Designing Compensation Systems and Employee Benefits

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Designing Compensation Systems and Employee Benefits

Tameka Clark

Compensation Management/BUS 409

February 26, 2012
Professor Munro

Designing Compensation Systems and Employee Benefits

A compensation system has an important role in a company. An ideal compensation system can motivate employees to enhance their job performance. An organization can use adequate compensation to retain talented employees. Retaining talented employees is important because they help organizations grow and earn high profits. A well-constructed compensation system is the key to an organization being successful and prosperous (“Importance of Compensation,” 2007). To further elaborate on the importance of compensation, the differences amongst job analysis and job evaluation and how these practices aid in creating internally consistent job structures will be described, and details will be given on the challenges that occur when creating compensations that are both internally consistent and market competitive. Also, the fairness of merit increases based upon quartiles will be discussed, the fundamental concept of insurance and how this concept applies to health care will be discussed, and the changes in the business environment and society that may affect the importance of legally required benefits will be described. Describe the Differences Between Job Analysis and Job Evaluation and How These Practices Help Establish Internally Consistent Job Structures Job analysis and job evaluation are the key to creating internally consistent job structures. An internally consistent compensation system will define the relative worth of each job amongst all jobs in a company. Companies use a basic principle when creating internally consistent compensation systems, which is jobs that require higher abilities, more responsibilities, and more intricate job tasks should be compensated more than jobs that require lower abilities, lesser responsibilities, and fewer intricate job tasks. Internally consistent job structures recognize distinctions in job traits that allow compensation managers to set pay based upon the distinctions. Furthermore, compensation professionals create internally consistent job structures by using job analysis and job evaluation. A job analysis will reveal the duties as well as compensation factors such as skill and effort that are required to sufficiently perform the job. The results of the job analysis will be used to conduct the job evaluation. Job evaluation will create pay differentials for jobs within a company. The results of the job analysis help compensation professionals set pay rates by quantifying the main similarities and differences between jobs (Martocchio, 2011). In the end, the job evaluation will categorize jobs according to their relative worth in the company. The relative worth of a job will be determined based upon compensation factors such as skill, job duties, and working conditions. Finally, job evaluation will guarantee internal equity because the value of jobs will be determined based upon compensation factors (Williams, 2012). Describe the Challenges in Developing Compensations That are Both Internally Consistent and Market Competitive One challenge in creating compensation systems that are internally consistent and market competitive deals with flexibility. Internally consistent pay systems have the potential to decrease a company’s flexibility to react to changes in the pay practices of competitors because job analysis creates structured job descriptions and job structures. Also, job evaluation creates the relative value of jobs within an organization. Reacting to competitors may require employees to perform tasks that are not included in their job descriptions whenever competitive pressures arise. This process makes equity appraisals more difficult because the definitions of jobs become more changeable (Martocchio, 2011)....
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