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Research and Prep for the Compensation Policy Define Your Compensation Philosophy

First, each organization should develop a compensation philosophy. Information on how to do so iscovered in detail in a separate blog post but, in brief, your compensation philosophy states how the organizations guiding principles influence the employee compensation plan. After you develop your philosophy, you can move on to creating your employee compensation policy. The following are some key points on how to prepare for writing your policy: Determine your place in the market. Know where your organizations compensation sits relative to the market where you compete for your talent. This may include factors like your industry, geography or size of organization, to name a few. Our post on how to set salary ranges can help with that process. Select the types of compensation. Beyond base salary, what other forms of compensation does your company offer, when and why? These can include bonuses, such as individual commission and incentives, team incentives, company-wide incentives, benefits, fringe benefits, stock/ownership and others. Review each type and determine if one or a combination of these options work for your organization and who in the organization will be eligible for each type of compensation. Review your process. Think about the process youll use for balancing internal pay equity against market competitiveness. This will include some research about using a straight marketpricing philosophy versus a job evaluation tool to put similar jobs within pay grades. There are advantages and disadvantages to each approach. Writing Your Employee Compensation Policy Once youve done your research on where your current compensation stands relative to the market versus where you would like it to be, its time to write your compensation policy document. Here are some guidelines on how to write a clean and clear policy: Watch the details. Be specific, but not so specific that you limit your ability to manage the program. For example, you may want to state that the organization will review market data on a regular interval, rather than state the specific timeframe. This will give the organization the ability to do it more or less frequently than in the past depending on business necessity. Communicate your companys commitment. Your compensation policy should outline the organizations commitment to equitable and fair pay practices and reference your organizations intent to comply with all applicable laws and acts. Gain approval. Generally, it is the board of directors that approves the final policy, but these arent the only people involved in developing your policy. The top executives such as the CEO, COO, and CFO have input to the overall goals and objectives of the compensation program. The human resources professional serves as the expert regarding items to be included in the policy. Your organization may also choose to create a compensation committee consisting of individual stakeholders from different departments including some managers and employees as an internal control measure, as well as an employee engagement strategy.

Make it real. Your company policies should be reviewed and approved by the executive team and/or board of directors. Meeting minutes or signatures to prove acceptance of the policy are a good idea. Administration After the Policy is Done It is important to maintain your compensation program after your compensation policy is written so that it stays equitable, relevant, and timely. Here are answers to common questions regarding this process: Who will be responsible for the administrative work of reviewing job evaluations and market data? The HR department will most likely maintain the compensation program. But many times, in lieu of an HR department, the administrative staff or accounting department may be in charge of the task. What will be the process and timing for submitting new job evaluations? Generally, this is done as needed, but some organizations require these be submitted within certain timeframes to maximize efficiency. What will be the process and timing for obtaining and reviewing market data? Most companies analyze market data on an annual basis. However, your organization may need to look at market data more frequently, especially if you are in a high growth mode or if you are in an industry or market where salaries are rising faster than the national average. What will be the process and timing for adjusting positions or employees based on market data? This should tie in closely with the review of the market data. However, some employers would be wise to look for trends rather than respond too quickly to market fluctuations. What will be the process and timing for adjusting employees pay based on performance or longevity? This should be directly tied to the performance evaluation process. Many organizations do the performance and/or longevity increase at a separate interval than market adjustments so the differences between the two types of increases are easier to communicate with employees.

Compensation Procedures
1. Salary Ranges
UCAR has a salary range structure , with specific ranges designated for particular types and levels of jobs, as determined through the job evaluation process. Salary ranges for jobs are established by matching the median of salaries paid by employers in appropriate comparison groups to the market point of the appropriate UCAR salary range. Comparison groups are selected from among surveys that best match UCAR's benchmark jobs and whose participants are UCAR's competitors in the labor market.

2. Job/Position Evaluation
Jobs/positions are evaluated by analyzing "Position Descriptions" (PDs). PDs are completed using a Position Description form provided by the Human Resources Department or when using template software when creating a Requisition to fill a vacant position. The job/position requirements should be directly related to the specific duties and responsibilities required of the position. Jobs are evaluated by the Human Resources Department using survey data and other established job evaluation methods. Human Resources staff classify jobs and assign position codes and salary ranges.

3. Nonexempt/Exempt Status
The Fair Labor Standards Act (FLSA) establishes criteria for overtime pay. Exemption from the FLSA is determined by an employee's salary level and the nature of the work performed. The Human Resources Department determines whether an employee's position is covered by the provisions of the FLSA. Full-time, nonexempt employees work a 40-hour week. All nonexempt employees are eligible to receive time-and-one-half pay for all work performed in excess of the 40-hour work week. Employees who are exempt from the FLSA do not receive overtime pay.

4. Annual Performance Appraisal and Salary Changes A. Annual Evaluations


Formal performance appraisals occur annually. Each supervisor prepares a written evaluation of the performance of each employee reporting to him or her. The goals of this performance appraisal are to: a. facilitate communication of all aspects of performance between the employee and the supervisor; b. identify areas in which improvement and learning will help the employee become more successful in the future, allowing him/her to make further contributions to UCAR; c. identify individual development needs, desires, and plans; d. establish a permanent record of the employee's work history that is as straightforward and objective as possible; e. serve as a basis for establishing salaries in the UCAR pay-for-performance system;

and to f. incorporate goals for meeting the employee's career development plan. Appraisals are discussed with employees and placed in their employment files. Employees have the opportunity to comment in writing on their evaluations and to discuss them fully with their supervisors. Refer toPerformance Appraisal Instructions for additional appraisal instructions. B. Annual Salary Increase Subsequent to the annual performance evaluation, laboratory/ program management considers an employee's performance and compa ratio (pay in relation to salary range market point) and determines whether a salary increase is warranted and the proposed amount of the increase. Laboratories/programs allocate salary increases so that, over time, higher performing employees will generally have higher compa ratios. The overall pattern of proposed salary actions and all individual salary actions are then reviewed by Human Resources, which reports the findings to the President's Council for approval. Approved annual increases are effective in October of that year. C. Out-of-Phase Merit Increases UCAR does not provide for out-of-phase merit increases. (For salary adjustments and salary changes due to a reclassification, refer to Procedures 6 and 7 ).

5. Setting Pay for New Employees


New employees are paid within the appropriate salary range for their job. All employees are paid at least the minimum of the range and are not paid more than the maximum. The beginning salary is set by the hiring supervisor with the approval of the NCAR Associate Director or UCAR/UCP Program Director , and in consultation with Human Resources. Consideration is given to internal equity, specific job requirements, and the skills, knowledge, and abilities of the new employee. If an employee joins UCAR fewer than two months in advance of the annual merit increase date, his/her salary is based on the salary structure that becomes effective in October of that year. The employee will not receive a merit increase for that year.

6. Reclassification
Supervisors should ensure that current and accurate Position Descriptions are written and maintained for all employees within their laboratories or programs, and that appropriate reclassification actions are initiated. A position reclassification is the assignment of a new job title and/or range to an existing position. A position may be reclassified to recognize significant changes in the duties and responsibilities of the position. The evaluation may result in an upward or downward move, or no change, in the salary range of the position. A revised Position Description is proposed by the supervisor and authorized by the NCAR Associate Director orUCAR/UCP Program Director. The Position Description is attached to a Reclassification Action form and forwarded to Human Resources for classification. An employee should be fully performing all of the new duties and responsibilities listed in the new Position Description prior to a reclassification request. The effective date of a reclassification is the beginning of the pay period in which the reclassification request is received by Human Resources. Retroactive reclassifications

may be considered when the employee has been fully performing the job for an extended period of time. However, retroactivity cannot pre-date the last salary change for the employee or interfere with any reclassification moratorium period. The salary for a reclassified employee is set within the appropriate salary range for the job and is at least the minimum of the range. The new salary is set by the employee's supervisor with the approval of the NCAR Associate Director or UCAR/UCP Program Director and in consultation with Human Resources. Consideration is given to internal equity, specific job requirements, and the skills, knowledge, and abilities of the newly reclassified employee. Reclassification increases of 15% or more require approval of the appropriate member of the President's Council. The President's Council approval is required if the new compa ratio in the new salary range is greater than their current compa ratio. If an employee is reclassified less than two months in advance of the annual merit increase process, his/her salary is based on the salary structure which becomes effective in October of that year. The reclassified employee may still be granted a merit increase.

7. Equity Adjustments
Equity adjustments are special salary actions necessary when market data, as judged by Human Resources, indicates that a different salary range is required, or when inequities in salaries are identified and warrant correction. Adjustments may be made for individuals or groups of employees at any time during the year. Adjustments must be justified and approved in writing by the appropriate NCAR Associate Director orUCAR/UCP Program Director and the Director of Human Resources.

8. Premium Pay
Under certain circumstances, employees will receive premium pay for work performed beyond normal working hours. See UCAR's Time Reporting/Payroll policy for details on premium pay.

9. Benefits
UCAR's benefits program is updated and communicated annually. It is the responsibility of the employee to review benefits information and make appropriate personal choices on the benefits available to him/her. Benefits include medical and dental programs, life insurance, long-term disability insurance, optional accident insurance, travel accident insurance, flexible spending accounts, defined contribution and tax-deferred annuity plans, dependent care assistance, educational assistance, a schedule of paid holidays and additional paid time off. In addition, UCAR provides various leave options to accommodate personal and professional needs. Eligibility, level of coverage, and premium contribution are determined by the nature of an employee's appointment. Details of the content, conditions and applicability of various benefits are contained in themaster policy or plan documents and the UCAR Benefits manual .

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Salary Disputes

Human Resources seeks to provide a fair and equitable compensation system and will provide recommendations that comply with these policies and procedures. Laboratory and program management should discuss salary changes with their employees. If an employee disagrees with a management decision, he/she may use UCAR's Problem Resolution policy and procedures to seek resolution to their concerns. In the event of a laboratory or program director's disagreement with a recommendation from Human Resources, the UCAR/UCP Program Director or NCAR Associate Director may consult with the Director of Human Resources. If Human Resources and the UCAR/NCAR Associate Director or UCAR/UCP Program Director cannot agree on a compensation matter, the unit may seek additional review. A written memo stating the relevant facts is sent to the appropriate President's Council member for his/her review and recommendation. When there is continued disagreement the President will review the recommendations of the President's Council member and the Director of Human Resources. The President is the final arbiter on compensation disputes

Strategic compensation Compensation is one of the most important HRM functions. It can help to reinforce the organisations culture and key values and to facilitate the achievement of its strategic business objectives. An organisationscompensation policies and practices, by rewarding desired results, can reinforce employee behaviour thatrealises its strategic business objectives. Compensation is a formidable communicator and can be a powerfuli n s t r u m e n t f o r change and a major determinant of the culture of an organisation. (reward systems byt h e m s e l v e s w i l l n o t c h a n g e a c u l t u r e , t h e y c a n h e l p r e i n f o r c e a d e s i r e d c u l t u r e . I n d i v i d u a l p a y f o r performance undermines collective employment relations and marginalises unions, which in turn explainsu n i o n h o s t i l i t y t o w a r d s s u c h c o m p e n s a t i o n a p p r o a c h e s . I f t h e r e i s any significant mismatch betweencompensation and organisational strategy, it is likely to result in major barriers to the achievement o f strategic business objectives. For many organisations, employee compensation is the biggest single cost of doing business. Pay and benefit costs, according to ONeill, are the largest single operating expense for most service companies, and typically the second or third highest expense category in manufacturing.

Compensation program objectives Common compensation program objectives.For the organisation Attract and keep the desired quality and mix of employees. 174 Motivate employees to continually improve their performance and achieve t h e o r g a n i s a t i o n s strategic business objectives. Reinforce the organisations key values and the desired organisational culture. Drive and reinforce desired employee behaviour. Ensure compensation is maintained at the desired competitive level. Control compensation costs. Ensure optimum value for each compensation dollar spent. Comply with legal requirements.For the employee Ensure equitable treatment. Accurately measure and appropriately reward performance and contribution to the achievement of the organisations strategic business objectives. Provide appropriate compensation changes based on performance, promotion, transfer or changingconditions. Provide regular compensation and performance reviews.

Compensation program components To achieve these objectives, it is essential that organisations have a systematic approach to compensation.The affects of inadequate compensation planning are numerous (see page 431). Job evaluation Job evaluation is a systematic method of determining the worth to the organisation of a job in relation to theworth of other jobs. It is concerned with how big or how small a job is. The aim is to ensure that jobs of different sizes are paid proportionately different salaries. Job evaluation systems There are many methods used to evaluate jobs and each is subjective to some degree. All are based on theassumption that jobs can be differentiated by evaluating the information in a job description. The mostcommon systems include job ranking and job grading or classification, the points and factor comparisonmethods. Job ranking This is the simplest and oldest job evaluation method. The evaluator ranks t h e j o b s f r o m biggest to smallest Job grading or job classification A refinement on job ranking is the system of job grading or j o b classification. That uses a number of job-related factors to create generic or benchmark jobdescriptions for each grade or class. Tthe job is compared with the benchmark description foreach of the grades or classes then assigned to the appropriate one .Pointsystem - This system involves quantifying a set of job factors by allocating points to each factor. Factor comparison system The factor comparison system is a refinement of the ranking and point systems.It uses job factors such as education, experience, responsibility and working conditions, andallocates points to quantify these factors. Weighted job questionnaire The weighted job questionnaire is based on a multiple-choice job analysisquestionnaire, using a standard points factor approach. The five core job factors are skill andknowledge, contacts, working conditions, problem solving and scope of responsibility. Which system? There is no one system which should be used. Before selecting a system the HR manager should consider Objectives. Size of the organisation. Organisational resources.

Plan users. Corporate culture. Employee attitudes. Job description Is the vehicle used by most job evaluation systems to translate words into numbers. Job description formatsv a r y f r o m b r i e f s u m m a r i e s t o e s s a y - t y p e d e s c r i p t i o n s a n d m a y f o l l o w a r i g i d f o r m a t o r b e r e l a t i v e l y unstructured. The job description is a blueprint that profiles the design of the job, making its potentialusefulness to management almost limitless. Salary surveys The salary survey is the vehicle for relating an organisations salaries to those for similar jobs in other organisations. There are two main types of salary survey. One is based on matching similar jobs on their content, the other is based on matching jobs according to their job size using a common job evaluationmethod. The survey gives information on base salaries and benefits. This can be used by the HR manager tocalculate the organisations competitive position and to plan any corrective action required.

Job evaluation and the salary survey Job evaluation determines the relative worth of each job to the organisation. The salary survey makes it possible to assign appropriate salary ranges to each job. Salary structure Individual salaries are normally determined by job size and employee performance. The salary structure p r e s e n t s a l l s a l a r y r a n g e s o v e r t h e w h o l e s p e c t r u m o f j o b s i z e s a n d i s a n e s s e n t i a l t o o l i n s a l a r y administration. Salary line or curve The salary line or curve graphically depicts the salaries being paid for jobs, related to job size and shows therelationship between the size of a job and the average salary paid for it. Salary ranges Standard range Sets the minimum and maximum scheduled amounts paid for a job at a particular job size.

Broadbanding Collapses numerous job grades with narrow salary bands ina salary structure into a few broad job grades with wide salary bands.