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Compensation Programs & Surveys

What Are the Main Purposes of a Sound Compensation System?

The main goals of a sound compensation system are to attract, hold and motivate good employees. Other purposes include eliminating morale problems caused by inequitable pay, giving your firm a good reputation, improving the quality of employees' performance, and raising their productivity level.

What Are the Typical "Traps" to Avoid in Starting an Organized Compensation System?

Here are four pitfalls to avoid:

  1. Don't begin by trying to see how little you can get away with paying. Employees resent that attitude and good ones will leave.
  2. Don't announce the start of a compensation program and then stall for months without acting. That looks like you want to wait until you're forced to begin.
  3. Create your own plan. You can learn from other organizations but simply copying one usually results in a poor fit for the unique characteristics of your own company.
  4. Don't make compensation a mystery. Answer questions about the program or you'll start destructive rumors flying.

What Personnel are Needed to Design, Plan and Implement a Compensation Program?

Most of the work will involve a cooperative effort between your managers, supervisors and employees and the person selected to administer the plan. The entire organization will eventually play a part in the creation of the compensation program.

You need an executive who is a good planner to organize the project. You need another person on the project who is familiar with administration and production management. And you need evaluators, such as professional consultants, who will act as a committee to rank and place monetary values on jobs.

What Role Does Job Analysis Play in Developing a Compensation Program?

Job analysis is usually the first step in developing a compensation program. It involves gathering detailed information about all jobs and positions to get a clear understanding of how each one contributes to achieving company goals and objectives. Job information tells the Analyst what processes are carried out to turn raw material into a product for sale or to enable a company to offer a service. He or she learns how the jobs relate to other jobs. Job information also helps the Analyst determine what type of person is best able to perform the work.

Analysts also help write job descriptions. They assist in ranking and rating jobs and gathering information about wages and salaries outside the firm, as well as those currently in effect within the company.

Job Analysis Form

How Are Job Descriptions Used in Compensation Programs?

The job and position descriptions provide the basic information about the tasks, duties, responsibilities and working environment so the Evaluation Committee can successfully complete its efforts to rank, rate and set money values on jobs.

What Approaches Can Be Used to Rate the Values of Jobs?

Evaluation of jobs is not an exact science. The members of the Evaluation Committee can reduce subjectivity, though, by requiring its members to reach unanimity on the values of jobs. Though it's clear that the chief executive's job is worth more to a firm than, say, a clerk's, when you look at jobs or positions that are much more closely related, the differences are not so obvious. Most firms use one of the following approaches:

  1. The market value approach. It produces an evaluation of your company's jobs and positions by comparing your company's wages and salaries with the wages and salaries paid by other firms.
  2. The internal value approach. It evaluates the firm's jobs and positions by making careful internal comparisons between jobs and ranking them in proportion to their value to the firm.

Many firms use one of these approaches and temper the results with data gathered by the other.

How is a Market Value Approach Implemented?

The Administrator selects 5 to 10 companies whose work is similar to his own company's. He contacts the personnel managers at those firms and asks to share information with them about wages and salaries. The Administrator combines what he has learned with wage surveys published by business associations, and then compares the firm's pay schedules with the data gathered.

The market approach usually works well with scientific and professional personnel. But it gives no consideration to internal pay relationships in your firm. Generally, the market approach provides a check or comparison on pay schedules after a company has created its own internal program.

How Does the Internal Value Approach to Rating Job Work?

This approach to job evaluation uses systems that deal objectively with the relationships that exist among jobs and positions in the firm. Some of these systems are suitable for evaluating all jobs and positions, while others are only useful for lower-level jobs. The first requirement for using this approach is an understanding of the compensable factors.

What are "Compensable Factors"?

Compensable factors are the requirements, responsibilities and working conditions that affect and determine performance. They are the items the firm pays for, and the amount it pays is directly related to the importance of different compensable factors in each job or position.

What Are the Most Common Compensable Factors Used in Job Evaluations?

There are wide variations in the compensable factors selected by different firms. Tailor your selections based on the nature of your business, the types of jobs and the judgment of the evaluators.

The following factors are among those that would be applicable to a manufacturer for most of its shop and office jobs:

  • Education
  • Experience
  • Complexity of duties
  • Supervision received
  • Relations to others
  • Accuracy
  • Accountability
  • Mental and visual attention required
  • Physical endurance
  • Working environment
  • Type and extent of supervision
  • Staff relations
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