Compensation programs are based on a combination of evaluations of the internal relationship of jobs at the workplace. Compensation programs also consider the evaluation of monetary value placed on jobs by the market. These factors are widely used for the evaluation of the internal job. In other words, these factors give a mechanism to evaluate the job. Human Resource Department professionals are required to build theory for three basic categories: organization, process, and individual performance. In the early days, the human resource management function was the storage of records and maintenance of data but now it is responsible for accounting, marketing, employment, and finance within an organization. Judgment and evaluation of a job have great significance and gives employee and employer the idea and clear view of work and workload.
Components of the Compensation system involve job description, job analysis, job evaluation, Pay structures, salary survey, policies, and regulations.
There are several types of compensation few of them are as follows: Base Pay, commission, overtime pay, Bonuses, Profit sharing, Stock options, Travel, meal, housing allowance, and all medical facilities.
Following are some factors which include in compensation system design:
- Financial impact.
- Freedom to act.
- Management scope.
- Impact on policies.
- Patient welfare.
- Supervisory responsibility.
One or more above factors exist in all jobs. The degree of their existence might vary depending upon the environment and the organization’s status (Compensation system Design, 2008). Different techniques are also involved in developing a compensation design for job evaluation. Usage of statistical techniques to integrate job evaluation data with market data results in a structure that must address both internal and external competitiveness concerns of the organization is always beneficial in long run.
All jobs have some market position and a benchmark is used to determine the market position. Salary levels are one of the most significant factors which help in evaluating the job position and market value. Positioning analysis is used to evaluate the job status and position according to market values. Compensation is a tool widely used by management for a variety of purposes to make organization status better. The compensation of a system should be designed in such a way to facilitate employees.
This paper is based on the Compensation system design of human resource professionals at Small Business Administration (SBA). SBA was created in 1983 for the aid of small business concerns to preserve free competitive enterprise and to strengthen the overall economy of a nation. This post is for highly qualified persons and Debbie carter is fulfilling its requirements very well. In a broadband salary structure, jobs are always assigned to ranges and bands highly based on their levels or stage in a career ladder. The United States Small business administration is a federal agency so they highly focus on external equity by looking up at the compensation policy but they don’t prefer to use compensation programs for setting up their employee’s salaries, they follow federal laws and rules for setting up their employees compensation.
There is a different method available for job evaluation system i.e. Point method, classification method, ranking method, and factor comparison. SBA follows Federal laws for their employees’ compensation. Human resource executive is an exempt post and compensation is designed exclusively based on performance and credibility. In job analysis, it has been observed that performance measurement determines the ability and interest of an employee which helps in designing compensations for an employee. The ranking method is used to rank employees based on their performance. The salary or pay of an employee highly depends on job grading. Design of compensation system crucially depends upon nature and type of employee’s performance indicators. Both types of compensation models are available with and without the presence of performance indicators (Teresa, 2003).
Compensation system Design
- Objective: Compensation Plan for a human resource officer.
- Target Implementation Date: 16-Dec-2008.
- Post: Permanent.
- Salary The median salary of a human resource manager at SBA is $197. However, it varies from company to company.
At SBA for human resource officers, a plan uses both entitlements and pay for performance philosophy. A human resource officer will get pay on regular basis and she can receive a bonus if she meets requirements and good performance. Incentives are also allowed to her but she would not receive any overtime charges in case of overtime etc. the plan follows WIGI (within-grade increase) policy i.e. human resource officer at SBA can receive an incentive and her career growth would be be be horizontal. According to this compensation plan, her growth would not be vertical as the plan follows WIGI.
Establishing internal and external equity: SBA is a federal agency so compensation design will follow external equity by looking at other related factors. The compensation plan would not be based on pay surveys or it will not allow others to adjust their compensation. According to the compensation plan, an employee must meet 52 weeks at work for incentives and other benefits. The compensation plan will include rewards for better performance, health insurance, paid vacations, housing, retirement feasibility, pension, indirect compensation, overtime pay, profit sharing, medical and travel allowance. This act will be included in this plan that on account of poor performance only base pay will be given to an employee, all allowance and overtime pay will not be payable. The incentive compensation plan will not follow local government rules. Incentive payments will be delivered on 1 January and 30 June of every year. The plan would not encourage excessive risk-taking. The exempt employee will receive payment on an annual basis and no overtime will be paid to them. The impact of exempt classified jobs would help reduce expenses and it will also help in motivating employees.
The classification method will be used for job and employees analysis, which will help in grading employees based on their skills and performance. Executive professional employees and sales employee pay will be different and it will follow the same classification method for grading them according to their performance and skills (Sarah, 2004). Salaries range would be designed keeping an eye on market values and business requirements. All executive levels jobs will be exempt i.e. all high-level employees including human resource managers will get pay annually. Job evaluation will be done with the aid of matrix organizational review.
Salary range will vary from position to position and it will be highly influenced by performance as Herbie Carter’s salary is also based on her performance level. The approach will follow external equity by looking at compensation policies. This compensation plan will focus on the motivation of current employees, rewards of human resource manager, building employee loyalty, job evaluation, employee evaluation, health insurance, paid vacation, housing, childcare, both indirect and direct compensation, maintenance of both external and internal equity.
The approach will follow external equity, employee perception; rewards of employment compared with employees of another firm. This approach will also get influence by the ranking method to judge parallel designation of various employees. Salary is one of the most important factors which motivates the employee to work hard and to stay long in an organization. The compensation plan will surely focus on a base salary plus additional allowances. Maintaining consistency in the compensation plan is important to make sure that the compensation plan is fair, equivalent for all employees. Before implementing a compensation plan for human resource managers we will determine internal and external equities and establish an optimum compensation policy as well as stabilizing associated costs. SBA is the federal agency that follows federal regulation.
A new compensation plan will also follow federal rules. This approach will also develop employee communication by using some medium to educate employees about how the company develops and maintain its status in long run. Before the implementation compensation plan, a collective meeting will hold to review the whole system and to observe employee’s responses. One expert consultant will also be there to make amendments to the compensation plan before implementation. Amendments will be made according to employee’s requirements and business values. Different methods will be used for ranking employees as well as aid from different salary software would also be taken to design fair and equivalent salary plans for human resource managers as well as all employees. Different ranking methods will be used such as ordering, weighting, and paid comparison for grading employees and their performance.
Teresa Trapani. 2003. Compensation system for improving environmental performance. Web.
Sarah L. 2004. Creative Compensation. Web.
Compensation system Design. 2008. Compensation Outline. Web.