Compensation: Outline and Definitions - HR Guide

Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes ... • • • • hr-guide.com EmployeeSurveys EmployeeOpinionSurveys 360DegreeFeedback TrainingNeedsAssessment HRSoftware 360DegreeFeedback ApplicantTrackingSystems CompensationAdministration HRIS/HRMSSoftwareSystems Onboarding/EmployeeTransition HRMobileApps InteractiveVoiceResponse Intranets PhotoIDSystems Payroll PersonnelScheduling BenefitsAdministration EEOCompliance Emp.Feedback/OpinionSurveys Emp.SelfServiceApps. JobPosting/Recruitment OrganizationalCharts Testing/Selection PerformanceAppraisal TrainingandDevelopment InterviewingSoftware LinkstootherHRResources TimeandAttendance/WorkforceManagement TalentManagementSolutions Documents JobDescriptions PoliciesandRegulations EmployeeHandbooks FacultyHandbooks AffirmativeActionResources PositionDescriptionQuestionnaires JobClassificationSystems CompensationSystems JobAnalysis HRGuides 360-Feedback ItemBank SampleQuestionnaires CreateYourOwnSurvey Compensation:OutlineandDefinitions Compensationisasystematicapproachtoprovidingmonetaryvaluetoemployeesinexchangeforworkperformed.Compensationmayachieveseveralpurposesassistinginrecruitment,jobperformance,andjobsatisfaction. ChapterHighlights Howiscompensationused?Whatarethecomponentsofacompensationsystem?Whataredifferenttypesofcompensation?Howiscompensationused? Compensationisatoolusedbymanagementforavarietyofpurposestofurthertheexistanceofthecompany.Compensationmaybeadjustedaccordingthethebusinessneeds,goals,andavailableresources. Compensationmaybeusedto:recruitandretainqualifiedemployees.increaseormaintainmorale/satisfaction.rewardandencouragepeakperformance.achieveinternalandexternalequity.reduceturnoverandencouragecompanyloyalty.modify(throughnegotiations)practicesofunions.Formoreinformation:CompensationConsultantsRecruitmentandretentionofqualifiedemployeesisacommongoalsharedbymanyemployers.Tosomeextent,theavailabilityandcostofqualifiedapplicantsforopenpositionsisdeterminedbymarketfactorsbeyondthecontroloftheemployer.Whileanemployermaysetcompensationlevelsfornewhiresandadvertizethosesalaryranges,itdoessointhecontextofotheremployersseekingtohirefromthesameapplicantpool.Moraleandjobsatisfactionareaffectedbycompensation.Oftenthereisabalance(equity)thatmustbereachedbetweenthemonetaryvaluetheemployeriswillingtopayandthesentimentsofworthfeltbetheemployee.Inanattempttosavemoney,employersmayopttofreezesalariesorsalarylevelsattheexpenceofsatisfactionandmorale.Conversely,anemployerwishingtoreduceemployeeturnovermayseektoincreasesalariesandsalarylevels.Compensationmayalsobeusedasarewardforexceptionaljobperformance.Examplesofsuchplansinclude:bonuses,commissions,stock,profitsharing,gainsharing. Whatarethecomponentsofacompensationsystem? Compensationwillbeperceivedbyemployeesasfairifbasedonsystematiccomponents.Variouscompensationsystemshavedevelopedtodeterminethevalueofpositions.Thesesystemsutilizemanysimilarcomponentsincludingjobdescriptions,salaryranges/structures,andwrittenprocedures. ThecomponentsofacompensationsystemincludeJobDescriptionsAcriticalcomponentofbothcompensationandselectionsystems,jobdescriptionsdefineinwritingtheresponsibilities,requirements,functions,duties,location,environment,conditions,andotheraspectsofjobs.Descriptionsmaybedevelopedforjobsindividuallyorforentirejobfamilies.JobAnalysisTheprocessofanalyzingjobsfromwhichjobdescriptionsaredeveloped.Jobanalysistechniquesincludetheuseofinterviews,questionnaires,andobservation.JobEvaluationAsystemforcomparingjobsforthepurposeofdeterminingappropriatecompensationlevelsforindividualjobsorjobelements.Therearefourmaintechniques:Ranking,Classification,FactorComparison,andPointMethod.PayStructuresUsefulforstandardizingcompensationpractices.Mostpaystructuresincludeseveralgradeswitheachgradecontainingaminimumsalary/wageandeitherstepincrementsorgraderange.Stepincrementsarecommonwithunionpositionswherethepayforeachjobispre-determinedthroughcollectivebargaining.SalarySurveysCollectionsofsalaryandmarketdata.Mayincludeaveragesalaries,inflationindicators,costoflivingindicators,salarybudgetaverages.Companiesmaypurchaseresultsofsurveysconductedbysurveyvendorsormayconducttheirownsalarysurveys.Whenpurchasingtheresultsofsalarysurveysconductedbyothervendors,notethatsurveysmaybeconductedwithinaspecificindustryoracrossindustriesaswellaswithinonegeographicalregionoracrossdifferentgeographicalregions.Knowwhichindustryorgeographiclocationthesalaryresultspertaintobeforecomparingtheresultstoyourcompany.PoliciesandRegulationsCompensationwillbeperceivedasfairifitiscomprisedofasystemofcomponentsdevelopedtomaintaininternalandexternalequityWhataredifferenttypesofcompensation? Differenttypesofcompensationinclude:BasePayCommissionsOvertimePayBonuses,ProfitSharing,MeritPayStockOptionsTravel/Meal/HousingAllowanceBenefitsincluding:dental,insurance,medical,vacation,leaves,retirement,taxes...Whatareregulationsaffectingcompensation? FLSACompensationPlans Developaprogramoutline.Setanobjectivefortheprogram.Establishtargetdatesforimplementationandcompletion.Determineabudget.Designateanindividualtooverseedesigningthecompensationprogram.Determinewhetherthispositionwillbepermanentortemporary.Determinewhowilloverseetheprogramonceitisestablished.Determinethecostofgoingoutsideversuslookinginside.Determinethecostofaconsultant'sreview.Developacompensationphilosophy.Formacompensationcommittee(presumablyconsistingofofficersoratleastincludingoneofficerofthecompany).Decidewhat,ifany,differencesshouldexistinpaystructuresforexecutives,professionalemployees,salesemployees,andsoon(e.g.,hourlyversussalariedrates,incentive-basedversusnoncontingentpay).Determinewhetherthecompanyshouldsetsalariesat,above,orbelowmarket.Decidetheextenttowhichemployeebenefitsshouldreplaceorsupplementcashcompensation.Conductajobanalysisofallpositions.Conductageneraltaskanalysisbymajordepartments.Whattasksmustbeaccomplishedbywhom?Getinputfromseniorvicepresidentsofmarketing,finance,sales,administration,production,andotherappropriatedepartmentstodeterminetheorganizationalstructureandprimaryfunctionsofeach.Interviewdepartmentmanagersandkeyemployees,asnecessary,todeterminetheirspecificjobfunctions.Decidewhichjobclassificationsshouldbeexemptandwhichshouldbenonexempt.Developmodeljobdescriptionsforexemptandnonexemptpositionsanddistributethemodelstoincumbentsforreviewandcomment;adjustjobdescriptionsifnecessary.Developafinaldraftofjobdescriptions.Meetwithdepartmentmanagers,asnecessary,toreviewjobdescriptions.Finalizeanddocumentalljobdescriptions.Evaluatejobs.Rankthejobswithineachseniorvicepresident'sandmanager'sdepartment,andthenrankjobsbetweenandamongdepartments.Verifyrankingbycomparingittoindustrymarketdataconcerningtheranking,andadjustifnecessary.Prepareamatrixorganizationalreview.Onthebasisofrequiredtasksandforecastedbusinessplans,developamatrixofjobscrossinglinesanddepartments.Comparethematrixwithdatafromboththecompanystructureandtheindustrywidemarket.Prepareflowchartsofallranksforeachdepartmentforeaseofinterpretationandassessment.Presentdataandchartstothecompensationcommitteeforreviewandadjustment.Determinegrades.Establishthenumberoflevels-senior,junior,intermediate,andbeginner-foreachjobfamilyandassignagradetoeachlevel.Determinethenumberofpaygrades,ormonetaryrangeofapositionataparticularlevel,withineachdepartment.Establishgradepricingandsalaryrange.Establishbenchmark(key)jobs.Reviewthemarketpriceofbenchmarkjobswithintheindustry.Establishatrendlineinaccordancewithcompanyphilosophy(i.e.,wherethecompanywantstobeinrelationtosalaryrangesintheindustry).Determineanappropriatesalarystructure.Determinethedifferencebetweeneachsalarystep.Determineaminimumandamaximumpercentspread.Slottheremainingjobs.Reviewjobdescriptions.Verifythepurpose,necessity,orotherreasonsformaintainingaposition.Meetwiththecompensationcommitteeforreview,adjustments,andapproval.Developasalaryadministrationpolicy.Developanddocumentthegeneralcompanypolicy.Developanddocumentspecificpoliciesforselectedgroups.Developanddocumentastrategyformeritraisesandotherpayincreases,suchascost-of-livingadjustments,bonuses,annualreviews,andpromotions.Developanddocumentprocedurestojustifythepolicy(e.g.,performanceappraisalforms,ameritraiseschedule).Meetwiththecompensationcommitteeforreview,adjustments,andapproval.Obtaintopexecutives'approvalofthebasicsalaryprogram.Developandpresentcostimpactstudiesthatprojecttheexpenseofbringingthepresentstaffuptotheproposedlevels.Presentdatatothecompensationcommitteeforreview,adjustment,andapproval.Presentdatatotheexecutiveoperatingcommittee(seniormanagersandofficers)forreviewandapproval.Communicatethefinalprogramtoemployeesandmanagers.Presenttheplantothecompensationcommitteeforfeedback,adjustments,review,andapproval.Makeapresentationtoexecutivestaffmanagersforapprovalorchange,andincorporatenecessarychanges.Developaplanforcommunicatingthenewprogramtoemployees,usingslideshowsormovies,literature,handouts,etc.Makepresentationstomanagersandemployees.Implementtheprogram.Designanddevelopdetailedsystems,procedures,andforms.WorkwithHRinformationsystemsstafftoestablisheffectiveimplementationprocedures,todevelopappropriatedatainputforms,andtocreateeffectivemonitoringreportsforseniormanagers.Havethenecessaryformsprinted.Developanddetermineformatspecificationsforallreports.Executetestrunsonthehumanresourcesinformationsystem.Executetheprogram.Monitortheprogram.Monitorfeedbackfrommanagers.Makechangeswherenecessary.Findflawsorproblemsintheprogramandadjustormodifywherenecessary.