Question Bank- Compensation & Benefits

1. You are compensation consultant for a pharmaceutical company which is going to start its
operations in Chankan Area in November 2019. The company has designed the organization
structure. You have been asked to devise the compensation plan. What all factors you will
consider while devising the compensation plan?

5 Essential Factors for Determining Compensation

Determining the “right” compensation can be tricky. Not only is money a touchy subject, but so many
factors play into determining compensation rates that are both fair and competitive. Here, Silva discusses the
factors that influence compensation rates the most:

1. Years of experience and education level

It probably goes without saying, but the more experience and education a candidate has, the higher their
expected compensation. So, if you’re hoping to attract job seekers with master’s degrees or more than 5
years’ experience, you need be ready and willing to compensate accordingly.

2. Industry
Workers with similar, or even the same job title can expect vastly different wages depending on what
industry they’re in. There are many reasons for this discrepancy – in some cases their job function may be
critical to a particular industry, or it may simply be a matter of one industry being considerably larger than
the others.

3. Location
Cost of living, a major factor to consider when determining compensation, is largely dependent on location
and, more specifically, the cost of housing. This is at least partially why salaries in large urban areas are
generally higher than salaries for similar positions in more rural locations.

4. In-demand skill sets

When it comes to determining compensation, key skills may be an even more reliable metric to compare
against than job title. After all, different companies may have very different definitions of the same job title.
On top of that, many skill sets can apply to a wide variety of roles – all of which are effectively competing
for the same talent. That’s why it’s important for employers to consider the value of key skills when
determining compensation.

5. Supply and demand

It’s crucial to be aware of the availability of relevant talent in the geographic region where you’re recruiting.
If you’re recruiting in an area where the demand for a certain skill sets and experience outweighs the supply,
you should expect to pay more in order to attract talent.

The cost of not offering competitive pay

You may think you’re saving money by keeping compensation rates low; however, it’s important to consider
what it’s costing you in other areas. For instance, many employers overlook the costs associated with having
unfilled positions for extended periods of time. Similarly, keep in mind the burden an unfilled position can
put on your current employees, who may be taking on extra work to fill the gaps – not to mention what that
can do to morale.

What happens if you can’t pay market value?

Luckily, it is possible to attract top talent even if you can’t offer the most competitive salary. Supplementing
your compensation package with low- or no-cost perks, such as development opportunities, more vacation
time and flexible hours can go a long way in retaining your current workforce. Another option is to recruit
from areas where compensation rates are lower, and let employees work remotely from home or from
another office closer to where the employee lives.
Take the guesswork out of determining compensation
Unless you’re an amazing guesser, it’s important to do a little recon when it comes to determining
competitive pay rates. Competitive intelligence is your best friend when it comes to determining
compensation. CareerBuilder’s Supply & Demand Portal provides up-to-date and relevant compensation
rates for even the most specific of positions. You should also be able to see where compensation rates may
be lower or higher (if you’re considering recruiting in other location), and – perhaps even more intriguingly
– get a peek at what your competitors are paying.

2. Compensation means only the cash component which employee receives from the employer. Do
you agree with the statement? Justify your view.
What is compensation?
Compensation is the total cash and non-cash payments that you give to an employee in exchange for the
work they do for your business. It is typically one of the biggest expenses for businesses with employees.

Compensation is more than an employee’s regular paid wages. It also includes many other types of wages
and benefits.

Types of compensation include:

 Base pay (hourly or salary wages)
 Sales commission
 Overtime wages
 Tip income
 Bonus pay
 Recognition or merit pay
 Benefits (insurances, standard vacation policy, retirement)
 Stock options
 Other non-cash benefits

How to determine compensation of employees?

There are many ways to determine an employee’s compensation. No matter how you determine employee
wages, you should consider internal equity. Internal equity is when you compare the positions in your
business to ensure fair pay.

Compensation regulations
Compensation is governed by many local, state, and federal tax and employment laws.
You need to abide by federal minimum wage laws, which are governed by the Fair Labor Standards Act
(FLSA). Many states and some cities also have their own minimum wage. You must pay all employees at
least the prevailing minimum wage.

You must follow other FLSA rules as well. The FLSA has rules on child labor (including the child minimum
wage and hiring teens), and overtime wages.

You also have equal employment opportunity responsibilities. You should give equal pay to employees who
do the same work.

Compensation can be complicated when it comes to taxes. You will withhold taxes from some types of
compensation, but not from others. Make sure you know what taxes apply to each type of compensation.

For example, you will withhold taxes on tips, regular wages, overtime wages, and commissions. You will
also withhold taxes from bonuses, but you will calculate the taxes differently. You won’t withhold any
employment taxes for benefits.
There are also many other federal, state, and local laws that govern compensation. Make sure you
understand your responsibilities before hiring employees.

If you are looking for a low-cost way to pay your employees, try Patriot’s online payroll for small
businesses. Get started today with a no-obligation free trial.

3. Pay Model is heart of compensation. Do you agree with the statement? Justify your stance.

Pay Model of Compensation

Review the components contained in 'A Pay Model' assessing the objectives, techniques, and policy
components of the Pay Model. Based on your own experiences in the workplace, analyze how these three
major components are linked together to establish the total compensation program . Evaluate the effect of
these relationships on the culture and values of the organization. Include identified external and internal
factors in your assessment.
Analyze how strategic total compensation perspectives reflect the organization's culture and values.
Evaluate the internal and external factors effecting various pay structures and the pay model in
organizations.
Review the components contained in 'A Pay Model' assessing the objectives, techniques, and policy
components of the Pay Model.
Compensation refers to all forms of financial returns and tangible services and benefits employees receive as
part of an employment relationship.
The Pay model helps understand the compensation system in a structured way. The three main components
of the Pay Model are the objectives of the pay system, the policies that form the foundation, and the
techniques that link the policies to the objectives.

OBJECTIVES
Compensation systems are designed to achieve the organization objectives which include efficiency, equity
and compliance with rules and regulations.
Efficiency could be in the form of improved performance, better quality and delighted customers or lower
labor costs.
Fairness or equity objectives are to design pay systems that reward performance and satisfy needs. Fairness
is the very foundation of compensation. It means that employees are treated fairly and the pay compensates
the employee for the work rendered.
Conforming to the various central and state wage legislations and regulations is integral if an organization
wishes to stay free from the clutches of the law. The pay has to be adjusted with the changing legal scenario.
POLICIES
The policies should address internal consistency, external competitiveness (or alignment), external
competitiveness, employee contribution and administration of the pay system. These four are the pillars on
which the pay system policies are founded.

Internal alignment or consistency is used for determining pay rates for similar and different types of work.
Skills and jobs are assessed in terms of their relative contributions to the organization's objectives. Internal
consistency is crucial and affects all the three compensation objectives. When it is perceived to be fair it
retains employees, it motivates employees to improve and undergo training so they are paid more .This
improves efficiency.

External competitiveness is about paying your employees with reference to what your competitors are
paying. Pay should be sufficient to attract and retain good employees. It should also ensure that pays are not
so high that it affects the competitiveness of the company's products and services in the market place.
External competitiveness affects the efficiency and equity objectives.

4. “Compensation is not just the salary or the cash which employee gets every month; it is much
more comprehensive and wider concept”. Elaborate
Compensation and benefits (C&B) is a sub-discipline of human resources, focused on employee
compensation and benefits policy-making. While compensation and benefits are tangible, there are
intangible rewards such as recognition, work-life and development. Combined, these are referred to as total
rewards. The term "compensation and benefits" refers to the discipline as well as the rewards themselves.
The basic components of employee compensation and benefits
Employee compensation and benefits are divided into four basic categories:
1. Guaranteed pay – a fixed monetary (cash) reward paid by an employer to an employee. The most
common form of guaranteed pay is base salary. Guaranteed pay also includes cash allowances (housing
allowance, transport allowance, etc.), differentials (shift differentials, holiday differentials) and premiums
(night shift, etc.)
2. Variable pay – a non-fixed monetary (cash) reward paid by an employer to an employee that is
contingent on discretion, performance, or results achieved. The most common forms of variable pay are
bonuses and incentives.
3. Benefits – programs an employer uses to supplement employees’ compensation, such as paid time off,
medical insurance, company car, and more.
4. Equity-based compensation – stock or pseudo stock programs an employer uses to provide actual or
perceived ownership in the company which ties an employee's compensation to the long-term success of the
company. The most common examples are stock options.
Guaranteed pay
Guaranteed pay is a fixed monetary (cash) reward.
The basic element of guaranteed pay is base salary which is paid on an hourly, daily, weekly, bi-weekly,
semi-monthly or monthly rate. Base salary is provided for doing the job the employee is hired to do. The
size of the salary is determined mainly by
1) the prevailing market salary level paid by other employers for that job, and
2) the performance of the person in the job. Many countries, provinces, states or cities dictate a minimum
wage. Employees' individual skills and level of experience leave room for differentiating income levels
within a job-based pay structure.
In addition to base salary, allowances may be paid to an employee for specific purposes other than
performing the job. These can include allowances for transportation, housing, meals, cost of living,
seniority, or as payments in lieu of medical or pension benefits. The use of allowances varies widely by
country, as well as job level and the nature of job duties.

Variable pay
Variable pay is a non-fixed monetary (cash) reward that is contingent on discretion, performance, or results
achieved. There are different types of variable pay plans, such as bonus schemes, sales incentives
(commission), overtime pay, and more.
An example where this type of plan is prevalent is how the real estate industry compensates real estate
agents. A common variable pay plan might be the sales person receives 50% of every dollar they bring in up
to a level of revenue at which they then bump up to 85% for every dollar they bring in going forward.
Typically, this type of plan is based on an annual period of time requiring a "resetting" each year back to the
starting point of 50%. Sometimes this type of plan is administered so the sales person never resets or falls
down to a lower level. It also includes Performance Linked Incentive which is variable and may range from
130% to 0% as per performance of the individual as per his key result areas (KRA).
Benefits
There is a wide variety of benefits offered to employees such as Paid Time-Off (PTO), various types of
insurance (such as life, medical, dental, and disability), participation in a retirement plan (such as pension or
401(k)), or access to a company car, among others. Some benefits are mandatory which are regulated by the
government while others are voluntarily offered to fulfill the need of a specific employee population. Benefit
plans are typically not provided in cash but form the basis of an employees' pay package along with base
salary and bonus.

In the United States, "qualified" employee benefit plans must be offered to all employees, while "non-
qualified" benefit plans may be offered to a select group such as executives or other highly-paid employees.
When implementing a benefit plan, HR Departments must ensure compliance with federal and state
regulations. Many states and countries dictate different minimum benefits such as minimum paid time-off,
employer’s pension contribution, sick pay, among others.

Equity-based compensation

Equity-based compensation is an employer compensation plan using the employer’s shares as employee
compensation. The most common form is stock options, yet employers use additional vehicles such
as restricted stock, restricted stock units (RSU), employee stock purchase plan (ESPP), and stock
appreciation rights (SAR). A stock option is defined as "a contract right granted to an individual to purchase
a certain number of shares of stock at a certain price (and subject to certain conditions) over a defined period
of time.

5. Pay Model explains all the concept related to Compensation, it is answer to all queries related
to compensation. Justify the statement.

Refer Question number 3

6. Depending on the goal which you want to achieve from your compensation plan, incentives can
be designed for short term and long term basis. As an HR manager what components you will
keep which will make part of your short term & long term incentives.
The design of compensation programs has long been a key HR function. The design of an incentive
compensation program is simply an extension of that responsibility. At the most basic level, HR
professionals should be prepared to explain to managers at every level the benefits, drawbacks and costs
associated with launching, improving or, in a worst-case scenario, scrapping an incentive compensation
program. See Employers Seek Better Approaches to Pay for Performance.

HR may also be asked to advise management on the jobs best suited to an incentive pay plan and criteria for
making payouts. To do so, HR professionals must be ever-mindful of eligibility rules that violate
employment laws, including civil rights and occupational safety rules.

Clear and concise communication from HR is vital to the success of any pay program, particularly incentive
pay. From the outset, HR must communicate the program in a way that garners trust among employees. If
employees do not believe the employer's goals are realistic—and that they have a realistic chance of
benefiting financially from their employer's success—the incentive pay plan will be doomed. Thus, HR
professionals must incorporate input from employees about the design of the incentives being offered.
Any HR professional or team involved in the design and implementation of an incentive pay plan should be
prepared to do the following:

 Survey employees regarding the incentives they would value.

  Explain to employees how the incentives work, including what level of performance is necessary for
them to benefit.
 Check in with employees regularly to gauge their satisfaction with the plan.
 Interview employees who are leaving the organization voluntarily to find out if the incentive pay
program had anything to do with their decision to leave.
 Keep upper-level management apprised of how the plan is working.

Designing Incentive Compensation Programs

Organizations considering incentive plans must define who will be eligible. Common criteria for eligibility
includes the following:

 Job category (such as production or sales).

 Length of service.
 Job classification (such as executive or administrative).
 The goal of the incentive.
 What the payout will consist of (such as bonuses, stock or cash).

Examples of common short-term incentive pay plans include:

 Annual incentive plan.

A pay plan that rewards the accomplishment of specific results. Rewards usually are tied to expected results
identified at the beginning of the performance cycle. Unlike bonuses, they are not primarily discretionary
but may have a discretionary component.

 Discretionary bonus plan.

A plan in which management determines the size of the bonus pool and the amounts to be allocated to
individuals after a performance period. This plan has no predetermined formula or promises and is not
guaranteed.

 Spot awards.

Recognize special contributions as they occur for a project or task, generally accomplished in a short period.

 Profit-sharing plan.

A plan through which employees share in the organization's profits. The plan normally includes a
predetermined, defined formula for allocating profit shares among participants and for distributing funds
accumulated under the plan. Some plans, however, are discretionary.

 Gain-sharing plans.

Any one of a number of incentive programs that share the results of productivity gains with employees as a
group.

 Team/small-group incentives.

Any incentive program that focuses on the performance of a small group, usually a work team. These
programs often are used when measurable output is the result of group effort and it is difficult to separate
individual contributions.
 Retention bonus.

A payment or reward outside of regular salary that is offered as an incentive to keep a key person on the job
during a particularly crucial business cycle.
  Project bonus.

A form of additional compensation paid to an employee or a department for successfully completing a

project within a certain time frame.

Incentive compensation plans may be either informal or formal. For example, a supervisor may simply tell a
sales representative: "If you bring in the XYZ account, I'll boost your usual commission by 3 percent."
There may be no documentation. Seeing results from this kind of informal arrangement is probably realistic
only in a small organization where the employees know and trust management. In a larger organization,
promises are less likely to be taken seriously if they are not formalized in writing.

Stock options are another form of incentive pay for companies that issue public or private stock. According
to the 2016 SHRM Employee Benefits Survey, in 1996, 28 percent of organizations offered employee stock
purchase plans compared with just 9 percent in 2016. This benefit allows employees to purchase shares of
company stock, often at a discount or through a direct deduction from their paychecks. Eight percent of
responding organizations provided restricted or incentive stock options, 6 percent provided nonqualified
stock options, and 2 percent offered stock appreciation rights.

Managing Incentive Compensation Programs

The management of incentive compensation programs consists of five main tasks:

 Determining the technology needed to implement the program, especially the metrics technology.
 Applying the metrics methods on a continuous basis.
 Adapting as appropriate to unforeseen circumstances.
 Communicating with employees and management concerning the program.
 Applying the data received to determine whether changes to the incentive compensation program are
warranted midstream or at the established endpoint.

7. Compensation is affected by various organizational and external factors. Discuss these factors.
Factors Affecting Employee Compensation
The Compensation is the monetary and non-monetary rewards given to the employees in return for their
work done for the organization. Basically, the compensation is in the form of salaries and wages. There are
several internal and external factors affecting employee compensation, which are discussed in detail below.
Internal factors: The internal factors exist within the organization and influences the pay structure of the
company. These are as follows:

1. Ability to Pay: The prosperous or big companies can pay higher compensation as compared to the
competing firms whereas the smaller companies can afford to maintain their pay scale up to the level
of competing firm or sometimes even below the industry standards.

2. Business Strategy: The organization’s strategy also influences the employee compensation. In case
the company wants the skilled workers, so as to outshine the competitor, will offer more pay as
compared to the others. Whereas, if the company wants to go smooth and is managing with the
available workers, will give relatively less pay or equivalent to what others are paying.

3. Job Evaluation and Performance Appraisal: The job evaluation helps to have a satisfactory
differential pays for the different jobs.The performance Appraisal helps an employee to earn extra on
the basis of his performance.

4. Employee: The employee or a worker himself influences the compensation in one of the following
ways.
Performance: The better performance fetches more pay to the employee, and thus with the increased
compensation, they get motivated and perform their job more efficiently.
Experience: As the employee devote his years in the organization, expects to get an increased pay for
his experience.
Potential: The potential is worthless if it gets unnoticed. Therefore, companies do pay extra to the
employees having better potential as compared to others.

External Factors: The factors that exist out of the organization but do affect the employee compensation in
one or the other way. These factors are as follows:

1. Labor Market: The demand for and supply of labor also influences the employee compensation.
The low wage is given, in case, the demand is less than the supply of labor. On the other hand, high
pay is fixed, in case, the demand is more than the supply of labor.

2. Going Rate: The compensation is decided on the basis of the rate that is prevailing in the industry,
i.e. the amount the other firms are paying for the same kind of work.

3. Productivity: The compensation increases with the increase in the production. Thus, to earn more,
the workers need to work on their efficiencies, that can be improved by way of factors which are
beyond their control.The introduction of new technology, new methods, better management
techniques are some of the factors that may result in the better employee performance, thereby
resulting in the enhanced productivity.

4. Cost of Living: The cost of living index also influences the employee compensation, in a way, that
with the increase or fall in the general price level and the consumer price index, the wage or salary is
to be varied accordingly.

5. Labor Unions: The powerful labor unions influence the compensation plan of the company. The
labor unions are generally formed in the case, where the demand is more, and the labor supply is less
or are involved in the dangerous work and, therefore, demands more money for endangering their
lives.The non-unionized companies or factories enjoy more freedom with respect to the fixation of
the compensation plan.
 6. Labor laws: There are several laws passed by the Government to safeguard the workers from the
exploitation of employers.The payment of wages Act 1936, The Minimum wages act 1948,
The payment of Bonus Act 1965, Equal Remuneration Act 1976, Payment of Gratuity Act 1972 are
some of the acts passed in the welfare of the labor, and all the employers must abide by these.

Thus, there are several internal and external factors that decide the amount of compensation to be given to
the workers for the amount of work done by them.

8. How the pay structure is decided based on Competency and Skill?

What is Competency-Based Pay?
Competency-based pay is a pay structure that compensates employees on their skill set, their knowledge,
and their experience. Competency-based pay is an alternative to pay based on job title and position.
Competency-based pay is meant to encourage employees to contribute to the company by improving upon
their skills. Keep reading to learn more about the benefits of competency-based pay from BambooHR.

What is a Competency-Based Pay Plan?

A competency-based pay plan is a tool used to measure an employee’s skill level, knowledge of their job,
and their past experiences. Employees are then paid based on their merits. It does away with the normal
hierarchical way that business is traditionally done and encourages employees to take charge of their own
work. It motivates them to reach the pay-rate that they desire.

Competency-Based Pay Pros and Cons

Competency-based pay has both its advantages and its disadvantages. Knowing these aspects of
competency-based pay will help you determine if it would be right for your company. The following are
some examples of the different competency-based pay pros and cons.

Pros
It’s a great motivator for employees. Instead of basing pay on seniority and job level, the employee is left to
achieve as much as they are willing to. If they motivate themselves, an employee can accomplish amazing
things for the company. There is no longer a ceiling or a limit as to how far they can climb if they just
buckle down and do it.

It will help to reinforce your company’s culture. Competency-based pay encourages a culture of self-
motivation and self-improvement within the company. It will now be a company of employees who are
actively seeking to improve their skills and find new ways to contribute to the company. Competency-based
pay helps to tie your company’s culture directly to the success of the company.

It improves transparency within the company. Your company will become more transparent because they
will know what is expected of them and what they are getting with a competency-based pay system. They
will understand what they have to do to improve at their job and how they can get rewarded for it.
Employee retention will go up. Employee turnover is costly for a company, and a competency-based pay
plan helps to curb that. When an employee feels that their skills and knowledge are important to the
company, they are more likely to stick around.

Cons
It’s a subjective pay system. As your company strays away from a traditional pay system things become
more open to interpretation and that opens the door for subjectivity into the equation. The actions of an
employee might not be judged correctly or, worse, overlooked.

It opens the door for favoritism. Employees may start to see favoritism when one worker gets rewarded
more than another. Employees might think that they are being treated unfairly and might think their skills
are not being recognized by the company.
It may create an improper measurement system. A system determining what skills are important to a
company or what skills translate to productivity can be tricky and can lead to errors in the system.

Why Use Competency-Based Pay?

A competency-based pay plan can be a great motivator for an employee and will help them take their work
to the next level. As it does not follow the traditional paying system, competency-based pay is quite
different from how most companies do work. However, it might just be the change that your employees
need to improve their work. One of the best ways to determine if competency-based pay would work best
for your company is by reading over the pros and cons of competency-based pay listed above. They can help
you see the possible outcomes to this system and if you should apply to your own business.

Skill-based and competency-based pay

Under a skill-based pay system, you set pay scales by skill level and not by job title. Although skill-based
pay is still an option, few companies use this approach today, partly because, if a firm’s required skill sets
change rapidly, it must continuously reinvent the system.

Competency-based pay systems base compensation on an employee’s traits or characteristics rather than on
specific skills. This method is used by only a few employers today because it’s very tricky to develop and
administer.

9. Why Job evaluation and Job analysis are very critical in designing compensation?
Please find it and give it to us

10. Employee motivation is greatly influenced by the compensation he gets. How is compensation
related with employee motivation?
Does Compensation Motivate Employees?

How can I motivate, engage and retain employees? This is the million-dollar question faced by most
managers today. With the competition for top talent heating up, figuring out a way to keep your best people
motivated and productive at work is rapidly becoming one of the top priorities for employers. Many
employers believe that an excellent compensation package holds the key to employee engagement and
motivation.

Effects of Compensation on Employees

According to studies, compensation packages have a huge impact on an employees’ level of engagement.
High compensation provides employees with a sense of satisfaction from their job and incentivizes them to
perform better (especially when compensation is directly related to job performance). On the contrary,
studies have also shown that low compensation hinders employee motivation and performance. Overall,
compensation positively affects employees in one or more of the following ways:
 Job satisfaction
 Retention
 Prospective recruitment
 Work productivity

While compensation is important in engaging employees, it will not achieve its maximum potential when
placed in a vacuum. Companies need a good plan and execution strategy to truly allow compensation to
fulfill its maximum potential.

How to Maximize the Potential Benefits of Compensation

An effective compensation package stems from good compensation planning. Traditionally, compensation
planning is done on spreadsheets (which is far from the most effective way.) Instead, managers should
consider integrating compensation management software into their HR department. Such software will allow
managers to:
 Simplify calculations
  Eliminate the need for spreadsheets
 Create better visibility and compliance
 Offer better decision support
 Reduce costly errors associated with spreadsheets

After the plan has been created, effective compensation management software helps communicate the plan
to the employees so that they understand the details of the package.

11. Short notes

(a) External & Internal Equity

External Equity
• “External equity exists when employees in an organization perceive that they are being rewarded fairly in
relation to those who perform similar jobs in other organizations”.

• External equity exists when an organization's pay rates are at least equal to the average rates in the
organization’s market or sector.

• Employers want to ensure that they are able to pay what is necessary to find, keep and motivate an
adequate number of qualified employees. Creating a compensation structure that starts with competitive base
pay is critical.

• Employees also compare their roles and pay to roles and pay in other organizations. Unfortunately, they do
not always compare with similar types of organizations or even in the same sector.

• Generally, employees consider much more than base pay in determining external equity. For some more
emphasis may be placed on employee benefits, job security, physical work environment or the opportunity
for advancement in deciding if external equity exists.
• The use of salary surveys is critical in your ability to determine if your compensation and benefits are
comparable to similar roles in other organizations.

• It is important to ensure that the key responsibilities and goals of the roles being compared are similar; as
is the sector the organization is aligned with.

Example
• A number of nonprofit organizations have tried to address quality of life concerns by only requiring full-
time employees to work a 35-hour week, while many other organizations require their employees to work
37.5 or even 40 hours per week.

Internal equity defined

Internal equity is the comparison of positions within your business to ensure fair pay. You must pay
employees fairly compared to coworkers.

Employees must also perceive that they are paid fairly compared to their coworkers. Otherwise, they might
feel unvalued and leave. It is easy for employees to find out how much other employees earn via the Internet
and word of mouth. If an employee works hard but is paid less than her coworkers who do not work as hard,
she might become upset about her wages.

When you adopt a straightforward and honest payment system, your employees will believe that they are
being paid fairly and with equality. This boosts company morale and employee loyalty, bringing many
benefits in the long run.
Achieving internal equity

To create fair pay, you compare employees who do similar jobs for your company. You should consider the
tasks your employees do. If two employees perform similar tasks, they should earn similar wages.

You should not base employee wages solely on job titles. Two workers that have different titles but perform
similar tasks should have similar wages.

Similar tasks are the main consideration when you set employee wages. However, there are other things you
should consider. This includes each employee’s educational background and experience.

To maintain transparency and fairness within your business payroll, you should be able to explain your
decisions on employees’ compensation. When you set an employee’s wages, document all the factors that
led you to your decision. If an employee ever questions their wages, you can explain the exact reasons for
choosing their wage.

Compensation Outsourcing
4 Ways Outsourcing Compensation Management Can Benefit Your Business

People unfamiliar with how businesses work may think that employees just come and go. However,
businesses actually have to put a lot of effort into finding—and keeping—employees. If your business fails
to keep an employee interested in the position, it could mean a lot more expenses associated with hiring a
replacement, as well as reduced overall production because of being short one employee.

One of the biggest factors in keeping employees engaged in the business is proper compensation.
Unfortunately, managing compensation itself can be quite a daunting task, especially for startups and small-
scale businesses, for whom managing checks and balances can take up a significant portion of HR’s time
and manpower.

To help you address this issue, you should consider outsourcing compensation management. Here are some
of its most important benefits:

1. Outsourcing Frees Up Your Resources

While it’s possible to have your employee’s compensation management handled in-house, you should
calculate how much it would cost your business. You have to keep in mind that not all HR personnel have
the skills and experience managing payroll. This could mean weeks or even months of training for the
people in charge, while the cost of expanding your HR staff could be too much for your business to afford.
By outsourcing compensation management, your business gets to do away with a lot of expenses. While
some business owners may feel like they shouldn’t be paying extra just for compensation management, they
have to consider that they’re practically getting the same results—as if they have their own specialized in-
house compensation management team.

2. You Could Get Better Results

In-house compensation management performed by non-specialized personnel has its limitations. For
example, the people in charge and those under them might not be capable of figuring out what type of
compensation options would work best for your employees. This could cause your employees to lose interest
in your business and start looking for other companies that offer better compensation.

By outsourcing compensation management, you’re basically farming out most of the work on a highly-
specialized support team. These people have the experience and skills to help you find the most competitive
compensation programs so that your employees won’t even have to bother looking at what your competitors
can offer them.
 3. Employees Are Happier
A surefire way to start losing personnel is by keeping your workforce unsatisfied with how they are
compensated. To make matters worse, different trends in managing workforce could mean that the types of
compensation employees once found satisfactory might not be ideal anymore later on. This could stress out
employees, potentially causing job burnout and even making them feel hostile towards the management.
By having a specialized team handle compensation management, your business won’t have much trouble
keeping your employees properly compensated. Better management means fewer delays and more
appropriate compensation. Remember: a properly compensated workforce is a happy workforce.

4. Your Business is Safer From Penalties

Rules regarding payroll and employee benefits can change from time to time, which means your HR
department will have to research and implement the changes accordingly. Making changes to their
compensation system is easy for bigger businesses, but these same changes can take a toll on a small-scale
business. Often, such amendments in regulations are also not optional as they are mandated by law. This
means failure to comply with them could make you face even bigger penalties.

Instead of spending a lot of resources to manually deal with compliance issues, you’re better off using a
fraction of the amount for outsourced compensation management. Reputable service providers are always
updated with the latest changes in compensation rules and regulations, and they have the technologies and
expertise necessary to help you adapt to these new policies with ease. No more costly penalties that would
eat up resources that your business can invest in something else.

In-house compensation management for some businesses can be too costly or difficult to maintain. By
outsourcing this particular aspect of your business process, you can divert your focus on other important
tasks that can positively affect your organization.