A compensation package is an important part of the overall strategic HR plan. It can include salary, bonuses, and benefits such as medical, dental, and retirement. The goals of compensation are to attract people to work for your organization and to retain people who are already working at the organization. A competitive compensation package also motivates
employees to work at their peak performance and boosts employee morale. Employees who are fairly compensated perform better, which can result in positive organizational results such as growth and development.
HR plays an important role when it comes to compensation and benefits. Small companies with just a few employees may have a handful of HR representatives who are responsible for all HR functions. While larger companies may have individuals who specialize in specific aspects within
compensation and benefits, such as payroll management.
Compensation duties include developing pay scales and structures, ensuring that pay rates are competitive, keeping payroll compliant with state and federal regulations, overseeing pay distribution, working with managers to develop promotion and retention strategies, developing and monitoring a budget, and managing compensation and payroll support teams.
Before beginning work on a pay system, important starting points include questions such as what a fair wage from the employee’s perspective is to how much can be paid and still retain financial health for the organization.
Once the basic questions have been answered, a pay philosophy should be developed based on internal and external factors. This may be a market compensation philosophy in which the employer pays the going market rate for the job or a market plus philosophy, which pays higher
than average. Conversely, a market minus strategy pays less than the market rate, in which case the company would likely offer more benefits.
It is HR’s role to ensure that pay is competitive and equitable so that they can attract and retain quality employees. By making sure that employees are rewarded fairly, employees are motivated to perform better, and compensation packages are critical to attracting top talent.
Applicants consider compensation and benefits when applying to jobs. Since market changes directly affect compensation and benefits, HR must monitor these changes and make adjustments as necessary. HR is tasked with building a pay system that works for the size and industry of the organization, as well as regulations from regulatory bodies such as the EEOC.
The first step in setting up a pay system is using a job evaluation system to determine the relative value of one job to another. Several types of pay systems can be implemented. For example, a pay grade system sets up specific pay levels for particular jobs, while a going rate system looks at the pay through the industry for a specific job title. Management fit gives
maximum flexibility for managers to pay what they think someone should earn. HR can develop pay systems based on skills and competency or by including variable pay.
Let us help you manage compensation and benefits for your company. Contact us for a consultation.