By Kenexa
Compensation, simply stated, is pay provided by an employer to an employee for services rendered. In any organization, employees expect an acceptable monetary reward in return for the time, effort and skill they invest in their job. Compensation lies at the center of the implied—and sometimes formal—employment contract.
Getting pay right is critical to keeping your work force motivated and attracting top talent to your organization. Compensation can be categorized into two basic categories: fixed
and variable pay. Fixed pay does not regularly vary according to performance or results achieved. Variable, or incentive pay, is earnings given in addition to a base salary that is contingent on discretion, performance or results achieved. Fixed pay is a guaranteed amount while variable pay is not.
The objective of any compensation plan is to be internally equitable, externally competitive, affordable and appropriate. It must make sense in terms of your organization’s objectives and be aligned with employees’ values. As your organization grows and evolves, it can adjust how it approaches pay according to business needs, goals, objectives and monetary resources available. An effectively applied approach to compensation makes it possible for organizations to successfully attract, retain and motivate qualified employees.
Business Lifecycle
How a company chooses to pay its employees is often influenced by where the organization is in the business life cycle: start-up, growth, maturity or decline. Business needs and availability of resources at these various stages need to be balanced to achieve expected results.
Compensation, simply stated, is pay provided by an employer to an employee for services rendered. In any organization, employees expect an acceptable monetary reward in return for the time, effort and skill they invest in their job. Compensation lies at the center of the implied—and sometimes formal—employment contract.
Getting pay right is critical to keeping your work force motivated and attracting top talent to your organization. Compensation can be categorized into two basic categories: fixed
and variable pay. Fixed pay does not regularly vary according to performance or results achieved. Variable, or incentive pay, is earnings given in addition to a base salary that is contingent on discretion, performance or results achieved. Fixed pay is a guaranteed amount while variable pay is not.
The objective of any compensation plan is to be internally equitable, externally competitive, affordable and appropriate. It must make sense in terms of your organization’s objectives and be aligned with employees’ values. As your organization grows and evolves, it can adjust how it approaches pay according to business needs, goals, objectives and monetary resources available. An effectively applied approach to compensation makes it possible for organizations to successfully attract, retain and motivate qualified employees.
Business Lifecycle
How a company chooses to pay its employees is often influenced by where the organization is in the business life cycle: start-up, growth, maturity or decline. Business needs and availability of resources at these various stages need to be balanced to achieve expected results.
- Start-up organizations may have limited cash resources, but need key talent to grow the business. These companies need to invest wisely in their human capital and want to attract skilled employees. They may be willing to offer a competitive base salary, but few or no opportunities for variable pay.
- Growth companies usually have more cash available and can afford more competitive salaries and perhaps offer some cash incentives as well to reward current staff and entice new talent.
- Mature companies can afford to target pay at the market rate for each job and are usually able to offer cash incentives to a
- broader group of employees.
- Companies in decline may implement a variety of survival approaches that may include retention or reorganization strategies. There may also be a focus on hiring key talent to help restructure the organization in order to re-establish legitimacy and viability in the marketplace.
Using Market-Based Salary Data
Market-based salary data is information gathered from an external source that provides employers with an opportunity to compare their own compensation practices with those of similar companies that are competing for talent in the same recruiting market. A recruiting market is the segment of the national labor market from which a company hires its employees. To define recruiting markets, an organization should identify relevant industries, company sizes and geographies that represent the employers with which it competes for talent.
In order to compete effectively for valuable talent, you need to assess what the competition is doing. When you analyze pay competitiveness by collecting market-based pay rates for jobs, you can recruit more effectively for positions in your organization, and comparing internal salary data to relevant market data
makes it possible to ensure that salaries are internally fair and externally competitive.
Job descriptions do not have to be elaborate or complex and there is no standard or universal format to follow. At minimum you should include a title and general summary for each job. The summary should be no longer than three to four sentences that describe the fundamentals of the job. If time permits, include simple statements about the duties and responsibilities of the job, and the skill and effort required.
If possible, it is helpful to make reference to education, experience and reporting relationships as well. All of this information will make it easier to locate data for a similar job in the marketplace.
Where to Find Salary Data
Business needs and available resources will influence how an organization chooses to address pay for its employees. Affordable solutions exist for every budget making it possible for organizations to find accurate and reliable data when making important pay decisions. There are a number of options available when researching competitive salary data (see Figure 2).
Conclusion
Using market-based salary data to align your organization’s compensation strategy with those in the same recruiting market will enable your organization to stay competitive and improve employee engagement and retention.
