GUIDELINES FOR REQUEST FOR PROPOSAL (RFP) FOR CLASSIFICATION AND COMPENSATION SERVICES

This article will address Four subjects:

• Services Available from Compensation Consulting Firms
• The Request for Proposal
• The Selection Process
• Managing the Consultant

Consulting firms provide a wide range of services related to compensation management. The services available in the marketplace include:

• Strategic Planning
• Job Analysis and Classification
• Job Evaluation Methodologies and Services
• Compensation Studies and Plan Design
• Performance Management
• Automated Tools

Each of these services is described in greater detail below.

Strategy development involves determination of the purpose, goals, and objectives for the compensation program. Unfortunately, most organizations do not view compensation as a strategic tool but, rather, an end product or something that is needed to round out the human resources program within the organization. In today’s business environment, progressive organizations recognize that the compensation system is nothing more than one tool in their arsenal of tools to achieve the overall organizational mission and fulfill its organizational goals.

The strategy development process involves at least six specific activities, as follows:

• Analyzing the current system to determine its strengths and weaknesses
• Identifying why the current system is not meeting organizational objectives
• Determining the purpose, goals and objectives for the compensation program
• Determining the strategies needed to achieve the purpose, goals, and objectives
• Developing communication programs to educate stakeholders regarding the compensation program
• Developing an implementation plan

Whether the organization develops its own philosophy, goals, and objectives prior to seeking outside assistance or asks the consultant to assist in the process, this activity is singularly the most important to the overall success of any compensation system plan design. To often, organizations simply ask for a classification and/or compensation study without clearly defining what it wants and why that approach will meet their requirements. In those cases, the organization will end up with a generic plan that is the equivalent of buying a tract house because your friends bought one when, in fact, you really need additional bedrooms, bathrooms and living space. In simple terms, one size does not, and cannot, fit all organizations.

The activities comprising the classification study include:

• Development of an appropriate data collection instrument(s)
• Employee orientation regarding the study and how to complete the data collection instrument
• Employee participation through individual or group interviews or other processes as appropriate
• Development of a model classification structure that is consistent with the strategic objectives for the organization
• Organizational acceptance of the model structure
• Development of new or revision of existing class/job descriptions/specifications that are consistent with the requirements of the Americans with Disabilities Act and reflect the appropriate FLSA status
• Organizational review and acceptance of the job/class descriptions/specifications
• Notification of employees regarding their proposed classification under a new system
• Development of a process for employee input regarding their individual allocation
• Employee input regarding their individual allocation
• Review of the proposed allocations and final determination regarding each position

In soliciting proposals for a classification study, the focus should be on the process used by the consultant and the qualifications of the consultant, not the number of hours spent or the specific number of individual employee interviews. These items are by-products of the process. For example, if an organization has 1,000 bus drivers, is it really necessary to conduct individual, or even group, interviews with hundreds of drivers? It may be more effective to let the group select a representative sample of drivers to complete the data collection instrument and participant in whatever employee involvement activities are appropriate. Have the consultant propose a process and then select the firm that proposes the process that is most compatible with the organization’s objectives.

Job evaluation is needed if the organization is concerned about the internal relationships of job classes either within a specific occupational group or across the entire organization. The methodology that is ultimately used should be consistent with the classification concepts that are adopted by the organization. There are seven general approaches to job evaluation:

• Whole job ranking
• Market Pricing
• Classification
• Point Factor
• Factor Comparison
• Scored Questionnaire
• Decision Band

When organizations specify a particular methodology in their request for proposal, they may unwittingly be limiting their flexibility relative to the classification concept for their organization. The actual determination of methodology should be made during the strategic planning phase of a project, thereby ensuring that the tool selected is appropriate for the organization. For example, as organizations move towards broader, more generic job classifications, job evaluation tools such as point factor or scored questionnaire become less appropriate since they require a high degree of specificity in order to accurately and fairly rate individual jobs or positions. In addition, the factors and weights must be consistent with the organizations overall values and priorities.

Once the job evaluation methodology is selected, there are four steps in its implementation.

• Train organizational staff in the application of the selected tool
• Applying the selected methodology to the organization’s job classes
• Reviewing and revising the ratings as necessary and appropriate
• Communicating evaluation results to managers and employees

A compensation study can take a variety of forms. There are numerous issues to be addressed. For example:

• Is the organization interested in total compensation including base pay, benefits, and variable compensation?
• Is the organization only interested in base pay?
• Is the organization interested in alternative reward systems such as skill based pay, group based incentives, or individual performance based systems?

These are fundamental questions that should be addressed during the strategy development process.

Specific activities that should occur in a compensation study include:

• Reviewing past survey practices
• Identifying benchmark job classes
• Selecting the appropriate labor market or markets
• Collection, compilation, and analysis of market data
• Constructing model compensation structure(s)
• Reviewing proposed structure(s) to determine whether it/they are consistent with the strategic objectives
• Determining implementation costs for the new system(s)

Whether an organization needs a formal report is up to each organization. However, any report should include:

• Study methodology
• Major findings
• Major recommendations

In addition, the organization should determine whether the consultant will be asked to make formal presentation of its report and, if so, to who and how many presentations will be required. If there is a potential interest in having the consultant assist with plan implementation, identify the potential tasks and ask the consultant how they might be able to support your organization and how such assistance might be priced.

If the organization is seeking to have a performance measurement system developed as part of the compensation plan design, it should consist of three components:

• Conceptual Design
• Detailed Design
• Implementation Assistance including training

Does the organization have an existing system that can serve as the basis for the new program or are you looking for a new approach? Tell the consultant what your objectives are and let them propose an approach. Be wary of firms or individuals that offer you an "off the shelf" system. Remember, the culture of every organization differs and what works well in one setting may be a dismal failure in another. Focus on the process the consultant proposes to use in determining the right system for your organization.

There are three types of automated tools available:

• Record Keeping Systems
  
  Within this category, one will find spreadsheet and data base management systems. These systems are commercially available and are not typically provided by compensation consulting firms.
• Decision Support/Decision Making Systems
  
  The most common decision support system provided by compensation firms are automated job evaluation systems or scored questionnaires. These systems are typically best suited to extremely large organizations that want to evaluate individual positions rather than broad job classes. There are a limited number of recognized systems on the market and they all have many features in common. When asking for such a system, be sure to get the names of clients that have successfully installed the system and have been using it for a period of time. Be sure you then check with each organization to assure yourself that you are buying a workable system.
• Compensation Management Systems
  
  Most of the pure compensation management systems available in the marketplace are either PC based or part of an integrated HRIS system such as PeopleSoft™. IPMA issued Request for Proposal Guidelines for Human Resources Information Systems (HRIS) in July 1999.

Following are the specific steps that an organization should following in selecting a compensation consulting organization:

• Develop specifications

• Solicit statements of qualifications from Consultants
• Do reference checks. Make sure you ask for a wide range of clients served, not just two or three that the consultant wants you to call. Unless you check with multiple prior clients, you will have no way of knowing that consultants track record for successful client service and the overall degree of client satisfaction.
• Select one to three firms to submit formal proposals. Preparation of proposals is a very time consuming and costly effort for consultants. You will get better proposals if the consultants know that only those who are serious contenders are being asked to go to the time and expense to do so. Be prepared to answer their individual questions so they can give you the best proposal possible.

• Review proposals and interview firms. Interviews should be no less than one hour with two hours being desirable. You need to get to know the consultant and they need to get to know you. You are asking them to invest a considerable amount of time and money in your proposal — give them the courtesy of spending the time needed to make a fair and objective selection. While tempting, it is not wise to have a selection committee larger than 8-10 members. Select committee members because of their expertise and knowledge. Including a group of employees makes the selection process a "beauty contest" based on appearances and communication style — rather than the depth of knowledge and experience in addressing your issues or problem.
• Select the firm and negotiate contract

Include the following information in your Request for Proposal:

• Background — Why is the study being conducted now, current issues, history of the current system. This information is helpful to the consultant in understanding what problems they are going to be expected to solve and the climate in which the study must be conducted.
• Who will be the "Client." Will the consultant be accountable to the Human Resources Director, a project steering committee, the City Manager, or the City Council. Who will make the final determination as to the acceptability of the services provided by the Consultant? This information will be helpful in understanding the decision making process within the organization and how they will need to relate to the organization.
• What are your objectives for the project. Unless you are clear in you expectations, it is unrealistic to expect the consultant to be a mind-reader.
• What is your budget for the project? Be realistic. What is/are the selection criteria? Are qualifications and workplan more important than price? Often, organizations say they have no set budget — they want the consultants to tell them what it will cost. This is the equivalent of asking a car dealer to bid on a car without telling the dealer what the parameters are. One dealer will propose basic transportation (a Yugo) while another may propose a mini-van. By providing a budget parameter or range, the consultant can then tailor a workplan to fit the available dollars. The agency can then select the firm that offers the most value for the dollars available. Give the consultant the option of offering other services that may exceed the basic proposal if the consultant believes that such services would be beneficial to the client. This is the equivalent of asking for the price of optional features on the car such as power windows or air conditioning.
• What jobs/occupational groups/unions are affected? This could affect how the consultant offers to staff the project, as well as enable the consultant to offer relevant qualifications.
• How many employees are there in each group? This information is crucial for the consultant to develop a reasonable cost estimate.
• What is your time schedule for selection and also for the project. Are the dates firm and, if so, why? Often, organizations ask for a complete study to be completed in extremely short time frames. While the technical work can often be completed quickly, acceptance of the results is problematic. Give yourself time to involve employees and managers so that the end result meets the organizations needs and is acceptable to the key stakeholders.

Whoever you select as your consultant, be prepared to manage them. Organizations that are seeking an off the shelf product and/or a turn-key system are at serious risk of getting a product that is not responsive to your needs as outlined during the initial phase of the project.

• Know what you want the Consultant to do — and when you mutually agree that it will be done
• Seek out the right consultant for the job. You are buying a service — not a commodity. Most people don’t select a doctor in the same way they buy copy paper. Whoever you select will have considerable impact on your organization. Make sure there is a good fit between you and the consultant.
• Make sure the consultant can communicate effectively
• Know what the fee is and when you will be billed
• Be involved — share information
• Expect to learn
• Track results

Classification and compensation studies are sensitive matters to most employees. If you follow the above guidelines in selecting your consultant, your changes of a successful effort increase substantially.

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