervisory guidance compared to others doing similar work. The employee consistently obtained acceptable results. The employee effectively demonstrated several competencies or management practices that were applicable.

Partially Meets Expectations (PME) (needs improvement). During the current performance period, performance has not been fully acceptable; the employee has not met all job requirements. More than normal amount of direction and supervision was required. Employees who are new to a position may perform at this level because of inexperience. It is anticipated that an employee’s performance will not remain at this level. The employee did not demonstrate effectively one or two competencies or management practices that were critical for obtaining acceptable results.

Unsatisfactory (U) (unacceptable). During the current performance period, performance clearly has not met the requirements of the job in key elements of the job. Excessive direction and supervision were required. The employee must be made aware that performance at this level places his or her job in jeopardy. Specific development plans are necessary. The employee consistently failed to obtain acceptable results. The employee did not demonstrate effectively several competencies or management practices that were critical for obtaining acceptable results.

Too Soon to Tell (?). The employee is too new or has not been in the job long enough to assess results or competencies or management practices, or the supervisor has no firsthand basis for assessing the performance of a particular competency or management practice.

The Human Resources Director will review the ratings, consider the distribution of ratings by job level and function category, and discuss any questionable ratings with the managers involved to be sure that the ratings are as complete and accurate as possible within a department and between departments. The Salary Administration Committee will be responsible for resolving any apparent abuses or misunderstandings about the rating system.

Employee Goals

Specific goals should be established for each employee. Each goal should indicate specific measurable performance objectives.

V. SALARY REVIEWS AND ADJUSTMENTS

Basic Policy: All salary adjustments will be related to job performance. Employee salaries will be reviewed and adjusted periodically so that each employee’s salary accurately reflects his or her contribution to (Company Name).

Merit Increases

A merit increase is the payment of a higher base salary within the same salary grade. Individual performance is the only basis for a merit increase. Length of service or time spent in a position does not, by itself, justify an increase. Employees who fail to meet expectations, or whose performance is unacceptable, are not eligible for merit increases. Performance levels are well defined in Section IV, “Employee Performance Reviews.”

Timing

All employees will generally be considered for merit reviews periodically at a time designated by the company. Employees whose salaries are below the minimum for their salary grades may receive merit reviews at approximately six-month intervals as long as their salaries are below the minimum of the applicable salary range.

Basis for Increases

Annual salary adjustments will be made on the basis of employee performance. Supervisors are responsible for assessing employee performance relative to:

Assigned position responsibilities as outlined in the employee’s position description;

Special goals or objectives assigned from time to time; and

Other employee performance activities rated in employee performance reviews.

Supervisors will communicate these assessments to the Human Resource Department through the process described in Section IV, “Employee Performance Reviews.” These assessments, along with the employee’s salary position in the salary range, will serve as the basis for determining the amount of the merit increase for each employee.

Merit Increase Guidelines

The Human Resource Director will distribute to each manager copies of the Merit Increase Guidelines, as modified or supplemented each review period, after the Human Resource Department has obtained approval of the guidelines from the Salary Administration Committee.

The purpose of merit increase guidelines is to provide managers with a consistent and uniform method throughout (Company Name) for the way in which employees are rewarded. The guidelines recognize that there sometimes are valid reasons to depart from the normal increase schedule. Managers who feel that specific employees deserve more or less than the guidelines recommend are encouraged to submit the amount of increase that they believe is warranted, along with their reasons, to the Human Resource Department for consideration. In most cases, however, the guidelines should serve to coordinate managers in the process of rewarding the performance of the employees in their areas.

Once an employee has received an objective performance evaluation, the supervisor can determine the employee’s position in the applicable rate range and consult the guideline chart in order to determine the recommended percentage increase.

A Sample Merit Guideline chart is as follows:

Performance 1st 2nd 3rd

Evaluation Trecile Trecile Trecile

Far Exceeds Expectations 8.5% 6.0% 5.0%

Exceeds Expectations 6.6% 4.0% 2.0%

Fully Meets Expectations 5.0% 2.0% 0

Partially Meets Expectations 2.0% 0 0

Unsatisfactory 0 0 0

The percentage figures in the chart are not arbitrary. They relate to a management decision to pay employees who have demonstrated superior performance consistently over a period of time more than those who have performed at lower levels. There are two aspects to this issue. One is the level of the employee’s performance; the other is the length of time over which employees must demonstrate their abilities.

The primary advantages of the merit guideline chart are:

By considering the employee’s salary level within the range, the salary can be moved to a proper relationship with those of other employees based on performance and time in the position.

Flat percentage increases for certain performance levels could adversely affect an employee whose salary starts out low in the rate range; the merit guideline chart corrects this error.

Flat dollar increases for certain performance levels could adversely affect an employee whose salary is already high; the merit guideline chart corrects this error.

Salary range increases are considered in the merit calculation in a systematic manner.

The chart makes merit budgeting relatively easy and avoids general increases not based on performance.

The chart rewards employees who perform better by effectively coordinating the level of increases granted by management.

Assuming that performance ratings are accurate, the guidelines distribute payroll funds more evenly across department lines.

Approvals for Salary Adjustments

Recommendations for merit increases for all personnel will be forwarded through supervisory channels to the Human Resource Department for final approval. Salary increases must not be communicated to employees until after final approval has been obtained in writing.

Promotional Increases

The salary structure is designed so that an individual may be promoted into a position in a higher salary grade and normally still be below the midpoint salary for the new position even after a promotional increase. Accordingly, personnel promoted into new positions will normally receive a promotional increase equal to 4% of their previous salary for each salary grade increase as long as the percentage increase is not more than 25% when combined with their merit increase for the year. Newly promoted personnel may be paid above the grade minimum but should normally be paid in the lower half of the range for the new position. Promotional increases will normally be effective at the beginning of the pay period in which the promotion occurs, regardless of the employee’s normal review date. The promotional increase should not affect the employees’ normal review schedule.

Transfers

Employees transferring laterally from one job to another should not receive an increase or have their normal merit review date changed. The next merit review should consider the performance throughout the year.

Demotions

Demotions are generally discouraged. The President and General Manager and the Human Resource Director prior to any discussion will handle considerations for transfers to lower-level positions on a special basis with the employee. (Company Name) recognizes that in some circumstances it is in the mutual interests of the employee and the company for the employee to move to a lower grade in order to enter a new career path. Employees whose salary is above the maximum for the new grade will normally have their salary “red circled” or possibly reduced to the range maximum.

Reclassifications

In the event that an employee’s job is reclassified to a higher grade, the employee’s salary will be raised only if such an increase is required to raise the employee to the new range minimum. In the event that the position is reclassified into a lower grade, the employee’s salary will not be modified.

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