Compensation Compensation is not the cut-and-dry subject it used to be.

Once you had to worry only about an employee's base salary or, at most, a base salary and commission. Today, you need to think in terms of compensation packages - including salaries, stock options, employee stock ownership plans, pay-for-performance plans, bonuses, profit sharing, commissions, non-cash rewards, variable pay, and much more. To recruit, retain, and motivate the best employees, you need to understand compensation and reward plans and how they relate to your company's growth. e'll help you get a handle on everything from settling on a compensation strategy to creating a variable pay plan with this collection of checklists, benchmarks, and advice. Compensation as !otivation The "ower of #ase $ compensation e%pert e%plains how to improve your compensation strategy by developing an effective, market-driven base pay system. "ay for "erformance -- and &othing 'lse 'mployment relationships are transactional by nature. Today's transactions are fast moving, short-term and fully e%posed, as free agents negotiate with managers for project and contract work. Compensation (trategy )ecruiting Top Talent, One by One. This C'O tweaked her company's compensation package over time to attract key managers. age ars $n employee who makes *+,,--- a year may be happy as a clam with his compensation until he learns that .rank in the cube ne%t door makes */-,---. Three rules for handling the delicate subject of employee salary information. (hifting orkplace 0alues $lter "ay (trategies 1ncentive compensation is becoming the norm, and salary increases seem to pattern economic performance. 'mployee Ownership 2ow is compensation used3 Compensation is a tool used by management for a variety of purposes to further the e%istence of the company. Compensation may be adjusted according the business needs, goals, and available resources. Compensation may be used to4 )ecruit and retain 5ualified employees. 1ncrease or maintain morale6satisfaction. )eward and encourage peak performance. $chieve internal and e%ternal e5uity. )educe turnover and encourage company loyalty. !odify 7through negotiations8 practices of unions. )ecruitment and retention of 5ualified employees is a common goal shared by many employers. To some e%tent, the availability and cost of 5ualified applicants for open positions is determined

by market factors beyond the control of the employer. hile an employer may set compensation levels for new hires and advertise those salary ranges, it does so in the conte%t of other employers seeking to hire from the same applicant pool. !orale and job satisfaction are affected by compensation. Often there is a balance 7e5uity8 that must be reached between the monetary values the employer is willing to pay and the sentiments of worth felt be the employee. 1n an attempt to save money, employers may opt to free9e salaries or salary levels at the e%pense of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may seek to increase salaries and salary levels. Compensation may also be used as a reward for e%ceptional job performance. '%amples of such plans include4 bonuses, commissions, stock, profit sharing, gain sharing. hat are the components of a compensation system3 Compensation will be perceived by employees as fair if based on systematic components. 0arious compensation systems have developed to determine the value of positions. These systems utili9e many similar components including job descriptions, salary ranges6structures, and written procedures. The components of a compensation system include4 :ob ;escriptions4 $ critical component of compensation and selection systems, job descriptions define in writing the responsibilities, re5uirements, functions, duties, location, environment, conditions, and other aspects of jobs. ;escriptions may be developed for jobs individually or for entire job families. :ob $nalysis4 The process of analy9ing jobs from which job descriptions are developed. :ob analysis techni5ues include the use of interviews, 5uestionnaires, and observation. :ob 'valuation4 $ system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techni5ues4 )anking, Classification, .actor Comparison, and "oint !ethod. "ay (tructures4 <seful for standardi9ing compensation practices. !ost pay structures include several grades with each grade containing a minimum salary6wage and either step increments or grade range. (tep increments are common with union positions where the pay for each job is predetermined through collective bargaining. (alary (urveys4 Collections of salary and market data. !ay include average salaries, inflation indicators, and cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. hen purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. =now which industry or geographic location the salary results pertain to before comparing the results to your company. "olicies and )egulations4

Compensation will be perceived as fair if it is comprised of a system of components developed to maintain internal and e%ternal e5uity. hat are different types of compensation3 ;ifferent types of compensation include4 #ase "ay Commissions Overtime "ay #onuses, "rofit (haring, !erit "ay (tock Options Travel6!eal62ousing $llowance #enefits including4 dental, insurance, medical, vacation, leaves, retirement, ta%es... hat are regulations affecting compensation3 Compensation "lans > ;evelop a program outline. > (et an objective for the program. > 'stablish target dates for implementation and completion. > ;etermine a budget. > ;esignate an individual to oversee designing the compensation program. > ;etermine whether this position will be permanent or temporary. > ;etermine who will oversee the program once it is established. > ;etermine the cost of going outside versus looking inside. > ;etermine the cost of a consultant's review. > ;evelop a compensation philosophy. > .orm a compensation committee 7presumably consisting of officers or at least including one officer of the company8. > ;ecide what, if any, differences should e%ist in pay structures for e%ecutives, professional employees, sales employees, and so on 7e.g., hourly versus salaried rates, incentive-based versus non-contingent pay8. > ;etermine whether the company should set salaries at, above, or below market. > ;ecide the e%tent to which employee benefits should replace or supplement cash compensation. > Conduct a job analysis of all positions. > Conduct a general task analysis by major departments. ho must accomplish what tasks3 > ?et input from senior vice presidents of marketing, finance, sales, administration, production, and other appropriate departments to determine the organi9ational structure and primary functions of each. > 1nterview department managers and key employees, as necessary, to determine their specific job functions. > ;ecide which job classifications should be e%empt and which should be none%empt. > ;evelop model job descriptions for e%empt and none%empt positions and distribute the models to incumbents for review and comment@ adjust job descriptions if necessary. > ;evelop a final draft of job descriptions. > !eet with department managers, as necessary, to review job descriptions.

> .inali9e and document all job descriptions. > 'valuate jobs. > )ank the jobs within each senior vice president and manager's department, and then rank jobs between and among departments. > 0erify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary. > "repare a matri% organi9ational review. > On the basis of re5uired tasks and forecasted business plans, develop a matri% of jobs crossing lines and departments. > Compare the matri% with data from both the company structure and the industry wide market. > "repare flow charts of all ranks for each department for ease of interpretation and assessment. > "resent data and charts to the compensation committee for review and adjustment. > ;etermine grades. > 'stablish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level. > ;etermine the number of pay grades, or monetary range of a position at a particular level, within each department. > 'stablish grade pricing and salary range. > 'stablish benchmark 7key8 jobs. > )eview the market price of benchmark jobs within the industry. > 'stablish a trend line in accordance with company philosophy 7i.e., where the company wants to be in relation to salary ranges in the industry8. > ;etermine an appropriate salary structure. > ;etermine the difference between each salary step. > ;etermine a minimum and a ma%imum percent spread. > (lot the remaining jobs. > )eview job descriptions. > 0erify the purpose, necessity, or other reasons for maintaining a position. > !eet with the compensation committee for review, adjustments, and approval. > ;evelop a salary administration policy. > ;evelop and document the general company policy. > ;evelop and document specific policies for selected groups. > ;evelop and document a strategy for merit raises and other pay increases, such as cost-ofliving adjustments, bonuses, annual reviews, and promotions. > ;evelop and document procedures to justify the policy 7e.g., performance appraisal forms, a merit raise schedule8. > !eet with the compensation committee for review, adjustments, and approval. > Obtain top e%ecutives' approval of the basic salary program. > ;evelop and present cost impact studies that project the e%pense of bringing the present staff up to the proposed levels. > "resent data to the compensation committee for review, adjustment, and approval. > "resent data to the e%ecutive operating committee 7senior managers and officers8 for review and approval. > Communicate the final program to employees and managers. > "resent the plan to the compensation committee for feedback, adjustments, review, and approval.

> !ake a presentation to e%ecutive staff managers for approval or change, and incorporate necessary changes. > ;evelop a plan for communicating the new program to employees, using slide shows or movies, literature, handouts, etc. > !ake presentations to managers and employees. 1mplement the program. > ;esign and develop detailed systems, procedures, and forms. > ork with 2) information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers. > 2ave the necessary forms printed. > ;evelop and determine format specifications for all reports. > '%ecute test runs on the human resources information system. > '%ecute the program. > !onitor the program. > !onitor feedback from managers. > !ake changes where necessary.