“Show me the money” – this phrase was immortalized by Cuba Gooding Jr. in Jerry Maguire. It is also the phrase that screams inside an employee’s head when they land a new job or are promoted to a new position. Employee compensation determination is an important function of the human resources department. And despite what is commonly thought, compensation, in the HR sense, is not exclusive to determining employee salaries (sorry Cuba). Compensation in an organizational sense refers to a multitude of incentives and benefits the company offers to its employees in return for their services. In addition to salary these may include: performance bonuses (company and individual), health insurance, dental, vision, 401K contributions, a defined benefits pension plan, life insurance, education reimbursement, training, paid time off, short term disability insurance, and long term disability insurance. In fact the additions costs of perks and benefits received by some employees can be as much as 20% of their salary!

So how do you as a Human Resources employee go about determining compensation policies? Here are some tips:

• Who gets what? – For large organizations it will be easier to determine what certain positions within the company are eligible to receive by studying benchmarking data. Such data can be found on websites such as Salary.com and there are many organizations offering industry specific salary survey information such as the Saratoga Institute. This data may not be as relevant for smaller organizations however. Smaller firms do not have as many resources as their larger brethren and cannot always compete with the compensation offers they are able to make. The moral of this tip is to make sure to determine from the outset what the organization can viably afford to pay its employees at the high and low end of the spectrum. This information will come in handy later – you’ll see.
• They get how much! Why? – This relates to job analyses and job descriptions (Job Analysis Tips: http://www.dailyhrtips.com/2009/03/30/hr-tip-job-analysis/)(Job Description Tips: http://www.dailyhrtips.com/2009/04/06/hr-tip-writing-a-job-description/). It is important to determine why some one is receiving a certain level of compensation for career planning purposes (see I told you knowing who gets what would come in handy). Presumably a motivated employee will be promoted and given additional or alternate responsibilities as they progress through the organization. If there is no logical reasoning or method of determining their compensation for those additional responsibilities, the organization may over or, worse, under compensate the employee for their services.
• Determine how compensation is divided between base salary and incentives or bonuses. This is called “leverage”. For example many sales people have highly leveraged salaries, that means they have a low (or maybe no) base salary and the majority of their income is based on bonus payments or commissions. Production workers, on the other hand, usually have low leveraged salaries with only 5% or 10% based on team performance or company performance (bonuses based on individual performance is not usual here). Think through how much individual control the job holder has over the end results of this work and this will give you an indicator of the right level of leverage for that job. Usually the more individual discretion and decision making independence a job holder has in what they do and how they do it (for example a sales job or a management job) the more leveraged the compensation package.

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