INSTITUTE OF MANAGEMENT TECHNOLOGY PROJECT REPORT COMPENSATION SURVEYS SUBMITTED BY: Vidur Pandit (L0DCP-094) Human Resource Planning |IMTGDCP i}‘Table of Contents Introduction... Compensation and Benefits. Important of Compensation and Benefits Compensation Surveys. What are Compensation Surveys?. Objectives of a Compensation Survey ‘Types of Compensation Surveys Standard Surveys Custom Surveys. ‘Types of data gathered... How You Can Make Good Use of Compensation Strategy, Equitable Compensation Determining Rates of Pay Salary Increases. Pay Increase on Promotion, General Salary Adjustment ‘Automatic Salary Progression. Anomalous Salary How to Conduct a Salary Survey Whom to Include in Your Survey Making Contact with Prospective Applicants Compare apples to apples Review job descriptions or position profiles in the survey report Note Province and Region. Note operating budgets of respondent organizations. Note the types and descriptions of respond ent organizations. Note the education level and status of respondents Note the year of data collection and the date of the report. Note if the survey is a one-time event orifit's repeated. Multiple survey sources Number of participants Compensation Survey Checklist Evaluating Its Validity. Human Resource Planning | IMT G DCPINTRODUCTION Compensation and Benefits Compensation & Benefits (abbreviated "C&B") is a sub-discipline of Human-Resources, focused on employee compensation and benefits policy making, It is also known in the UK as “Total Reward” and as “Remuneration” in Australia and New Zealand. ‘The area of Compensation and Benefits belongs to the most specialized areas in Human Resources Management, Compensation and Benefits usually plays the role of the HR Controlling, setting the rules and procedures around the salaries, variable pay and benefits, Compensation and Benefits is usually the function of HRM most connected with the competitors on the marketand it sets the compensation policies, which are fully competitive on the job market, but the policies still meet the targets defined by the organization. Important of Compensation and Benefits Compensation is an important motivator when you reward achievement of the desired organizational results, Itis said "that money is a powerful source of motivation.” But it is also said that salary increase can only motivate until the next pay increase is due. Imagine what the impact is if an employee is at the maximum point of his or her salary range. Achievement of the desired behaviors is important in order to enhance your organization's effectiveness. In turn, this increases the possibility of success. Compensation strategy can reinforce the organizational culture that you desire. This is an enabling organizational culture under which pay is linked to performance. Human Resource Planning |IMT.GDCP [ijYour compensation policy must reflect your strategic business objectives. This becomes all the more important when determining CEO compensation. You must clearly define the objectives of your organization so that you can achieve them by using compensation strategy. These are communicated to everyone soon after a decision is taken. It can happen that good decisions fail to achieve results due to Poor communication. By providing the right combination of benefits which are non-cash compensation ‘your organization can motivate employees and make them stay to help in its progress. @ Salesperson . Salespersen CULTURE The Balanced Wortd Human Resource Planning |IMT.GDCP [ijCOMPENSATION SURVEYS What are Compensation Surveys? Organizations have to bridge the gap between the industry standards and their salary packages. They cannot provide compensation packages that are either less than the industry standards or are very higher than the market rates. For the purpose they undertake the salary survey. The Salary survey is the research done to analyze the industry standards to set up the compensation strategy for the organization. Organizations can either conduct the survey themselves or they can purchase the survey reports froma reputed research organization. To determine the prevailing rate for a job, companies can "benchmark" jobs against compensation surveys that are detailed and specific to the companies! industries and regions. A good compensation survey uses standard, proven methods of data gathering and statistical analysis to determine how much companies pay fora specific job ina specificindustry. A number of types of organizations conduct salary surveys, including compensation information businesses, compensation consulting firms, industry associations, educational institutions, and state and federal governments. Objectives ofa Compensation Survey ‘To gather information regarding the industry standards To know more about the market rate i.e. compensation offered by the competitors To design a fair compensation system To design and implement mast competitive reward strategies To benchmark the compensation strategies Human Resource Planning |IMT.GDCP [ijTypes of Compensation Surveys Customized Standard Surveys Standard surveys are undertaken by organizations on a regular basis. These surveys are conducted annually based on the organizational objectives. These surveys attempt to cover the same companies every year and provide the same time of analysis, The reports are published annually by the research organizations. The organizations willing to formulate their compensations strategies based on the surveys purchase the reports from the research organization. Custom Surveys Attimes, a few organizations need to know some specific information. The surveys which cater this need are known as custom surveys. The organizations either higher research organizations to conduct these surveys for them or they themselves conduct the survey by sampling few of the Human Resource Planning |IMT.GDCP [ijcompetitars on their own. These surveys do not have any time interval. They are undertaken as the need arises. They focus on importantissues usually one or two. Types of data gathered Salary Surveys are analyses of compensation data. This data may include quantifiable aspects of compensation such as: Base salaries Increase percentages or amounts Merit increases Salary Ranges Starting Salary Incentives/Bonuses Allowances and Benefits Working Hours Salary Surveys may also include non-quantifiable aspects of compensation such as: Educational Requirements Geographic Location Source of Hire (Internal/Exter nal) Working Conditions Human Resource Planning | IMT G DCPHow You Can Make Good Use of Compensation Strategy You can use compensation to attract and retain competent peaple. This objective requires you to offer a salary that is not lower than the market rates. When you want better customer service, reward employee behaviors that produce superiar service Do not harp on the amount of salary you are paying yet at the same expect good performance. Your people may conclude that there is insincerity on the part of management. Match the written policy with the right and appropriate actions that demonstrate to your employees that you are a fair and just employer. Equitable Compensation like employees working elsewhere in other organizations, your people are concerned with compensation equity. Take this into consideration in drawing up your compensation strategy. When people notice inequities, their morale and motivation will suffer. But by adopting a compensation strategy, you don't have to worry about your good people resigning. If they believe in your management's fair-handedness, it is very probable that they will not go away. Decision to leave an organization requires considerations other than or in addition to dissatisfaction with compensation. Human Resource Planning |IMT.GDCP [ijDetermining Rates of Pay Compensation strategy involves considering to adopt any of several ways in setting rates of pay. + Pay increase based on employee's length of time spent on the job. This is seniority-based pay that is a good motivator in employee retention. But here, you are not rewarding performance Performance-based pay is intended to motivate employees to perform better. Such a plan is becoming more common whereby the manager and employee agree on the job goals and performance criteria at the beginning of a specified period, usually at the beginning of the year. The effect of this as a motivator can vary from time to time and from situation to situation You can give pay increases based on job-related skills and knowledge. This is intended to motivate your people to gain additional skills, acquire new competencies and knowledge. Under this method, you do not pay employees for the job they are-doing, their job title or seniority. This is competency-based pay Salary Increases Your compensation strategy needs to align your compensation objectives to your organizational business objectives. Salary increases are part of this plan. By this, you are recognizing employees’ contribution to the accomplishment of your organization's objectives. Consider implementing a policy whereby employees are given salary increases when your organization can afford to give them, in arrears. This ensures that good performers will continue to perform. They know that they will get what is due to them. Human Resource Planning |IMT.GDCP [ijGiving salary increase to an under-performer is not justified. There are organizations who have implemented a policy that employees who are in the last five percent of the performance bracket will have to go, Pay Increase on Promotion ‘When an employee is promoted, you may or may not give a significant pay increase. It is not justified to pay an overpaid employee a significant promotional increase. Consider all relevant matters before you make a decision. One important thing to consider is the pay parity with people in the same category and Performing similar tasks. General Salary Adjustment In performance-based pay, do not give across-the-board increases. Differentiate between outstanding, average and non-performers. If not, your employees will lose trust in the system, resulting in little orno motivational impact. Paying the right salary has impact on employee performance and organizational effectiveness. Automatic Salary Progression This has no relationship to performance. Avaid it as it does nat encourage your employees to improve their performance. This is fairly common in the public sector. But there are now significant changes made in accordance with sound human resource management principles. The only occasion where you can consider giving some salary increase that is unrelated to performance is in respect of increase in the cost of living. Human Resource Planning |IMT.GDCP [ijAnomalous Salary If you have any employee whose salary is below the minimum for the job or too low in relation to the employee's performance and experience, make the necessary adjustment. This is in addition to an increase based on performance merit. On the other hand, you may have an employee who is paid above the maximum point in the salary range for the job. You may freeze further salary increases until the relevant pay level is reached. Then give merit increase based on performance. Dan't give increase if performance is unsatisfactory: HOW TO CONDUCT A SALARY SURVEY Public and private organizations, including nonprofits, nearly all use market parity as a starting point in structuring their pay systems. Even when these systems are not formalized, decisions about pay are usually based on some kind of market-based rationale, Employees expect objectivity and equity in decisions about their pay, and good managers do their best to meet that expectation. One very important tool to help them determine market parity is the salary survey. Surveys can be as casual as a telephone call regarding a single job or as structured as a ten-page questionnaire sent to dozens of agencies. This discussion covers a middle ground between these extremes; it is aimed at the agency administrator who is not a statistician and whose experience in salary administration may be limited, Human Resource Planning |IMT.GDCP [ijWhom to Include in Your Survey Consider the following in deciding which organizations to include in your salary survey: ‘Agency location. Are your interests local, regional, or national? Surveys on support staff jobs are usually done locally because recruiting for those jobs is local. Professional or management job surveys are regional or national because that labor market is geographically dispersed. ‘Agency size. Big organizations tend to have more higher-paying jobs carrying more responsibility. Small agencies often find data from bigger organizations useful, but the reverse is seldom true ‘Comparability of agency function or services. Are activities, clients served, and revenue sources similar or complementary to those of your agency? A nonprofit agency that serves a disadvantaged clientele and is funded by government grants may have little in common with one that serves the arts and is financed by private philanthropy: *Public/private/nonprofit boundaries. Do people in your organization have employment alternatives in other kinds of organizations? If so, you should survey all organizations that demand the same skills that your agency requires ‘Quality of salary management. Is the agency experienced in administering pay? Beware of limiting your survey to inexperienced agencies; mistakes can be compounded by following poor examples Making Contact with Prospective Applicants Never drop a salary survey questionnaire in the mail without first making personal contact with someone in the prospective participant agency. This should bea person with the authority to release the Human Resource Planning |IMT.GDCP [ijinformation you want. In small agencies, that will be the chief executive; in larger ones it will be the business manager, controller, or personnel director. In any case, the questionnaire should be addressed to an individual who is expecting it and who can act on it. Prior telephone contact is usually sufficient; explain the purpose of the proposed survey, its scope, and potential advantages to all participants. Make your appeal on the basis of helping all participants solve common questions about salaries, not just on the basis of helping to answer your own questions. Compare apples to apples itis important, when reviewing salary surveys, to make sure that you are comparing information that is similar, Looking at salary and benefits levels in organizations vastly different from your own will not provide the information you need. Here's what to look for: Review job descriptions or position profiles in the survey report It is important to look at job duties and responsibilities not just job ttle when deciding if salary survey information is comparable. To be comparable the jobs must have a similar level of responsibility and range of duties. Note Province and Region Appropriate salary comparisons will come from agencies with a similar geog raphic focus: local, regional, provincial or national. At the local level, the best salary comparisons will come from other organizations in the same city or town. Good salary comparison may come from a different city or town with similar labor market characteristics and a similar cost of living. Human Resource Planning |IMT.GDCP [ijNote operating budgets of respondent organizations ‘As a general rule larger operating budgets mean higher salaries. Comparable salaries come from organizations of a comparable size. Size is usually estimated by using the operating budget or looking at the number of paid full-time staff, Note the types and descriptions of respondent organizations Are the functions, services offered, clientele, and sources of funding of the organizations in the salary survey comparable to your organization? For example, an organization providing childcare services through provincial funding may have very different salaries than an organization providing parent/child resources through its own fundraising, Note the education level and status of respondents The level of education required for a job and the type of employment arrangement can have an impact on salaries. Note the year of data collection and the date of the report Labor market forces can result in significant changes in salaries in a short period of time. More recent data will be more useful in establishing current salaries, Note ifthe survey isa one-time event or ifit's repeated Surveys that have been repeated provide an added advantage of showing trends in salaries over the years of the survey. Human Resource Planning |IMT.GDCP [ijle survey sources ‘As with any form of research, it is important to use multiple data sources to narrow in on the "true" answer. Relying on a single source can be misleading if that source doesn't perfectly reflect the market in question. WorldatWork suggests that compensation analysts should use multiple data sources wherever possible; consulting firms and academics agree. The exceptions come when there is only one data source, or when there is a spot-on data source, such as a custom survey, that truly describes a precise market. Number of pa Make sure the participants are a good sample of the recruiting market. Generally, eight to ten participating companies is a good sample for positions below the management level. The sample size should increase the more senior the positions being surveyed, both to get 2 good representation and to allow for more job matches, since each company is organized differently. There could be limited pay data in some industries, or the available data might not be representative of the industry because of a low participation rate inthe survey. Some firms reveal a list of participants, or at least those well known within the industry. The surveying company may disclose big-name participants to draw more interest from smaller companies. A list of major employers canalso add credibility to the survey. ‘An important exception to note is that if a compensation analyst or compensation consult ing firm is using multiple surveys to produce their own derivative market numbers, they will aggregate the data by combining the surveys, placing differing weight on different sources and sometimes even making a qualitative adjustment. When the data has been aggregated in this manner, itis not customary to report numbers or names of participants. Human Resource Planning |IMT.GDCP [ijCompensation Survey Checklist Here are some considerations to weigh for 2 company who is deciding whether to purchase a ‘compensation survey. + The background of the survey research firm and cosponsors, ifany ‘The scope of the survey ‘The survey methodology ‘The number of participants in the survey ‘The names of participants ‘The number of incumbents covered by the survey; and the sample size for each salary ‘The relevance of the jab descriptions to the pasitions being benchmarked ‘The effective date of the survey data Evaluating Its Validity It’s important to ensure that the salary survey was conducted in an objective, valid and reliable manner. What are the sampling frame, sample size and response rate? What is the margin of error? Is it reported? For information to be valid it has to come from a large enough sample size. For example, if you collected just three sala ries for the same position and one salaryis high, one is low, and oneis inthe middle, you wouldn't be able to conclude much because your sample is too small to provide valid and Useful information. You also want to be sure that the information is reliable. Reliability means that the survey gives consistent results. You should therefore carefully consider how the information is gathered and decide if it makes sense to you. For example, if the survey instrument is included in the report, ‘assess if it would be easy for you to give accurate answers to the questions. Human Resource Planning |IMT.GDCP [ij