Compensation Concepts

Compensation Concepts

I am a strong believer that compensation and rewards are powerful tools in qualified hands.  And that creates a special responsibility for managers of people as well as human resources professionals to ensure that those who use the tools are trained to do so.

I wrote the first Compensation Concepts when I led the Compensation Center of Excellence at Cisco Systems.  The other compensation leaders and I were lamenting that although we all thought we needed to spend more time on communication and training, we didn’t have enough time or manpower to create any sort of a overarching plan to make an impact.

I talked to several of our field compensation and human resources managers and discovered that there were a few recurring themes not only amongst line managers but field HR as well, who we had been relying upon to be management and employee’s first contact when it came to our rewards plans and strategies. And I learned that we had contributed to some of the misunderstanding over the years, like telling people that a 1.0 compa ratio was “the market.”

Undoubtedly some people will see some of these area differently, and that’s fine.  If you do want to use these to help educate others, feel free to do so.  And if you’d like to see me create one on another compensation or rewards subject that could improve pay satisfaction or understanding, send me a note from my Contact Me page.

Benchmarking Your Jobs

Compensation benchmarking is the process by which a company captures relevant labor market pay data.   In order to complete this process, your jobs need to be compared to similar jobs in the market place.

A Job is defined as a common set of duties and responsibilities that produce a specific result.  The commonality of duties and responsibilities may be performed at different levels depending on the knowledge, skills, education, complexity and other differentiating factors, which results in a … (click here to get the complete document).


Many job families have defined levels that reflect the capabilities of employees to learn new skills and contribute their experience to achieve ever increasing and important results to the company.  Promotions are a means to recognize and reward good performance and are a tangible way to reward employees for commitment, exemplary performance, and development over a sustained period of time.  Promotions complement other salary review actions by… (click here to get the complete document).

 Compensation for New Hires

At the point that a new employee is hired into the company, several important decisions are made that will influence their decision not only to join, but their engagement, effort and future decision to stay.  Decisions made on their job classification and starting pay will have an influence on other employees in the work group as well.  Managers make these decisions using guidelines provided by their staffing representative and human resources manager.

It’s true that most people would not agree to take a new job unless they saw a better economic incentive to do so.  However money is not the only reason employees decide to… (click here to get the complete document).

Pay for Performance

The concept of pay for performance is widely communicated and understood, but frequently is a difficult reality.  Your managers have a number of tools at their disposal in order to reinforce this important philosophy, and should utilize them in combination with planning and communication throughout the year to ensure high levels of employee satisfaction, retention and engagement.

A pay-for-performance philosophy of compensating employees is typically to provide a comprehensive risk-oriented … (click here to get the complete document).

Maximizing Pay Effectiveness

The perception of a person as to how equitably they are paid is largely a function of the skill of their manager.

That may seem an unlikely statement given the pay program changes and constraints that managers live with every day.  However, understanding the key drivers of pay effectiveness, satisfaction and the perceptions of employees around equity and fairness may provide an altogether different understanding… (click here to get the complete document).

Cost of Living or Cost of Labor?

The base salary component of total compensation is frequently the largest part of an employee’s compensation package, and the one most frequently viewed since employees are paid base salary many more times during the year than other components of pay.  Understanding competitive base salary levels involves extensive review of data from other companies on similar jobs and projections for how base salary adjustments will be made in the future.  This represents the fixed element of the cost of labor.  Cost of living may be more popularly thought of as the way to measure … (click here to get the complete document).

Pay Structures and Pay Ranges

A pay structure is a system of related job groupings (grades) with known pay guidelines (ranges) designed to reflect the internal job ladder, respond to competitive pressures of the labor market and help with pay planning, administration and delivery.  Large organizations typically have multiple pay structures tailored to different labor markets and pay trends for various job families or classifications.  Within a pay structure are sets of pay ranges that allows for separation of pay for jobs at different levels of skill, experience, knowledge, complexity, etc… (click here to get the complete document).

Sales Channels and Job Design

To really understand sales compensation and make a valuable contribution to a company’s sales incentive planning, it is first and foremost important to understand not just the products and services that the company sells, but the jobs and roles of the people who are tasked with selling and how they execute their jobs.  This can at a basic level be thought of as the sales channels used and then development of the specialized roles that will most effectively move products or services through those sales channels.  It is only then that sales compensation plans… (click here to get the complete document).