Dissecting Compensation & Benefits: Compensation

2 May 2019: When you talk about "Compensation & Benefits", it is actually 2 separate functions and area of expertise. I always find it very difficult to employ a C&B specialist with a well balance of compensation and benefits skill set. Now, let us dissect "Compensation" ...

Compensation is defined as pay / salary provided by an employer to an employee in return for work done.

Compensation comprised of two (2) core elements: -

1. Fixed base pay (e.g., basic salary) that does not vary;
2. Variable pay (e.g., variable bonus scheme, sales commission, etc.), which changes with performance results.

Usually, a basic compensation plan comprise of three (3) parts: -

1. Internal Alignment (IA)
2. External Competitiveness (EC)
3. Compensation Management (CM)

Internal Alignment: Makes pay comparison among jobs or skills level inside a single organization.

Step # 1: Job Analysis (JA)
It is the systematic process of collecting information that identifies similarities and differences in work. The outcome of JA is job documentation (e.g., Job Description).

Techniques of conducting JA: 

1. Observation
2. Interview
3. Questionnaire
4. Online (e.g., O Net)

Step # 2: Job Evaluation (JE)

It is the systematic process of determining the relatives worth of jobs. The outcome of JE is the development of an internal structure or hierarchical ranking of the job.

Note: Under Mercer methodology, I will be applying Mercer's e-IPE to determine the "Position Class" (aka PC) of the Job ... similar to job leveling.

Step # 3: Pay Policy

Deciding a pay policy is the process of determining whether the organization want to lead, lag or meet the market in compensation.

(source: Gregg Learning, 2018)

External Competitiveness (EC): Pay comparisons with competitors - other organization that hire people with same of similar knowledge, skills, and abilities.

Step # 4: Market Analysis

It is the process of analyzing compensation data gathered from other employers in a survey of the relevant labor market.

Note: Under Mercer methodology, I will be participating in Mercer's TRS (Total Remunerations Survey) to obtain the market data.

(source: Gregg Learning, 2018)

Step # 5: Base Pay Structure
A base pay structure is developed through job evaluation is merged with the external market pay rates in a single regression to develop a market pay line from which pay grades and ranges are develop.

A trained C&B Expert / Specialist will be able to "regress" the data into similar graph shown below.   

(source: Gregg Learning, 2018)

Compensation Management (CM): Implementing variable pay and ensuring employees understand their compensation.

Step # 6: Pay for Performance
Deciding the use of pay that varies with some measure of individual or organization performance such as merit, incentives, and variable pay.

(source: Gregg Learning, 2018)

Step # 7: Communicate the Plan
Communicate your compensation plan ensure employee understand their compensation and how a clear line of sight between organization mission, culture, and their compensation.

(source: Gregg Learning, 2018)

++The End++