Compensation Administration
Compensation Administration
Compensation Administration
Administration
Compensation Administration
Enduring Understandings
Essentials Questions
Essential Learning
Overview
When most people hear the term compensation they think about “what a person is paid”.
Although this is true, it is only one aspect of a complex topic. Compensation includes not only
salary, but also the direct and indirect rewards and benefits the employee is provided with in
return for their contribution to the organization.
Defining Compensation
Compensation (also known as Total Rewards) can be defined as all of the rewards earned by
employees in return for their labor. This includes:
Direct Financial Compensation consisting of pay received in the form of wages, salaries,
bonuses and commissions provided at regular and consistent intervals.
Indirect Financial Compensation including all financial rewards that are not included in direct
compensation and understood to form a part of social contract between the employer and
employee such as benefits, leaves, retirement plans, education, and employee services.
While employees tend to focus on direct financial compensation when contemplating their
rewards, for individuals who are relatively satisfied with their salary, it is non-financial rewards
that tend to be more effective in contributing to long-term employee engagement.
Compensation is a tool used by management for a variety of purposes to further the existence
of the company. Compensation may be adjusted according to the business needs, goals and
available resources.
Compensation
Administration
Compensation may be used to:
Recruitment and retention of qualified employees is a common goal shared by many employers.
To some extent, the availability and cost of qualified applicants for open positions is determined
by market factors beyond the control of the employer. While an employer may set compensation
levels for new hires and advertise those salary ranges, it does so in the context of other
employers seeking to hire from the same applicant pool.
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that
must be reached between the monetary value the employer is willing to pay and the sentiments
of worth felt be the employee. In an attempt to save money, employers may opt to freeze
salaries or salary levels at the expence 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 exceptional job performance. Examples of
such plans include: bonuses, commissions, stock, profit sharing, gain sharing.
Job Descriptions. A critical component of both compensation and selection systems, job
descriptions define in writing the responsibilities, requirements, functions, duties, location,
environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs
individually or for entire job families.
Compensation
Administration
Job Analysis. The process of analysing jobs from which job descriptions are developed. Job
analysis techniques include the use of interviews, questionnaires, and observation.
Job Evaluation. A system for comparing jobs for the purpose of determining appropriate
compensation levels for individual jobs or job elements. There are four main techniques:
Ranking, Classification, Factor Comparison, and Point Method.
Pay Structures. Useful for standardizing compensation practices. Most pay structures include
several grades with each grade containing a minimum salary/wage and either step increments
or grade range. Step increments are common with union positions where the pay for each job is
pre-determined through collective bargaining.
Salary Survey. Collections of salary and market data. May include average salaries, inflation
indicators, cost of living indicators, salary budget averages. Companies may purchase results of
surveys conducted by survey vendors or may conduct their own salary surveys. When
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. Know which industry or geographic location the
salary results pertain to before comparing the results to your company.
Readings