Web Based Compensation and Planning

Compensation is the one of the most complex things in Human Resource Management, and attempting to present an overview is ambitious. Organizations faced with complexities of creating and administering compensation systems are increasingly turning to technology for help. Theorists point out that nearly all processes used to plan, communicate, and handle pay are moving toward Web application.

            The fundamental compensation system includes base pay, merit pay, short-term and long-term incentives, privileges, recognition awards, and attraction or retention awards. There are many processes linked with each of these, all of which must be synchronized. If that were not enough, there are also special populations that have unique pay processes: executives, sales personnel, scientists and engineers, expatriates, unionized workers and the whole panoply of temporary, contract, or part-time workers.

Base Pay is built around two processes, job evaluation and market benchmarking:

1.      Job Evaluation

·         Job evaluation creates an internal hierarchy of value. Every job that will be in the base pay system is evaluated on the set of scales, and a point score is calculated. Jobs are arranged by total points, and this forms the basis for a wages structure.

2.      Market Bench-marking

·         It will be used to price the structure (or individual jobs).

An employee is placed in the salary grade appropriate for her or his job. Each grade has a midpoint that serves as a proxy for all the jobs in that grade, and a range is built around that midpoint. Exact placement in the range is usually a function of performance and individual characteristics such as quality of degree and experience.

In a Merit Pay system, the size of the increase is a function of performance level and where an employee is in the range: the higher the performance, the larger the increase and, generally, the lower the place in the range, the higher the increase.

Short-term Incentives Pay system is rarely added to base pay and must re-earned every year. Typical short-term incentive programs include bonuses, gain sharing, goal sharing, small-group incentives, and a profit sharing. While the long-term incentives are primarily based on organization stock, options to buy organization stock, or phantom (make believe) stock.

Perquisites or privileges are rewards that are function of organizational status. On the other hand, Recognition Awards are low-cost or no-cost awards that are retrospective. Attraction or Retention Awards are one-time awards that are used to attract prospective employees to the organization or persuade them to remain with the organization, such as cash, stock options, benefits, or adjustments to benefit rules.

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Reference:

•           Michael J. Kavanagh, Mohan Thite, Richard D. Johnson (2011), Second Edition Human Resource Information Systems (Basics, Applications, and Future Directions).