Compensation Plan Assignment

Assignment II- Practitioners Guide

Compensation Plan

INTRODUCTION

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Compensation systems are arguably one of the most fundamental design elements for an organization; however creating the right compensation plan is not always an easy task. In fact, creating a compensation plan requires a multifaceted, multi-level approach that interacts within the specific content of an organization. How a compensation program is designed and implemented throughout an organization will determine its competitive advantage in the market. It is also important to note that a compensation system design has many goals and objectives, all of which must work in concert with each other in order to increase the likelihood of achieving success. The following guide serves as an overview of five (5) essential elements an organization should focus on in order to create and implement a compensation system. At the foundational level, a job analysis must be executed because if compensation is meant to coincide with the work performed, you must first understand what functions are encompassed within a position to determine pay. From there a job evaluation is necessary to ensure that all of the internal positions are compensated consistently and fairly based on their relative worth. Once this has been accomplished an organization can more successfully design pay levels, mix and pay structures to internally organize positions, while also externally ensuring they are competitive in relevant markets. The specific way employees are paid within the organization is generally lumped under the term pay for performance. This includes a variety of incentive-based/merit-based increases aimed at increasing profitability/performance. Finally, an essential piece of a compensation system is through the performance appraisal process, which is the primary way organizations can link performance to pay increases. Much like a set of stairs, all of these elements must be built collectively and intentionally linked together in order to achieve the intended outcome: organizational success.

TABLE OF CONTENTS

JOB ANALYSIS                                                                                                        Pg.3

JOB EVALUATION                                                                                                Pg. 8

DESIGNING PAY LEVELS, MIX AND PAY STRUCTURES                                                        Pg. 12

PAY FOR PERFORMANCE                                                                                        Pg. 16

PERFORMANCE APPRAISAL & LINKS TO COMPENSATION                                                        Pg. 20

REFERENCES                                                                                                        pg. 24

JOB ANALYSIS

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Definition: 

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The term Job Analysis refers to the systematic process of discovering and describing the differences and similarities between jobs. These include identifying the knowledge, skills, and responsibilities as well as the environment in which work is performed. Two distinct products result from a job analysis:

1. Job Description- the list of tasks, duties, and responsibilities that make up a job.
2. Job Specification- the list of knowledge, skills, abilities, and other characteristics that are necessary for an individual to have to perform the job.

In other words, a job description focuses on the specifics of the job and the specification focuses on what characteristics and traits a person should have in order to perform successfully. To the right is an example of information collected through a job analysis that can be used to create an effective job description.

Rationale of Importance:

The main purpose of conducting a Job Analysis is to create a ‘right fit’ between an employee and a job and to see how the job fits within the entire organizational structure. Conducting a Job Analysis is an essential HR function because it can help determine whether or not the internal structure of an organization will be job-based or person-based. Selecting an internal job structure may seem like a simple task, but it goes far past describing a job. It provides organizational members with the rationale for pay differences and can help managers and supervisors defend compensation decisions when questioned. There is no satisfactory substitute (aside from a Job Analysis) that can ensure the resulting pay structure will be work- related or will provide reliable, accurate data for making and explaining pay decisions. To the lefts you will see the purpose of the systematic approach to conducting a Job Analysis and how the internal structures are designed, either job-based or person based on the strategic direction of the organization.[pic 2]

Moreover, a job analysis establishes the job relatedness of employment procedures including but not limited to training, selection, compensation, and the performance appraisal process. In many ways a Job Analysis lays the foundation for which an organization operates with regard to its human capital and should be tied to nearly every major Human Resource Management and Human Resource Development function. For example, a Job Analysis can assist with identifying the skills and experience required to perform the work and determine the worth of particular tasks while also clarifying benchmark hiring and promotion standards. With regards to performance appraisals, Job Analyses are relied on by both employees and supervisors who look to the required behaviors and results expected in a job to help assess performance. For training purposes, a Job Analysis can identify any remedial or developmental training needs not only in terms of outcomes, but also the skills and environment necessary for success.