Compensation Strategy

1
Compensation Strategy Structure

• Strategic role of compensation
• What determines pay
• Reward system objectives
• External internal considerations

2
Strategic Role of Compensation

• To attract, retain and motivate employees
• Link to business plan
• Internal pay structure
• External equity
• Administrative policies
• Performance focus

3
What Determines Pay?

• Organizational differences --corporate culture
  ability to pay
• Work differences intellectual and interpersonal
  competencies, skills, responsibility, working
  conditions
• Employee differences Education, experience,
  skills
• Market country differences

4
Reward System Objectives

• Improving productivity
• Controlling costs
• Fair treatment
• Legal compliance

5
External Considerations

• Legislation
• Fair Labor Standards Act -- 1938
• Davis-Bacon Act -- 1931
• Walsh-Healy Act 1936
• Equal pay act (1963)
• Labor union
• Labor markets
• Compensation surveys

6
Internal Considerations

• Organizational considerations
• Traditional job evaluation
• Skill based evaluation
• Market based evaluation

7
Point Evaluation Method

• Compensable Factors
• Aspects of the job that are valued by the
  organization
• Numerically Scaled Factors
• Committee decides number of scale points total
  points (often 500 or 100)
• Factor Weights
• Importance of factor

8
Point Evaluation Table
9
Calculating Points

• Maximum for each factor is the factor weight X
  the total points
• Example for Know-how .50 X 1000 500
• Minimum for each factor is factor weight X 100
• Example for Know-how .50 X 100 50
• Interval points Maximum - Minimum
• of degrees - 1
• Example 500 - 50 450/3 150
• 3

10
Skilled Based Market Based Methods

• Skill based Compensates on the basis of
  job-related skills
• Market based Compensates on the basis of surveys
  determining going rate in area and profession

11
Backwards Forwards

• Summing Up Today we considered strategic aspects
  of compensation, factors that determine pay,
  objectives of the reward system and external
  internal considerations in setting pay scales.
  The point evaluation method was examined
• Looking ahead Next time we explore pay for
  performance for individuals and teams