Building Market-Competitive Compensation Systems

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					BUILDING MARKET - COMPETITIVE
   COMPENSATION SYSTEMS



         Jayendra Rimal
        THE BASICS OF MARKET COMPETITIVE PAY
                      SYSTEMS

   This type of compensation policy should be developed to fit
    in with the competitive advantage of a company.
   It has a role in attracting and retaining the most qualified
    employees.
   A well designed pay system should promote the attainment
    of competitive strategies.
   But paying more than necessary can undermine low cost
    strategies as it is an undue burden. It also restricts the
    company’s ability to invest in other strategic activities.
    Hence companies that pursue differentiation strategy must
    strike a balance between offering sufficiently high salaries
    to attract and retain talented people and providing
    sufficient resources to enable them to be productively
    creative.
MAJOR ACTIVITIES FOR MARKET COMPETITIVE PAY

1.   Conducting strategic analysis

2.   Assessing competitors’ pay practices with compensation
     surveys

3.   Integrating the internal job structure with external
     market pay rates and

4.   Determining compensation policies
      1. CONDUCTING STRATEGIC ANALYSIS:



   Examination of a company’s external market context and
    internal factors.

   External factors could include industry profile,
    information about competitors, growth prospects ( short
    and long-term)

   Internal factors encompass financial conditions,
    marketing capabilities, available human resources etc.
             2. COMPENSATION SURVEYS

   Entails collection and subsequent analysis of competitors’
    compensation data focusing on wage and salary practices.
   These days all benefits, allowances, perks etc. are
    collected and analysed as these are key elements in
    market competitive pay systems.
   Surveys enable companies to obtain realistic view of
    competitors’ pay practices.
   In the absence of surveys professionals would have to
    use guess work to build market competitive pay systems
    leading to wrong guesses resulting in noncompetitive pay.
   Data is usually collected on base pay levels, incentive
    award structures and mix and levels of discretionary
    benefits.
   In Nepal, companies have to take the initiative to conduct
    compensation surveys as there is a lack of existing
    compensation survey reports.
COMPENSATION SURVEYS: STRATEGIC CONSIDERATION

   Defining the relevant labor market:
       This represents the fields of potentially qualified candidates for
        particular jobs.
       Relevant markets are defined on the basis of occupational
        classification, geography and product or service market competitors


   Choosing Benchmark Jobs:
       Benchmark jobs are key to conducting effective job evaluation as
        they play an important role in compensation surveys.
       HR professional determine pay levels for jobs based on typical
        market pay rates for similar jobs.
       Benchmark jobs are (i) well known, stable and agreed by employees
        (ii) common across different employers (iii) represent the entire
        range of jobs that are being evaluated within a company and (iv)
        these jobs are generally accepted in the labor market for the
        purpose of setting pay levels.
    3. INTEGRATING THE INTERNAL JOB STRUCTURE
          WITH EXTERNAL MARKET PAY RATES

   It is important that companies set pay rates by using
    market pay rates as reference points as paying well
    below or well above the typical market rates can create
    competitive disadvantage for companies.

   Companies value jobs that possess higher degrees of
    compensable factors (10 years of experience) than jobs
    with fewer degrees of compensable factors (1 year of
    experience) resulting in pay differences based on
    compensation survey data.
        4. DETERMINING COMPENSATION POLICIES

   Normally companies can choose from three pay level
    policies:

       Market lead: This distinguishes a company from the
        competitors by compensating employees more highly
        than most competitors. Pay levels are above market
        pay lines

       Market lag: This also distinguishes a company but by
        compensating employees less than competitors. Pay
        levels fall below the market pay line.

       Market match policy: This closely follows the typical
        market pay rates as companies pay as per the market
        pay. Pay rates fall along the market pay lines.
ANY QUESTIONS?

				
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posted:7/24/2012
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