HR basics is a series of short courses designed to highlight what you need to know about a particular
human resource management topic in today's HR basics we explore compensation highlighting the three elements of a base compensation system
internal alignment
external competitiveness and compensation management
But first a definition compensation is pay provided by an employer to an employee in return for work
Total rewards is a concept that describes all of the tools available to an employer that may be used to attract
Motivate engage and retain employees as you can see in this model
compensation which we focus on in this course is one left six key rewards available to do so
Compensation is comprised of two core elements fixed pay otherwise known as base pay that does not vary and
variable paid which changes with performance or results a
Basic model for building compensation plans includes three elements internal alignment external competitiveness and
Compensation management seven steps our actions are organized in these three critical areas of compensation plan development in this course
We'll take a look at each step
First internal alignment makes pay comparisons among jobs or skill levels inside a single organization
How differently should the different types and levels of skills and work be paid within the organization?
internal alignment includes steps of job analysis job evaluation and pay policy identification
Step one is job analysis
Which is the systematic process of collecting information that identifies similarities and differences in work the outcome of job analysis is job?
documentation or job descriptions
Traditionally the most common methods of job analysis have been observation
Interviewing questionnaires and generic information available through o-net a DOL resource which is an online database of jobs?
Sometimes a combination of these approaches is use depending on the situation and your organization
Step two is job evaluation, which is the systematic process of determining the relative worth of jobs?
The outcome of job evaluation is the development of an internal pay structure or hierarchical ranking of jobs through grades and ranges?
Two general approaches for valuing jobs are job evaluation with an internal focus and market pricing with an external focus
The methods of both you can see here
Job evaluation looks at pay levels within an organization and market pricing looks outside that organization so job evaluation
uses market pricing data for jobs with job evaluation points
market pricing on the other hand uses the same market pricing data for jobs, but without those job evaluation points
These strategies help us build our base pay structures including pay grades and ranges
Step three is determining a pay policy
Which is the process of deciding whether the organization wants to lead leg or meet the market in compensation?
Organizations have several pay policy options when implementing a compensation
Strategy they include matching the market by paying rates comparable to those of the relative market place
Leading the market by paying rates that are higher than the relative market place
Lagging the market by paying rates lower than those of relative marketplace wages or using a combination of the preceding three options
Now let's move on to external competitiveness, which makes pay comparisons with competitors other
Organizations that hire people with the same or similar knowledge skills and abilities how much do we want to pay in relation to our competitors?
External competitiveness includes the steps of market analysis and the development of a base pay structure
Step four is market analysis the process of analyzing
compensation data gathered from other employers in a survey of relevant labor market data
Gathering external pay data is essential to keep the organization's compensation system externally competitive
Market analysis otherwise known as market pricing can be accomplished in three easy steps first select your market data
Identify and select market data relevant to your jobs and organization number to age your data
Adjust selected data with a common point in time if necessary
3-way your data finally increase your influence of better data by giving it more weight
Step 5
Developing your base pay structure a base pay structure is developed through job evaluation
Which is merged with external market pay rates in a simple regression?
To develop a market pay line from which pay grades and ranges are developed
Depending on pay policy the market pay line may be adjusted up or down. Let's take a look
The market line is how we bring together job evaluation and market analysis to bring a base pay structure to life as
You can see here the x-axis represents the evaluation points associated with jobs that are used to map their importance in the organization
The y-axis represents the salaries the external labor market is paying for those jobs
The market line is drawn to represent the relationship between the job evaluation points and the salaries paid for those jobs
when establishing a pay structure
Organizations use pay grades to group individual jobs having approximately the same job worth
All jobs in a pay grade have the same pay range with a minimum maximum and midpoint
Finally we have compensation management, which includes implementing variable pay and ensuring employees understand their compensation
How do we recognize individual contributions and make pay decisions clear to all employees?
Compensation management includes the steps of pay for performance and communicating the compensation plan to all employees
Step 6 is pay for performance
determining the use of pay that varies with some measure of individual or
organizational performance such as merit incentives or other forms of variable pay
Compensation typically consists of the two forms that we've discussed base pay and variable pay
Base pay is the fixed compensation paid to an employee for performing specific job responsibilities
employees may not always see the link between base pay and
organizational objectives
But variable pay allows employees to see that link his compensation is contingent on individual or group performance our
Seventh and final step is communicating the plan where we communicate compensation to ensure that employees
Understand it and have a clear line of sight between organizational mission culture and their compensation
Explaining compensation to an employee should be simple
And it's an important task that all too often goes unnoticed or unaccomplished in organizations
The following are a few ideas on how to communicate your compensation plan to your employees
First explain your pay structure communicate how your pay structure works, and how decisions are made?
Second explain pay differences ensure differences in pay between employees are understood
Third and finally provide total reward statements use total reward statements to communicate total rewards including your compensation
Remember that compensation is a critical element of your total reward strategy a strong base pay structure is built through internal alignment
external competitiveness and compensation management