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
What Are the Typical
"Traps" to Avoid in Starting an Organized Compensation System?
Here are four pitfalls to avoid:
- Don't begin by trying to see how little
you can get away with paying. Employees resent that attitude and good ones will
- 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.
- 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.
- Don't make compensation a mystery.
Answer questions about the program or you'll start destructive rumors
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
Job Analysis Form
Job Descriptions Used in Compensation
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
- 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.
- 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
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
What are "Compensable
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
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
The following factors are among those that
would be applicable to a manufacturer for most of its shop and office jobs:
Interested in Employee Relations,
Employee Surveys or Morale Building Programs - Contact
- Complexity of duties
- Supervision received
- Relations to others
- Mental and visual attention
- Physical endurance
- Working environment
- Type and extent of
- Staff relations