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 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 evaluation 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 the first step in developing a compensation program. It involves gathering detailed information about all positions to get a clear understanding of how each one contributes to achieving company goals and objectives. The objective is to learn 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, assess skill level, and education needed.
Analysts 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.
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 consultant(s) can successfully complete the 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 evaluation consultant(s) can reduce subjectivity 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:
- 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 company’s jobs and positions by making careful internal comparisons between jobs and ranking them in proportion to their value to the company.
Many companies 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 Jobs 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 determine performance. They are the tangibles the company 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 companies, tailored to selections based on the nature of the business, the types of jobs and the judgment of the evaluators.
The following factors are among those that would be applicable for most jobs:
What are the “Dos and Don’ts” for Establishing a Compensation System?
|Don’t start out trying to see how little you can get away with paying. Employees resent that attitude and good ones will leave.||Expect to pay your employees what they are worth. Budget for pay increases if the study reveals you are below what you should pay.|
|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.||Once staff is aware of the process, be proactive with communicating timeline and keep on top of moving the process along through conclusion. Transparency is key.|
|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.||Get help from the experts and listen to them. They have lots of experience and know just what you need to do to succeed at this process. You will get the best results.|
|Don’t make compensation a mystery. Answer questions about the program or you’ll start destructive rumors flying.||Be open and proactive in your communication about your intentions, the data you’ve studied and your conclusions.|
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