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Designing Effective Compensation Systems

Learn how to create market-competitive compensation systems to attract top talent. Explore fixed and variable pay, benefits, cost of living, and compensation surveys. Understand key concepts like regression analysis, pay grades, and market pay line.

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Designing Effective Compensation Systems

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  1. Building Market-Competitive Compensation Systems MGT 4543 Compensation Management Chapter 7

  2. Fixed Pay Variable Pay

  3. Class Activity: Using Salary.com to gather compensation data • Http://www.salary.com/category/salary/ • Information on salary (national & local) • Information on benefits • Information on cost of living Questions to answer: • What is the base pay? • What are the pay incentives? • What are benefits worth?

  4. View results then skip advertisement

  5. What is the median salary?

  6. Go to the benefits tab

  7. What is the base pay? What are the pay incentives? What are benefits worth? What is the total compensation?

  8. Cost of Living Calculator • http://swz.salary.com/costoflivingwizard/layoutscripts/coll_start.aspx • It will compare salary & cost of living in two locations • It will tell you how much you would have to earn in a new location to maintain the same standard of living.

  9. Cost of Living Calculator – enter median salary & 2 locations

  10. What is the net change in income? What is the typical salary in location 1? What is the typical salary in location 2?

  11. Market-Competitive Pay Systems • Why is it important to have market-competitive pay systems? • What is a strategic analysis? • What is a compensation survey? • What is a compensation plan?

  12. Compensation Surveys • Preliminary considerations • What are some things that companies hope to gain from compensation surveys? • What are the the reasons companies choose not to develop and implement their own compensation surveys?

  13. Compensation Surveys • Using published compensation survey data • Explain the difference between focusing the survey on core or employee benefits • What are some sources of published compensation survey data? Why would a company want to use more than one source?

  14. Compensation Surveys • What is the BLS? • What type of information is offered by the BLS?

  15. Strategic Considerations for Compensation Surveys • What is the relevant labor market? • What is a benchmark job? Why can it be hard to find a perfect match?

  16. Compensation Survey Data • Survey data characteristics • Amount of information • Timeliness of information

  17. Compensation Survey Statistics • What is central tendency? • Describe the following measures of central tendency: • Mean • Median

  18. Compensation Survey Statistics • What is variation? • Explain these measures of variation • Standard deviation • Quartile • Percentile

  19. Updating Survey Data • Why update survey data? • What is the Consumer Price Index (see Table 7-8)

  20. Integrating Internal Job Structures with External Market Pay Rates • Explain regression analysis (see glossary). • What two sets of information are needed before performing regression analysis to establish pay rates?

  21. Pay Structure Market pay line $37,000 Pay Grade 3 $30,000 Annual Salary $32,000 Pay Grade 2 $25,000 Pay Range $27,000 Pay Grade 1 $20,000 200-400 401-600 601-800 Job evaluation points

  22. Integrating Internal Job Structures with External Market Pay Rates • What is the market pay line? • What is R2? • What does an R2 of 0 mean? • What does an R2 of .52 mean? • What does an R2 of 1.00 mean?

  23. Compensation Policies and Strategic Mandates • Explain: • Market lead policy • Market lag policy • Market match policy

  24. Questions on Compensation Policies and Strategic Mandates • Which pay policy best fits a company using a cost leadership strategy? • Which pay policy best fits a company using a differentiation strategy? • What is a pay mix policy?

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