Definition:
Planning for a compensation plan that will attract and retain the desired quality of employees by being competitive with alternative employers.
- What it is: Compensation and analysis planning includes: Identifying the job level requirements, skills, and capabilities desired in the target candidate, and then comparing the compensation offered for that job description with the alternative employers in your company's competitive talent market. Then comparing your compensation philosophy with the actual compensation measurement to determine if you are meeting your compensation goals. This analysis may require adjustments to your current compensation plan.
- What does it do: Having a competitive compensation plan that meets your philosophy of compensation will allow you to attract, retain, and incentivize the quality of employee you desire.
Uses:
- How is it used: Compensation and Analysis planning is used to assure that you can attract, retain, and incentivize the skill and quality level employees your company is seeking.
- Where: Compensation planning is used literally everywhere. Even if you are a small fast food business you still need to attract and retain employees. If you pay too little you risk not being able to hire employees, or having a very high turnover as employees leave to find higher wages. If you pay too much you may not be able to make enough profit at competitive food prices, or if you raise food prices to pay for the higher wages, you may lose business to competitive fast-food businesses. This same analogy is true for large corporations.
- Why: To attract and retain quality employees and remain competitive in your marketplace, you need a compensation plan that will meet the company goals.
Limitations:
- Where it shouldn't be used: I can not envision a scenario where you would not need to have a compensation plan to balance attracting and retaining employees and making profitable earnings.
- Any restrictions: You must meet all governmental regulations and not discriminate based on race, gender, national origin, etc.
- Warnings: While it is illegal to collude with your competitors on what you will compensate employees in the future, it is not illegal to share what you have paid in the past. Therefore many companies will share compensation data with a consortium that will provide average pay to a group of competitors.
Step-by-step process:
PayScale offers the following Checklist:
- Step 1: Plan Ahead
- 1. Get buy-in from company leadership.
- 2. Complete your job descriptions.
- 3. Develop your compensation philosophy.
- Step 2: Perform Salary Benchmarking (good sources include Glassdoor, PayScale and Hay and Associates)
- 1. Select sources of salary market data.
- 2. Choose positions to benchmark.
- 3. Age your data.
- 4. Weigh your data.
- Step 3: Establish Your Pay Grades and Salary Ranges
- 1. Create pay grades.
- 2. Calculate the midpoint of each salary range.
- 3. Determine the salary range widths by position or grade.
- 4. Calculate the minimum and maximum of each salary range.
- 5. Set incentives plans in line with company goals. (not included by PayScale, but very important)
- Fit your compensation into your budget. (not included by PayScale, but very important)
- Step 4: Complete Compensation Analytics
- 1. Analyze employee pay.
- 2. Choose who to green or red circle.
- 3. Be sure that you are meeting all Federal and State laws and regulations (not included by PayScale, but very important)
- Step 5: Be Consistent and Schedule Regular Updates
Direct-Sales-Rep-Compensation-Plan-Template.doc
