Effective compensation management is necessary in all businesses, as it represents an investment in human resources the most valuable asset in the organization. Compensation in some cases represents a major portion of the total operating budget. However, proper compensation management can provide an excellent tool to leverage the desired behaviors required to support & align organizational goals with employee goals.
The 5 steps to designing a compensation for your company
1. Reward Strategy
A clear linkage with the overall business strategy to describe how an organization will use reward policies and practices to deliver its business strategy which may include manpower plans, recruiting & retaining the right talent levels, motivating high performers, incentive based schemes, etc.
Examples of the Reward Strategy linkage:
2. Internal Equity
The purpose of internal equity analysis is to determine and assess the relationship between similar jobs as evaluated and corresponding pay levels. This is only possible if there is a proper linkage between job analysis and job evaluation. Job size must be equitably in relation to other similar jobs within the organization.
3. External Competitiveness
Proper external market alignment through an effective benchmark and positioning against reliable external market pay & benefits data.
Why Use Pay Surveys?
What are you benchmarking against?
Probably the most critical aspect of any pay survey is how jobs are measured.
Job Matching / Mapping
Job Title Matching
4. Developing Compensation Structure
Structuring and assigning a compensation range/band against each relative job grade/job size. This is established by the desired “market position” and is tabulated using a percentage (%). Structuring an effective “right package” link between remuneration and job performance is very critical.
Country specific legislation will establish minimum wages, overtime pay, record keeping requirements, and equal pay affecting full-time and part-time workers in the private sector.
What is the basis for the pay range?
What is the size of the pay range?
Correct pay for Jobs
5. Communication & Implementation
Keep your communication simple for your people to receive the right message. Apply a compa-ratio to migrate into the new compensation structure.
Think strategically about reward
Invest heavily in a ‘Pay for Performance’ culture
Check the market and be transparent on findings