Building Market-Competitive

Compensation System
Chapter-6
 Recap
• Strategic nature of compensation management (chap-1)
• Contextual influence on compensation management (chap-2)
• Traditional bases for pay: seniority vs merit (chap-3)
• Incentive pay (chap-4)
• Person-Focused compensation (chap-5)
• Building internally consistent compensation system (chap-6)
 MARKET-COMPETITIVE PAY STRUCTURE
• Market competitive pay structure represent companies’
compensation policies that fit the imperatives of competitive
advantage.
• Market-competitive pay systems play a significant role in attracting
and retaining the most qualified employees
• Often industry specific – considering the industry dynamics and status
Activities of market-competitive pay system
• Compensation professionals create market-competitive pay systems
based on four activities:
1. Conducting strategic analyses
2. Assessing competitors’ pay practices with compensation surveys
3. Integrating the internal job structure with external market pay rates
4. Determining compensation policies
1. Strategic analysis
• Strategic analysis entails an examination of a company’s external
market context and internal factors.
• Examples of external market factors include industry profile, information
about competitors, and long-term growth prospects.
• Internal factors encompass financial condition and functional capabilities
(e.g., marketing and human resources).
2. Compensation survey
• Compensation surveys involve the collection and subsequent analysis
of competitors’ compensation data.
• Compensation surveys traditionally focused on competitors’ wage and salary
practices
3. Integrating internal market structure &
external pay rates
• Compare the internal jobs (JD, JS, context, contents etc.) with the
external jobs
• Compare the external pay structure with the internal jobs
• Design the internal compensation structure
4. Determine compensation policies
• Based on the evaluation made in last three steps compensation
policies are determined
• Compensation plans
• Compensation plans represent the selection and implementation of pay level
and pay mix policies over a specified time period, usually one year.
 COMPENSATION SURVEY
• Preliminary considerations
• What companies hope to gain from compensation survey?
• Custom development vs existing compensation survey
• Benefits and drawbacks of custom vs existing compensation system????
• Using published compensation system
• Compensation survey – strategic consideration
• Defining the relevant labor market
• Choosing the benchmark jobs
• Job labelling – comparing internal jobs with benchmarks
• Point factor labelling – using points methods to level jobs
Compensation policies and strategic mandate
• Pay level policies
• Market lead – leading market in compensation
• Market lag – remaining behind the market in compensation
• Market match – remaining at par with the market
• Pay mix policies – combination of compensation and employee
benefits