Steps Involved in Designing a Remuneration Plan

Designing a remuneration plan involves the followings:

1. Job Analysis

The main purpose of conducting job analysis is to prepare job description and job specification which in turn helps to hire the right quality of workforce into the organization. It helps to understand the qualities needed by employees,defined through behavioral descriptors, to provide optimum work performance. It obtains answers to such questions such as:

  1. Why does job exists?
  2. What physical and mental activities does the worker undertake?
  3. What is the job to be performed?
  4. Where is the job to be performed?
  5. How does the worker do the job?
  6. What qualifications are needed to perform the job?
  7. What are the working conditions (such as levels of temperature, noise, offensive fumes, light)
  8. What machinery or equipment is used in the job?
  9. What constitutes successful performance?

There are several ways to conduct a job analysis, including: interviews with incumbents and supervisors, questionnaires (structured, open-ended, or both), observation, critical incident investigations, and gathering background information such as duty statements or classification specifications. In job analysis conducted by HR professionals, it is common to use more than one of these methods.

2. Job Documentation

To evaluate job content, it provide objective criteria for making pay comparison, ensure that jobs are classified according to content as opposed to individual personalities, effectively communicate the job duties to both supervisor and employees and help the organization defend it self against charges and discrimination.

3. Development of a Job Worth Hierarchy

It is a result of job evaluation. There are six major methods which are divided in two groups according to their nature.

a) Whole job evaluation and are non-quantitative in nature

  1. Ranking
  2. Classification
  3. Slotting

b) Factor evaluation and are quantitative in nature

  1. Point factor
  2. Factor comparison
  3. Scored questionnaires

4. Pay Survey

Wages and salary surveys ensure external equity. A wage and salary survey provides information as to what other organizations that compete for employees are paying. The survey could cover all jobs within an organization or limited to benchmark jobs.

The benchmark jobs have the following basic characteristics

  1. Many workers in other companies have these jobs.
  2. They will not be changing in the immediate future in terms of tasks, responsibilities etc.
  3. They represent the full range in term of salary such that some are among the lowest paid in the group of jobs, others are in the middle range and some are at the high end of the pay scale.

Formal and informal surveys could be undertaken to collect data on benefits like insurance, medical leave, vacation pay etc. and offer a basis on which to take decision regarding employee benefits. Published sources also provide valuable information. Published sources also provide valuable information regarding industry-wise trends in salary structures in and around the country.

The published sources in India include:

  1. Reports published by the Ministry of Labour
  2. Pay Commission Reports
  3. Reports of wage Bonds appointed by Government
  4. Reports of employee and employer’s organization
  5. Trade journals of specific Industry

5. Pricing the Job: Establishment of Pay Ranges

In order to actually establish a pay structure, an organization needs to set rates of pay for the jobs in the job hierarchy. This will depend on the number of different levels of relative job value that are recognized by the organization and the difference in pay between the highest and lowest paid jobs in the pay structure. The focal point pf the pay range is the midpoint, an organization can determine the range minimum and maximum.

6. Pay Rates and Pay Increases

This means deciding how to pay new employees, how  and when to give employee increases, including how to move existing employees from minimum to maximum of their assigned pay grades, how to determine the pay increase for an employee being promoted from one job to another and what influence, if any, cost of labor increases will have on the determination of pay increases for employees.

7. Starting Pay for new Employees

In order to avoid paying new employees the same as more experienced employees, most employers choose to start new employees closer to the minimum of the pay range. In general, an employee with minimum qualifications should be paid the minimum of the range. This general rule is not true when a new hire has skills which are in great demand or has skills or other expertise substantially above the minimum.

8. Employee Pay Increases

There are several different types of base pay increases: General (across the board) increases, cost of living/ labour increases, promotion increases, step increases (based on longevity) and merit increases.

9. Performance Appraisal

A performance appraisal, employee appraisal, performance review, or (career) development discussion is a method by which the job performance of an employee is evaluated (generally in terms of quality, quantity, cost, and time) typically by the corresponding manager or supervisor. A performance appraisal is a part of guiding and managing career development. It is the process of obtaining, analyzing, and recording information about the relative worth of an employee to the organization. Performance appraisal is an analysis of an employee’s recent successes and failures, personal strengths and weaknesses, and suitability for promotion or further training. It is also the judgement of an employee’s performance in a job based on considerations other than productivity alone.

10. Maintaining and Auditing a Compensation plan:

Changes in the external market or internally within the organization can cause one or more parts of a compensation plan to become outdated. Part of the challenge in creating a compensation plan is to build in mechanisms that facilitate change when necessary, yet maintain control on a regular basis. Some actions an organization can take to maintain an updated compensation plan include regular review of job descriptions, monitoring of compensation levels versus companies with which there is competition for employees, and regular review of the pay structure including pay ranges and pay increase budgets. An audit is an excellent means to ensure that a compensation plan is being properly administered and maintained.

When planning to audit a compensation plan, an organization needs to consider the following:

  • Process measures – Are procedures and practices in place to ensure the compensation plan is being administered smoothly and efficiently?
  • Policy compliance – Are there procedures or other mechanisms in place to ensure that the compensation plan is being administered in accordance with policy?
  • Documentation adequacy – Is there adequate documentation in place to ensure that the administration of the compensation plan and compliance issues can be audited?
  • Overall results – Are there measures that can assess how well the compensation plan is achieving its goals and objectives?

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