compensation-benchmarking

name: compensation-benchmarking description: > USE THIS SKILL when the user asks about pay structure, salary bands, compensation benchmarking, incentive design, total rewards, compa-ratio analysis, pay equity, executive compensation, variable pay, equity compensation, market pricing, salary surveys, or grade structures. Also trigger for "red circle," "green circle," "range penetration," "pay philosophy," "STI design," "LTI design," "compensation cost modeling," "gender pay gap," "equal pay," or any request to design, analyze, or benchmark compensation against market data for any employee population.

Compensation Benchmarking & Total Rewards Design

Required Inputs

Execution Steps

1. Compensation Philosophy Framework

Define the market positioning strategy that guides all compensation decisions:

Philosophy Decision Matrix:

Recommended Blended Philosophy (typical):

TTC = Total Target Compensation = Base + Target Bonus + Expected Equity Value

2. Market Data Sourcing Methodology

Survey Selection Criteria:

Major Market Data Sources:

Data Aging Factor: If survey data is X months old, apply: Aged Value = Survey Value x (1 + Annual Movement Rate x (Months / 12)) Typical annual movement: 3.0-4.5% for base salary in developed markets.

Geographic Differential: Adjusted Value = National Median x Geographic Differential Factor Example: San Francisco = 1.25x national; Austin = 1.05x; rural markets = 0.80-0.90x.

3. Job Matching / Leveling Framework

Internal Leveling Architecture:

Job Matching Protocol:

1. Match internal role to survey benchmark job based on content (not title)
2. Require 70%+ overlap in duties, scope, and complexity
3. Document match rationale for audit trail
4. Use blended matches if no single survey job fits (weighted average of 2 benchmarks)
5. Flag "unique" roles with no market match -- price by comparable internal level

4. Base Pay Analysis

Compa-Ratio Analysis:

Compa-Ratio = Actual Base Pay / Range Midpoint (or Market P50)

Range Penetration Analysis:

Range Penetration = (Actual Pay - Range Min) / (Range Max - Range Min) x 100%

Expected range penetration by tenure in role: New in role = 0-25%; Developing = 25-50%; Fully competent = 50-75%; Expert/Long tenure = 75-100%.

Population Analysis Template:

5. Pay Band Design Methodology

Band Structure Parameters:

Example Band Calculation (50% spread, P50 = $100,000):

Midpoint = $100,000
Minimum  = $100,000 / 1.25 = $80,000
Maximum  = $100,000 x 1.25 = $125,000
Spread   = ($125,000 - $80,000) / $80,000 = 56.25%

6. Variable / Incentive Compensation Design

Short-Term Incentive (STI) Design:

Long-Term Incentive (LTI) Design:

7. Total Rewards Framework

8. Pay Equity Analysis

Regression-Based Analysis:

Run multivariate regression: Ln(Base Pay) = B0 + B1(Grade) + B2(Tenure) + B3(Performance) + B4(Location) + B5(Gender) + B6(Ethnicity) + e

Practical Significance Threshold: Flag gaps > 2% even if not statistically significant in small populations.

Cohort Analysis (supplement to regression):

Remediation Cost Estimate: Sum of individual adjustments needed to close gaps > threshold for all flagged employees.

9. Executive Compensation Benchmarking

Executive Comp Components:

Pay Mix Analysis (% of target TDC):

Executive comp should shift toward variable/long-term as level increases. Typical CEO mix: 15-20% base, 15-25% STI, 55-70% LTI.

10. Cost Modeling

Current vs. Proposed Structure Impact:

Phased Budget Impact:

11. Implementation / Transition Plan

Red-Circle and Green-Circle Management:

Migration Timeline:

12. Communication Plan for Compensation Changes

Communication Principles:

• Lead with philosophy and fairness rationale -- not just numbers
• Managers must understand the system before employees hear about it
• Every employee receives a personalized total rewards statement
• Provide a clear channel for questions and concerns
• Never promise future increases -- communicate the framework

Output Template

# Compensation Benchmarking & Total Rewards Report: [Organization]

**Date:** [Date]
**Scope:** [X] employees across [X] levels, [X] locations
**Market Data Sources:** [List surveys used]
**Data Effective Date:** [Date] (aged to [Date] at [X]% annual factor)

---

## 1. Executive Summary

[2-3 paragraphs: current comp positioning, key findings, recommended actions, cost]

**Current Total Comp Spend:** $[X]M
**Avg Compa-Ratio (company-wide):** [X.XX]
**Employees Below P25:** [X] ([X]%)
**Pay Equity Gaps Identified:** [X] employees flagged
**Estimated Remediation Cost:** $[X]M
**Proposed Structure Change Cost:** $[X]M total over [X] phases

---

## 2. Compensation Philosophy

[Approved philosophy statement with positioning by segment]

---

## 3. Market Data Summary

### Survey Sources and Methodology
[Surveys used, aging factors, geographic adjustments]

### Market Benchmarks by Grade
| Grade | P25 Base | P50 Base | P75 Base | P50 TTC | Current Midpoint | Gap to P50 |
|-------|---------|---------|---------|---------|-----------------|------------|
| | | | | | | |

---

## 4. Current State Analysis

### Compa-Ratio Distribution
[By function, level, location with outlier identification]

### Pay Equity Analysis
[Regression results, cohort analysis, flagged employees, remediation cost]

---

## 5. Proposed Pay Structure

### Salary Bands
| Grade | Minimum | Midpoint | Maximum | Spread | Midpoint Differential |
|-------|---------|----------|---------|--------|----------------------|
| | | | | | |

### Variable Compensation Design
[STI and LTI structure by level]

---

## 6. Total Rewards Summary

[Total rewards framework with monetary values and market positioning]

---

## 7. Executive Compensation

[C-suite benchmarking, pay mix analysis, market positioning]

---

## 8. Cost Model

[Current vs. proposed cost, phased budget, ROI through retention]

---

## 9. Implementation Plan

[Phased timeline, red/green circle management, communication plan]

---

## 10. Recommended Next Steps

1. [Immediate action with owner and deadline]
2. [Second action]
3. [Third action]

Quality Checks

• Compensation philosophy is explicit about market percentile target by role segment -- not a vague "competitive" statement
• Market data sources are named with data effective dates and aging factors applied
• Job matching uses content-based methodology (70%+ overlap) -- not title matching
• Compa-ratio and range penetration are calculated for every employee with outlier flags
• Pay bands specify midpoint, min, max, spread, and midpoint differential between grades
• Variable compensation design includes eligibility, targets, measures, payout curves, and funding mechanism
• Pay equity analysis uses regression controlling for legitimate factors -- raw gap alone is insufficient
• Executive compensation separates base, STI, LTI with pay mix analysis against market
• Cost model quantifies current vs. proposed at individual level, aggregated to total budget impact
• Red-circle and green-circle situations are identified with explicit management strategies
• Communication plan sequences board, executives, managers, then employees -- never reversed
• Total rewards framework includes non-monetary elements (career, culture, flexibility) alongside monetary
• Geographic differentials are applied when benchmarking multi-location workforces