Compensation: Outline and Definitions

Develop a program outline.

Designate an individual to oversee designing the compensation program.

Develop a compensation philosophy.

Form a compensation committee (presumably consisting of officers or at least including one officer of the company).
Decide what, if any, differences should exist in pay structures for executives, professional employees, sales employees, and so on (e.g., hourly versus salaried rates, incentive-based versus noncontingent pay).
Determine whether the company should set salaries at, above, or below market.
Decide the extent to which employee benefits should replace or supplement cash compensation.

Conduct a job analysis of all positions.

Conduct a general task analysis by major departments. What tasks must be accomplished by whom?
Get input from senior vice presidents of marketing, finance, sales, administration, production, and other appropriate departments to determine the organizational structure and primary functions of each.
Interview department managers and key employees, as necessary, to determine their specific job functions.
Decide which job classifications should be exempt and which should be nonexempt.
Develop model job descriptions for exempt and nonexempt positions and distribute the models to incumbents for review and comment; adjust job descriptions if necessary.
Develop a final draft of job descriptions.
Meet with department managers, as necessary, to review job descriptions.
Finalize and document all job descriptions.

Evaluate jobs.

Rank the jobs within each senior vice president's and manager's department, and then rank jobs between and among departments.
Verify ranking by comparing it to industry market data concerning the ranking, and adjust if necessary.
Prepare a matrix organizational review.
On the basis of required tasks and forecasted business plans, develop a matrix of jobs crossing lines and departments.
Compare the matrix with data from both the company structure and the industrywide market.
Prepare flow charts of all ranks for each department for ease of interpretation and assessment.
Present data and charts to the compensation committee for review and adjustment.

Determine grades.

Establish the number of levels - senior, junior, intermediate, and beginner - for each job family and assign a grade to each level.
Determine the number of pay grades, or monetary range of a position at a particular level, within each department.

Establish grade pricing and salary range.

Establish benchmark (key) jobs.
Review the market price of benchmark jobs within the industry.
Establish a trend line in accordance with company philosophy (i.e., where the company wants to be in relation to salary ranges in the industry).

Determine an appropriate salary structure.

Develop a salary administration policy.

Develop and document the general company policy.
Develop and document specific policies for selected groups.
Develop and document a strategy for merit raises and other pay increases, such as cost-of-living adjustments, bonuses, annual reviews, and promotions.
Develop and document procedures to justify the policy (e.g., performance appraisal forms, a merit raise schedule).
Meet with the compensation committee for review, adjustments, and approval.

Obtain top executives' approval of the basic salary program.

Develop and present cost impact studies that project the expense of bringing the present staff up to the proposed levels.
Present data to the compensation committee for review, adjustment, and approval.
Present data to the executive operating committee (senior managers and officers) for review and approval.

Communicate the final program to employees and managers.

Present the plan to the compensation committee for feedback, adjustments, review, and approval.
Make a presentation to executive staff managers for approval or change, and incorporate necessary changes.
Develop a plan for communicating the new program to employees, using slide shows or movies, literature, handouts, etc.
Make presentations to managers and employees. Implement the program.
Design and develop detailed systems, procedures, and forms.
Work with HR information systems staff to establish effective implementation procedures, to develop appropriate data input forms, and to create effective monitoring reports for senior managers.
Have the necessary forms printed.
Develop and determine format specifications for all reports.
Execute test runs on the human resources information system.
Execute the program.

Monitor the program.