Design of Compensation Policy

Compensation is a critical area of human resource (HR) management. The compensation policy and structure greatly affect employee behaviour. Compensation structure and policy must be perceived by employees as fair, competitive in the market, accurately based, motivating and easy to understand.

MyCor can assist the organization design Compensation policy and structure. There are 5 steps to design a pay structure these include: job analysis; job evaluation; wages and salary survey analysis; compensation policy development and Compensation structure formation.

Job analysis is the process of studying jobs in an organization. The outcome of this process is a job description that includes the job title, a summary of the job tasks, a list of the essential tasks and responsibilities, and a description of the work context. This also includes knowledge, skills and abilities needed to perform the job.

Job evaluation is the process of refereeing the relative worth of jobs in an organization. The outcome of job evaluation is the development of an internal structure or hierarchical ranking of jobs. Job-based evaluation is used more than person-based evaluation. Job evaluation helps to ensure that compensation policy is internally aligned and perceived as fair by employees.

Compensation policy identification is the process of determining whether the organization wants to lead, lag or meet the market in compensation. The Compensation policy or strategy will influence employee attraction and retention. Pay policies can vary across job families (i.e., groups of similar jobs) and job levels if the top management feels that different strategies can be effective in different areas of the organization.

Compensation survey analysis is the process of analysing compensation data gathered from other employers in a survey of the relevant labor market. Gathering external pay data (e.g., base pay, bonuses, stock options and benefits) is essential to keep the organization’s compensation externally competitive within its industry. Employee attraction and retention can be improved by maintaining externally aligned pay structures. Geography cum industry outlook is important point in Compensation surveys.

Compensation structure design is the final step, in which the internal structure is aligned with the external market pay rates in a simple regression to develop a market pay line. Depending on whether the organization wants to lead, lag or meet the market, the market pay line can be adjusted up or down. To complete the pay structure, pay grades and pay ranges are developed