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Creating a
compensation plan is a critical component of your people development
program. Whether you are a family-owned and run business or a seasonal
business, having a clearly outlined and defined compensation plan can help
prevent employee conflict, dissatisfaction and turnover. Here are some steps
for creating a compensation plan that your team feels like they have
contributed to and that you can manage easily.
First, be sure to
document all jobs in your business. Write down the responsibilities and
functions of each job. Then have each employee fill out a job questionnaire
detailing what he or she does. Use both to create written job descriptions.
Assess all of the
jobs and begin to group them. Create an internal hierarchy by ranking each
job from lowest to highest in terms of value to your organization. Then look
for clusters in the hierarchy, and group the positions in appropriate
grades.
Once you have
completed these internal steps, begin to collect market data.
Look at recent surveys containing pay data for your line of business
and location. Much of this information is available online now. Don't expect
perfect matches, but use other positions for comparison.
Now you should
create levels and ranges of pay. Use the data to fix a salary midpoint and
range for each grade of positions. For administrative positions the
information you gathered may suggest a mid-range salary to be $30,000 but
can vary anywhere from $25,000 to $35,000. It is likely that the salary
range for a given grade will overlap with ranges from the grades immediately
above and below.
Now that you have
taken the time to devise a system, it’s important to implement it. You may
find that some of your employees’ salaries fall well under the range. Make
a point to devise a plan to adjust these team members’ pay. For those who
are overpaid, you may want to institute a salary cap or limit future
increases. But you should consider whether these people are excellent team
members who perform beyond expectation. Those are the team members you do
not want to lose. Whatever you decide, be sure to explain how thorough you
have been in devising your system and your means and methods for arriving at
the current system.
Once your basic
pay system is set up, it’s important to integrate a performance evaluation
and feedback system. Performance measures should be incorporated into your
pay system. Identify key performance indicators by which you will measure
your team. This may be anything from specific phone answering calls to a
target number of sales. By implementing performance indicators, you give
your team members something to strive for. And you can clearly communicate
how pay is tied to performance.
Always remember to maintain your system and document
new jobs, re-document revised jobs, and obtain new pay data on a regular
basis. Setting up a regular time to evaluate your pay structure should be an
important part of your system.
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