Compensation is not the cut-and-dry subject it used to be. Once you had to worry only about an employee's base salary or, at most, a base salary and commission. Today, you need to think in terms of compensation packages - including salaries, stock options, employee stock ownership plans, pay-for-performance plans, bonuses, profit sharing, commissions, non-cash rewards, variable pay, and much more.
To recruit, retain, and motivate the best employees, you need to understand compensation and reward plans and how they relate to your company's growth.
We'll help you get a handle on everything from settling on a compensation strategy to creating a variable pay plan with this collection of checklists, benchmarks, and advice. Compensation as Motivation The Power of Base A compensation expert explains how to improve your compensation strategy by developing an effective, market-driven base pay system. Pay for Performance -- and Nothing Else Employment relationships are transactional by nature. Today's transactions are fast moving, short-term and fully exposed, as free agents negotiate with managers for project and contract work. Compensation Strategy Recruiting Top Talent, One by One. This CEO tweaked her company's compensation package over time to attract key managers. Wage Wars An employee who makes $35,000 a year may be happy as a clam with his compensation until he learns that Frank in the cube next door makes $40,000. Three rules for handling the delicate subject of employee salary information. Shifting Workplace Values Alter Pay Strategies Incentive compensation is becoming the norm, and salary increases seem to pattern economic performance. Employee Ownership
Recruitment and retention of qualified employees is a common goal shared by many employers. Examples of such plans include: bonuses. goals. While an employer may set compensation levels for new hires and advertise those salary ranges. salary ranges/structures. Various compensation systems have developed to determine the value of positions.
Morale and job satisfaction are affected by compensation. Reduce turnover and encourage company loyalty. Reward and encourage peak performance. Conversely.
Compensation may be used to: Recruit and retain qualified employees. an employer wishing to reduce employee turnover may seek to increase salaries and salary levels. and written procedures. profit sharing. The components of a compensation system include:
. These systems utilize many similar components including job descriptions.How is compensation used? Compensation is a tool used by management for a variety of purposes to further the existence of the company. stock. gain sharing. the availability and cost of qualified applicants for open positions is determined by market factors beyond the control of the employer. employers may opt to freeze salaries or salary levels at the expense of satisfaction and morale. Often there is a balance (equity) that must be reached between the monetary values the employer is willing to pay and the sentiments of worth felt be the employee. Achieve internal and external equity. Compensation may also be used as a reward for exceptional job performance. Increase or maintain morale/satisfaction. In an attempt to save money. What are the components of a compensation system? Compensation will be perceived by employees as fair if based on systematic components. To some extent. it does so in the context of other employers seeking to hire from the same applicant pool. and available resources. commissions. Modify (through negotiations) practices of unions. Compensation may be adjusted according the business needs.
Classification.Job Descriptions: A critical component of compensation and selection systems. Salary Surveys: Collections of salary and market data. and Point Method. Know which industry or geographic location the salary results pertain to before comparing the results to your company. Profit Sharing. Policies and Regulations: Compensation will be perceived as fair if it is comprised of a system of components developed to maintain internal and external equity.
. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining. leaves. conditions. insurance. Factor Comparison. Merit Pay Stock Options Travel/Meal/Housing Allowance Benefits including: dental. When purchasing the results of salary surveys conducted by other vendors.. questionnaires. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. and observation. note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. and other aspects of jobs.. Job analysis techniques include the use of interviews. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. retirement. and cost of living indicators. May include average salaries. duties. Job Analysis: The process of analyzing jobs from which job descriptions are developed. inflation indicators. environment. job descriptions define in writing the responsibilities. What are different types of compensation? Different types of compensation include: Base Pay Commissions Overtime Pay Bonuses. location. vacation. functions. Pay Structures: Useful for standardizing compensation practices. salary budget averages. Descriptions may be developed for jobs individually or for entire job families. medical. There are four main techniques: Ranking. taxes. Job Evaluation: A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. requirements.
Determine the cost of a consultant's review. hourly versus salaried rates.What are regulations affecting compensation? Compensation Plans · · · · · · · · · · Develop a program outline. Establish target dates for implementation and completion.g. incentive-based versus non-contingent pay). Determine a budget.
· Form a compensation committee (presumably consisting of officers or at least including one officer of the company). Determine the cost of going outside versus looking inside. Who must accomplish what tasks?
· Decide the extent to which employee benefits should replace or supplement cash compensation. above. Determine whether this position will be permanent or temporary. Determine who will oversee the program once it is established. or below market. differences should exist in pay structures for executives.. Designate an individual to oversee designing the compensation program.
· Conduct a general task analysis by major departments. if any. professional employees. Develop a compensation philosophy. · Determine whether the company should set salaries at. Set an objective for the program. · Conduct a job analysis of all positions. sales employees. · Decide what. and so on (e.
for each job family and assign a grade to each level. and then rank jobs between and among departments. as necessary. Finalize and document all job descriptions. finance. administration. and adjust if necessary. to review job descriptions.
· Rank the jobs within each senior vice president and manager's department. Evaluate jobs.
· Establish the number of levels . · Determine the number of pay grades. and beginner . · · · · Develop a final draft of job descriptions.
. · Decide which job classifications should be exempt and which should be nonexempt. Determine grades. within each department.· Get input from senior vice presidents of marketing. intermediate. sales. · Interview department managers and key employees. junior. Meet with department managers. · Compare the matrix with data from both the company structure and the industry wide market.senior. to determine their specific job functions. adjust job descriptions if necessary. · Prepare a matrix organizational review.
· Develop model job descriptions for exempt and nonexempt positions and distribute the models to incumbents for review and comment. and other appropriate departments to determine the organizational structure and primary functions of each. production.
· On the basis of required tasks and forecasted business plans. or monetary range of a position at a particular level. · · Present data and charts to the compensation committee for review and adjustment. · Verify ranking by comparing it to industry market data concerning the ranking. as necessary. develop a matrix of jobs crossing lines and departments. · Prepare flow charts of all ranks for each department for ease of interpretation and assessment.
.. and approval. · · · · · · · · · · Determine an appropriate salary structure. a merit raise schedule). Determine the difference between each salary step. Review job descriptions. performance appraisal forms. Develop and document the general company policy. adjustment. necessity.
· Develop and document a strategy for merit raises and other pay increases. bonuses.
· Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels. Verify the purpose.· · ·
Establish grade pricing and salary range. Determine a minimum and a maximum percent spread. Slot the remaining jobs. and promotions. and approval. Obtain top executives' approval of the basic salary program. · · Meet with the compensation committee for review. and approval. annual reviews. Review the market price of benchmark jobs within the industry. · Present data to the compensation committee for review. such as cost-of-living adjustments.
· Establish a trend line in accordance with company philosophy (i.e. Develop and document specific policies for selected groups. where the company wants to be in relation to salary ranges in the industry). adjustments. adjustments. or other reasons for maintaining a position. Develop a salary administration policy.. Meet with the compensation committee for review. · Develop and document procedures to justify the policy (e. Establish benchmark (key) jobs.
to develop appropriate data input forms. review. Design and develop detailed systems.
· Present the plan to the compensation committee for feedback. Execute the program. and approval.
. · Make a presentation to executive staff managers for approval or change. and forms. Execute test runs on the human resources information system. · Develop a plan for communicating the new program to employees. etc. · · · · · · · Have the necessary forms printed.
· Work with HR information systems staff to establish effective implementation procedures. literature. · · Make presentations to managers and employees. adjustments. Implement the program. · Communicate the final program to employees and managers. handouts. and to create effective monitoring reports for senior managers.· Present data to the executive operating committee (senior managers and officers) for review and approval. procedures. and incorporate necessary changes. Monitor the program. Develop and determine format specifications for all reports. Make changes where necessary. using slide shows or movies. Monitor feedback from managers.