Compensation Elements SCM 10-11-12

8/8/2019 Compensation Elements SCM 10-11-12

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STRATEGIC COMPENSATION MANAGEMENT

FALL 2010PRESENTATIONS 7-8-9

ASAD HASAN


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Todays Agenda

Elements of Compensation Management

Salary Administration

HR Inventory-Glossary of Terms


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Compensation Management

All organizations have a compensation plan,written or unwritten, formal or informal.

The plan may be complex, big, or small. The purpose of the plan may be:

Meet compliance

Attract qualified employees

Retain those employees

Motivate employees


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Compensation plan topics would include:

Compensation philosophy

Base pay programDeveloping rates of pay

Pay rates & increases

Performance appraisal: later

Maintaining & auditing a comp. plan.: later


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A compensation plan should closely match theorganization's goals and objectives.

In order to do that we must answer some basicquestions?

What is the goal of the organization's compensationsystem?

1. attracting and retaining qualified employees, is it also?2. to reward employees for good performance?

3. motivate good performance?


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4. and/or create or reinforce a particular type of organizationalclimate?

5. What is the communication policy?

6. Is the organization prepared to evaluate the effectiveness ofany such communication? If so, how?

7. How will decisions regarding pay be made?8. Who will be involved in these decisions?

9. What decision guidelines will need to be developed?


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10. What is the organization's desired market positionrelative to pay?

11. Will the organization choose to pay market rates, above

market or below market?12. How does the desired market position fit with other

strategic goals?

13. Are there any competitive factors involved that will

determine the pay strategy?


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11. What is the desired mix between benefits and cash?

12. Since benefits are an important form of compensation, how does an organization use them to

maximize the effectiveness of the compensationplan?

13. What does the organization pay for?

14. Does it pay for performance or seniority or somecombination of the two?

15. What is the role of performance appraisal in theorganization?

16. How important is performance appraisal and why?


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17. How will the organization manage change to thecompensation plan once it has been developed?

18.What systems need to be in place to implement any

changes including deciding when change isnecessary and who will make these decisions?

19. How does the compensation philosophy and plan fitwith the rest of the organization?

20. How can the compensation practices reinforce otheroverall management philosophies and objectives?


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Objectives of a Base Pay Program

In general, every organization's base pay program hascertain objectives.

internal equity.

deals with the perceived worth of a job relative to other jobs inthe organization.

external equity (or competitiveness), deals with the issue of market rates for jobs/transferability of

their skills

individual equity, deals with how individuals perceive how they are being paid

relative to other individuals within the organization andperhaps within the same position.


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process equity, How employees perceive the fairness or equity in the

administration of the compensation system

performance or productivity incentives, A significant element of a base pay program is to encourage

higher or increased levels of employee performance. Pay systemsneed to be designed to improve organizational performance.

maximum use of financial resources,

the base pay program needs to be designed to maximize thevalue to the organization with minimum use of its limitedresources

compliance with laws and regulations, and

administrative efficiency.


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Developing Rates of Pay for Jobs The basis for most pay programs is a pay structure

- a hierarchy of jobs with pay ranges and/or rates assigned

Pay structures are designed greater the worth of a job (as determined by internal or

external equity), the higher the pay grade and range.

Developing a pay structure is a process with a series ofsteps:

job analysis, job documentation,

developmentof a job worth hierarchy,

labor market data collection and analysis, and

establishment of pay rates and/or ranges.


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Job Analysis This involves collecting and evaluating relevant information

about jobs.

principal or essential tasks, duties and responsibilities.

the level of the work being performed, the extent and types ofknowledge, skill, mental and physical effort andrequirements, and responsibility required for the work beingperformed.

primary sources of data for collection of job information questionnaires,

interviews, logs or diaries,

directobservationand

work plans

All of these methods have advantages and disadvantages .


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Development of a Job Worth Hierarchy A job worth hierarchy is the result of job evaluation, the

overall process of comparing jobs.

There are 6 major methods of comparing jobs in order todevelop the job worth hierarchy:

The first three methods are non-quantitative in nature:

include ranking, classification and Slotting

The second three are "factor" evaluation and are quantitative innature

point factor, factor comparison, and scored questionnaires


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Labor Market Data Collection and Analysis define its relevant labor market

similar organizations in the same labor market,

all employers in the local market, similar organizations in the regional or national market,

and/or

all employers in the regional or national market.

Once the data has been collected, it must be analyzed

The simplest analysis involves comparing the going marketrate and approximating this rate within the organization'sown pay structure.


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Establishment of Pay Ranges and/or Rates an organization needs to set rates of pay for the jobs in the job

hierarchy.

an organization needs to ask, and answer, the followingquestions: How should the organization's pay level relate to the external

market?

Should the organization be a pay leader, match the market or

pay less than market? What is the organization willing to pay for: job content,

seniority, performance, skills, cost of labor, or somecombinationof all of these?


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How does the organization pay its employees? all employees in the same job receive the same pay?

based on seniority,

based on merit, based on productivity?

based on new skills (skill-based pay), or

based on some combinationof these factors?

Are short term or long term incentives provided?

What steps does the organization need to take to ensure thatpay is administered in a manner free of bias and discrimination?

If an organization decides to use pay ranges (or grades), itwill have to determine how many ranges to have.


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The end result of all of the above is a pay structure thatshould accomplish the organization's objectives withregards to a pay program.

reflect the organization's philosophy on how it wishes torelate its pay program to the market.

pay structure should demonstrate the internal job values ofpositions, and

how the organization wishes to mix base pay, benefits and

incentives.


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Pay Rates and Pay IncreasesCreating a pay structure is not the final step in the creationof a compensation plan.

An organization must also decide how to administer thiscompensation plan. deciding how to pay new employees,

how and when to give employees increases,

how to move existing employees from the minimum to the

maximum of their assigned pay grades, how to determine the pay increase for an employee being

promoted from one job to another and w

what influence, if any, cost of labor increases will have on thedetermination of pay increases for employees


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an organization must develop policies and procedures thatwill implement the results of these decisions in a consistentmanner.

Starting Pay for New Employees In order to avoid paying new employees the same as more

experienced employees, most employers choose to start newemployees closer to the minimum of the pay range.

In general, an employee with minimum qualifications shouldbe paid the minimum of the range.

Not if new hire has skills which are in great demand or hasskills or other expertise substantially above the minimum.


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Pay Increases general (across-the-board) increases,

cost-of-living/labor increases,

promotion increases, step increases (based on longevity), and

merit increases.

General increases are diminishing in popularity because they are notconsistent with the idea of pay for performance.

A cost-of-living increase is a type of general increase given toall eligible employees.

Promotion increases are given when an employee is movedfrom one job to another with a higher pay grade and range.

Merit increases are also known as pay for performance.


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Glossary

Added value: Cost & contribution made byemployees in process of producing a productor providing a service.

Appraisal schemes: Individuals performancereviewed by managers, past performanceexamined and future goals set.

Benchmarking: Measures of standards ofperformance against others doing similarwork.

Documents

Compensation Elements SCM 10-11-12