We already know a lot about compensation management and components of total compensation package. Today we will learn about the essential components to design a well formed compensation systems for any organization.
As Compensation strategy is a part of business strategy, with the change of organizational structures and business need, the compensation systems have also been changing with time. From the bureaucratic organizations to the participative organizations, employees have started asking for their rights and appropriate compensations. The higher education standards and higher skills required for the jobs have made the organizations provide competitive compensations to their employees. That’s why an ideal compensation system are designed keeping in minds the strategic goals and business objectives. To design a well formulated compensation system following components are used:
Job analysis is a systematic approach to defining the job role, description, requirements, responsibilities,evaluation, and finding out required level of education, skills, knowledge, training for the job position. It also depicts the job worth i.e. measurable effectiveness of the job and contribution of job to the organization. Thus, it effectively contributes to setting up the compensation package for the job position. In fact , Job analysis helps in analyzing the resources and establishing the strategies to accomplish the business goals and strategic objectives. It forms the basis for demand-supply analysis, recruitment, compensation management, and training need assessment and performance appraisal. Job analysis can be further categorized into following sub components.
- Job Position : Job position refers to the designation of the job and employee in the organization. Job position forms an important part of the compensation strategy as it determines the level of the job in the organization. For example management level employees receive greater pay scale than non-managerial employees. The non monetary benefits offered to two different levels in the organization also vary.
- Job Description : Job description refers the requirements an organization looks for a particular job position. It also helps in bench-marking the performance standards.
- Job Worth : It is also known as job evaluation.It helps in determining the outcome from the job profile. Once it is determined that how much the job is worth, it becomes easy to define the compensation strategy for the position. Therefore, job analysis forms an integral part in the formulation of compensation strategy of an organization. Organizations should conduct the job analysis in a systematic at regular intervals.
Once job analysis has been done organizations need to decide upon the pay structures. Pay structure refers to the process of setting up the pay for a job in an organization. The process deals with internal and external analysis to estimate the compensation package for a job profile. Internal equity and External equity are the most popular pay structures.
- Internal Equity: The internal equity method undertakes the job position in the organizational hierarchy. The process aims at balancing the compensation provided to a job profile in comparison to the compensation provided to its senior and junior level in the hierarchy. The fairness is ensured using job ranking, job classification, level of management, level of status and factor comparison.
- External Equity: Here the market pricing analysis is done. Organizations formulate their compensation strategies by assessing the competitors’ or industry standards. Organizations set the compensation packages of their employees aligned with the prevailing compensation packages in the market. This entails for fair treatment to the employees. At times organizations offer higher compensation packages to attract and retain the best talent in their organizations.
After determining the pay structure, the next step have to go is Salary Survey. The Salary survey is the research done to analyze the industry standards to set up the compensation strategy for the organization. Organizations cannot provide compensation packages that are either less than the industry standards or are very higher then the market rates. For the purpose they undertake the salary survey. Organizations can either conduct the survey themselves or they can purchase the survey reports from a reputed research organization. The analysis is done on the basis of certain factors defined in the objectives of the research.
Objectives of Salary Survey
· To gather information regarding the industry standards
· To know more about the market rate i.e. compensation offered by the competitors
· To design a fair compensation system
· To design and implement most competitive reward strategies
· To benchmark the compensation strategies
Types of Compensation Surveys:
There are two types of compensation surveys undertaken by the organizations. These are:
- Standard Surveys: Standard surveys are undertaken by organizations on a regular basis. These surveys are conducted annually based on the organizational objectives. These surveys attempt to cover the same companies every year and provide the same time of analysis. The reports are published annually by the research organizations. The organizations willing to formulate their compensations strategies based on the surveys purchase the reports from the research organization.
- Custom Surveys: At times, a few organizations need to know some specific information. The surveys which cater this need are known as custom surveys. The organizations either higher research organizations to conduct theses surveys for them or they themselves conduct the survey by sampling few of the competitors on their own. These surveys do not have any time interval. They are undertaken as the need arises. They focus on important issues usually one or two.
The survey reports consist of the analysis and conclusion drawn from the evaluative data based on the objectives of the study. The reports also include the data, facts and figures to support the analysis and conclusion. The supportive data and annex are provided in the report form the basis for the un-biased conclusion and validation of the analysis.