Sunday, January 10, 2010
Base compensation can be thought of as that remuneration paid to the incumbent employee for the performance of their routine day-to-day tasks associated with the employee’s position. It excludes premium pay such as: overtime and shift pay, commission and bonus payments, special knowledge/skill pay, standby-by/on-call/waiting pay, ... etc. What comprises base compensation is a function of statutory and regulatory requirements, company policies, and collective bargaining agreements, if applicable to the employer. Base compensation is generally the single largest employer expenditure for human capital. It is the major component of the employee’s overall toward rewards used to attract, motivate, and retain individuals with the requisite knowledge, skill, and ability to function at an acceptable performance level.
Since base compensation is of significant importance to the employer both for its fiscal and employee attraction, motivation, and retention attributes, employers must invest considerable resources in its proper determination. On some level, the determination of base compensation involves the research, collection, review, and analysis of the pay practices of the employer’s competitors. Typically, when identifying competitors, employers will focus on those which best match their own human capital pool, workforce size, financial metrics, lines of business, and geographical locations. Depending on the employer’s labor relations environment, collective bargaining agreements may play a predominate role in this determination process. Failure to take these factors into consideration could lead to critical decisions being made using invalid and unreliable data.
The traditional method for collecting competitor compensation data for use in updating an employer’s compensation practices is by means of either publicly or privately available surveys. Publicly available surveys include, but not limited to, those published by state and Federal departments of labor and economic development agencies. Private surveys are most often sponsored by employer/industry association groups, consulting and auditing firms as well as those underwritten by individual employers. To be effective, surveys should include reporting time frame, statistical breakdowns by industry sector, organizational size, revenue metrics, line of business, geographical area, collective bargaining status, and position title.
Statistical measurements by survey position title should include the number of responding organizations, number of incumbents, range minimum, mid-point, maximums, quartile or percentile points, weighted and unweighed means, medians, and modes. Organizational measurements by industry sector, business line and/or location/geographical area should include, the total number of employees, annual gross/net sales, other revenue or production metrics as appropriate, and collective bargaining status.
Weighted statistical measurements take into consideration the number of incumbents associated with a particular survey position title within each responding employer. A surveyed position with 1 incumbent in company X should not be given the same degree of importance as a position with 25 incumbents at company Z when determining the prevailing market wage rate. To calculate the weighted values, individual incumbent rates of pay must be aggregated prior to reporting. However, some organizations may lack the tools to calculate and report weighted survey data points, thus creating possible data validity questions. Employers are often skeptical of providing such detailed data unless they can be assured of the highest level of privacy. To ensure privacy of the employer and incumbents, employers are identified only by a coded designation. Furthermore, due to the confidentiality of individual wage rates, when survey data is published, only summary statistics are reported at the employer level.
Base compensation can be thought of as that remuneration paid to the incumbent employee for the performance of their routine day-to-day tasks associated with the employee’s position. It excludes premium pay such as: overtime and shift pay, commission and bonus payments, special knowledge/skill pay, standby-by/on-call/waiting pay, ... etc. What comprises base compensation is a function of statutory and regulatory requirements, company policies, and collective bargaining agreements, if applicable to the employer. Base compensation is generally the single largest employer expenditure for human capital. It is the major component of the employee’s overall toward rewards used to attract, motivate, and retain individuals with the requisite knowledge, skill, and ability to function at an acceptable performance level.
Since base compensation is of significant importance to the employer both for its fiscal and employee attraction, motivation, and retention attributes, employers must invest considerable resources in its proper determination. On some level, the determination of base compensation involves the research, collection, review, and analysis of the pay practices of the employer’s competitors. Typically, when identifying competitors, employers will focus on those which best match their own human capital pool, workforce size, financial metrics, lines of business, and geographical locations. Depending on the employer’s labor relations environment, collective bargaining agreements may play a predominate role in this determination process. Failure to take these factors into consideration could lead to critical decisions being made using invalid and unreliable data.
The traditional method for collecting competitor compensation data for use in updating an employer’s compensation practices is by means of either publicly or privately available surveys. Publicly available surveys include, but not limited to, those published by state and Federal departments of labor and economic development agencies. Private surveys are most often sponsored by employer/industry association groups, consulting and auditing firms as well as those underwritten by individual employers. To be effective, surveys should include reporting time frame, statistical breakdowns by industry sector, organizational size, revenue metrics, line of business, geographical area, collective bargaining status, and position title.
Statistical measurements by survey position title should include the number of responding organizations, number of incumbents, range minimum, mid-point, maximums, quartile or percentile points, weighted and unweighed means, medians, and modes. Organizational measurements by industry sector, business line and/or location/geographical area should include, the total number of employees, annual gross/net sales, other revenue or production metrics as appropriate, and collective bargaining status.
Weighted statistical measurements take into consideration the number of incumbents associated with a particular survey position title within each responding employer. A surveyed position with 1 incumbent in company X should not be given the same degree of importance as a position with 25 incumbents at company Z when determining the prevailing market wage rate. To calculate the weighted values, individual incumbent rates of pay must be aggregated prior to reporting. However, some organizations may lack the tools to calculate and report weighted survey data points, thus creating possible data validity questions. Employers are often skeptical of providing such detailed data unless they can be assured of the highest level of privacy. To ensure privacy of the employer and incumbents, employers are identified only by a coded designation. Furthermore, due to the confidentiality of individual wage rates, when survey data is published, only summary statistics are reported at the employer level.
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