Compensation process

Compensation Plans

Develop a program outline.

• Set an objective for the program.
• Establish target dates for implementation and completion.
• Determine a budget.

Designate an individual to oversee designing the compensation program.

• Determine whether this position will be permanent or temporary.
• Determine who will oversee the program once it is established.
• Determine the cost of going outside versus looking inside.
• Determine the cost of a consultant's review.

Develop a compensation philosophy.

• Form a compensation committee (presumably consisting of officers or at least including one officer of the company).
• Decide what, if any, differences should exist in pay structures for executives, professional employees, sales employees, and so on (e.g., hourly versus salaried rates, incentive-based versus noncontingent pay).
• Determine whether the company should set salaries at, above, or below market.
• Decide the extent to which employee benefits should replace or supplement cash compensation.

Conduct a job analysis of all positions.

• Conduct a general task analysis by major departments. What tasks must be accomplished by whom?
• Get input from senior vice presidents of marketing, finance, sales, administration, production, and other appropriate departments to determine the organizational structure and primary functions of each.
• Interview department managers and key employees, as necessary, to determine their specific job functions.
• Decide which job classifications should be exempt and which should be nonexempt.
• Develop model job descriptions for exempt and nonexempt positions and distribute the models to incumbents for review and comment; adjust job descriptions if necessary.
• Develop a final draft of job descriptions.
• Meet with department managers, as necessary, to review job descriptions.
• Finalize and document all job descriptions.

Evaluate jobs.

• Rank the jobs within each senior vice president's and manager's department, and then rank jobs between and among departments.
• Verify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary.
• Prepare a matrix organizational review.
• On the basis of required tasks and forecasted business plans, develop a matrix of jobs crossing lines and departments.
• Compare the matrix with data from both the company structure and the industrywide market.
• Prepare flow charts of all ranks for each department for ease of interpretation and assessment.
• Present data and charts to the compensation committee for review and adjustment.

Determine grades.

• Establish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level.
• Determine the number of pay grades, or monetary range of a position at a particular level, within each department.

Establish grade pricing and salary range.

• Establish benchmark (key) jobs.
• Review the market price of benchmark jobs within the industry.
• Establish a trend line in accordance with company philosophy (i.e., where the company wants to be in relation to salary ranges in the industry).

Determine an appropriate salary structure.

• Determine the difference between each salary step.
• Determine a minimum and a maximum percent spread.
• Slot the remaining jobs.
• Review job descriptions.
• Verify the purpose, necessity, or other reasons for maintaining a position.
• Meet with the compensation committee for review, adjustments, and approval.

Develop a salary administration policy.

• Develop and document the general company policy.
• Develop and document specific policies for selected groups.
• Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, annual reviews, and promotions.
• Develop and document procedures to justify the policy (e.g., performance appraisal forms, a merit raise schedule).
• Meet with the compensation committee for review, adjustments, and approval.

Obtain top executives' approval of the basic salary program.

• Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels.
• Present data to the compensation committee for review, adjustment, and approval.
• Present data to the executive operating committee (senior managers and officers) for review and approval.

Communicate the final program to employees and managers.

• Present the plan to the compensation committee for feedback, adjustments, review, and approval.
• Make a presentation to executive staff managers for approval or change, and incorporate necessary changes.
• Develop a plan for communicating the new program to employees, using slide shows or movies, literature, handouts, etc.
• Make presentations to managers and employees. Implement the program.
• Design and develop detailed systems, procedures, and forms.
• Work with HR information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers.
• Have the necessary forms printed.
• Develop and determine format specifications for all reports.
• Execute test runs on the human resources information system.
• Execute the program.

Monitor the program.

• Monitor feedback from managers.
• Make changes where necessary.