Compensation plays a significant role in an organization's success. A compensation strategy must be designed well to attract and retain talent. As the single largest expense for most companies, it's imperative to develop the right pay structure and appropriate recognition methods. This course is for HR Generalists who need to learn basic compensation principles and their application to the business. During this course, you'll learn about developing a compensation strategy, methods for conducting a job analysis, developing job descriptions, and setting up base and variable pay structures. Compensation is one of those topics you must understand to not only drive the success of your business but also build essential skills for a successful career in HR.
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This activity, has been approved for 1.25 HR (General) recertification credit hours toward aPHR™, PHR®, PHRca®, SPHR®, GPHR®, PHRi™ and SPHRi™ recertification through HR Certification Institute® (HRCI®). For more information about certification or recertification, please visit the HR Certification Institute website at www.hrci.org.
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Title: Putting It All Together
You have now learned the basics regarding:
In this last module, we focus on how to put it all together. It starts with gathering information.
As an HR Generalist, the more you understand your organization's business, the more effective you are as a business partner. Talk with your manager and others to understand your business strategy and objectives as well as important issues that drive the success of your organization. Gather and analyze data about your workforce – headcount, demographics, turnover, cost to hire, time to fill, base pay stats, variable pay stats, etc. The more you know the better!
Every year a company plans its compensation budget. As part of the budget process it's a good idea to think how to use those budget dollars most efficiently. Sometimes it might mean where do you target your budget dollars for compensation. Here are some questions you might ask to analyze how best to use the compensation budget.
First, what base pay increases are mandated for the upcoming year?
Minimum wage increases
Contractual wage increases (for example, union)
What positions are being reclassified due to the new FLSA salary level requirement?
For positions moving to nonexempt status, what is estimated cost of OT for them?
For positions remaining exempt status, what cost of salary increases to meet the minimum salary level?
What is the cost of other salary increases being made to address compression issues?
What are your business unit's goals for the upcoming year?
What programs have high growth potential? What programs are mature and established with modest growth? What programs are declining?
What is the local employment market?
Are you finding it challenging to compete for talent and retain talent due to base pay? Is the unemployment rate for your area stable, decreasing, or increasing?
Are you finding it challenging to compete for talent for certain jobs because of starting base pay rates? If yes, what rates would be required to better compete and what would the cost be?
What internal factors are impacting your revenue and to what extent?
What is your vacancy rate? Is it considered high? If yes, for what positions and why?
Are you experiencing high turnover? If yes, for what positions and why?
Are you losing solid mid-level and high performers due to pay? Where do these employees fall within pay ranges – above midpoint or below?
Are these factors affecting quality of services or products and/or revenue? If yes, how and to what extent?
Every organization is different, requiring a compensation strategy tailored to fit the organization's strategy and business objectives. This is an example of a high level pay strategy developed for a new company just getting off the ground.
The business strategy and objectives center on developing new business (that is, clients or customers) to increase its revenue.
The people strategy is to hire the key talent required as quickly as possible and to hire people that have the knowledge and experience to hit the ground running so that they can focus on developing new business and increasing revenue. To attract new employees, the people strategy is to emphasize that this is a new company with much potential to grow.
As we know, high growth companies provide great opportunities for career growth so that will be attractive to top performers. In addition, the strategy is to emphasize a culture of teamwork as employees in new companies are often required to wear many hats and back each other up.
Based on the business strategy and the people strategy, the pay strategy might be as follows:
For top talent essential for the business to succeed:
Base pay might be better than market median
Short-term incentives: Better than market median contingent on meeting revenue goals and threshold profitability goal
For Long-term incentives: Better than market median, equity based or cash
For other staff the pay strategy might be:
Base pay: Up to market median
Short-term incentives: Better than market median based on profitability
Long-term incentives: Market median, equity based or cash
To reinforce and reward teamwork, the strategy might also include a recognition program for teamwork.
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Pamela Sande, CCP, is the Managing Principal of Pamela Sande & Associates, LLC. Pamela has over 25 years of human resources experience in both consulting and corporate roles, including as an HR executive and as a specialist in designing total rewards programs that drive organizational performance.
In her current role as Managing Principal, Pamela and...