Looking to Benchmark Pay?
Interactive Exercise
Introduction
In variable pay, the employee receives increases dependent upon meeting performance standards of the job, the work group, or the organization. From an organizational standpoint, fixed compensation costs should decrease when the organization is not performing well because performance increases are not justified. At the other end, when the business is performing well or when employees perform well, above-average pay will be paid through incentives. The increase in cost of labor comes at times when the organization can better absorb the cost. To support your data requirements, ERI’s Salary Assessor® includes base pay, incentives, and total cash compensation.
Problem Statement
The Bayview Bank is a small regional bank in Ann Arbor, Michigan with assets of $200 million. The bank has 5 branches in Ann Arbor and adjoining towns. In an effort to increase the volume of commercial loans, the bank’s officers have decided to develop an incentive plan for the Commercial Loan Manager. The plan design looks like this:
- A performance standard was developed. In this case, since the purpose of the plan was to increase the volume of loans, the measure selected was the dollar value of commercial loans. To keep loan quality from deteriorating, a negative factor was built in for bad loans.
- The performance standard for this year is set at last year’s volume of loans. If the value of loans next year is equal to or less than the current year, the Commercial Loan Manager will receive her base salary set at the market median but no bonus. If the volume of loans increases by 20% next year, then she will be awarded a bonus at the 75th percentile.
You can use ERI’s Salary Assessor to calculate the base pay and bonus for this Commercial Loan Manager. Press the Load Step-by-Step button to find out how.