Methods of creating Employee’s Compensation

Methods of creating Employee’s Compensation

Methods of creating employee’s compensation

Employee compensation refers to the benefits (cash, vacation, etc.) that an employee receives in exchange for the service they provide to their employer. Employee compensation is generally one of the largest costs or expenses for any organization.

Each job is to be valued in the organization. Compensation management determines the price of the job. There are various methods that can be adapted to establish employee’s compensation. Employees compensation can be established by various methods:

  • Job analysis

Job analysis is a process of knowing dimensions of the job. Job analysis is the process of collecting and recording information related to the job to be done by personnel in order to design job and make human resource plan. Job analysis requires various information about the job. It comprises all the activities involved in the jobs like responsibility, accountability, job title, duty, authority and job relationship. It includes job description, job specification, and job performance standard. The job description is the job requirement, job specification is person’s requirement who needs different qualities to do a job and job performance standard is the target of the job to be done. It is a profile of a job that’s why it is an overall summary of job requirements. They provide the basis for establishing compensation.

  • Job evaluation system

Job evaluation provides the value of job performance and accordingly, compensation is made. It ranks job in a hierarchy. It determines the relative worth of one job in relation to another job within the organization. It rates job. Job evaluation methods are the job ranking method, job grading method, factor comparison method and point system method. Job ranking method ranks job in order of their difficulty from simplest to the most complex. It appraises and worth the job highest to the lowest. Each job is to be compared with others to determine the overall rank. Job grading method is the group of different jobs requiring similar skills, efforts and responsibilities. Each job is assigned a grade. Factor comparison is a job content different factors like responsibilities, skill, mental effort, working condition etc. Each factor is valued in monetary terms.

  • Compensation survey

This method of establishing compensation focuses on collecting information about compensation from the market. This provides external equity. Compensation survey provides the market rate of compensation. This can be done by published survey, consultants and agencies, advertisements and applications and informal communication. It is a market rate of compensation which can be determined by market rate. So, Compensation is determined on the basis of the information received from market or research by different experts and specialists.

  • Pricing jobs

This step prices job. Pricing job plays an important role in achieving the business goal. Pricing jobs involve grouping of different pay levels into grades. It shows pay ranges within each grade. It can be determined by ranking through the job evaluation process, legal factors, union pressures and the creation of pay grades etc.


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