Looking to Benchmark Pay?
TOTAL REWARDS ELEMENTS
Let’s now take a look at how organizations today utilize the following total rewards elements:
- Base salaries
- Sales incentive plans
- Short-term incentive plans
- Long-term incentive plans
- Company-wide benefits
- Medical plans
- Dental plans
- Long-term disability plans
- Life insurance
- Retirement plans (qualified and non-qualified)
- Perquisites
Base Salaries
A base salary is a fixed amount paid to an employee and can be calculated as an hourly, weekly, monthly, or yearly rate.
The terms "wage" or "hourly rate" instead of "salary" may also be used in the case of overtime eligible or union employees. Base pay is also commonly used for both exempt and nonexempt employees.
Salaries and wages, which are fixed costs, typically account for the majority of most organizations’ total compensation expense.
Today, organizations often set salaries based on the local labor market. To obtain this data, organizations rely on salary surveys or salary survey databases, such as those available from ERI Salary Surveys.
New-economy organizations:
- Place less emphasis on salary increases, have competitive hiring rates, and shift total rewards composition to a greater use of short- and long-term incentive plans (such as annual incentives, bonuses, and/or equity pay plans).
- May overpay an experienced new hire, which can create internal pay compression issues, a situation where new hires earn more than long-tenured employees.
- Pay higher salaries to “producers” in product development and revenue generating roles like key software developers and sales generating staff.
- May move manufacturing jobs offshore or to less costly domestic locations when possible.
- Rarely use cumbersome, time consuming job evaluation programs.
- Determine salaries based upon the market pricing of jobs in the competive marketplace. Individual pay may fluctuate based on performance and skills, effort, responsibilities, and working conditions.
- Are embracing social responsibility for pay equity in an organization.
Pay Compression
Pay compression occurs when the difference between employees' pay is too small to be considered equitable. This may happen due to the pay difference between:
- a supervisor and subordinate(s)
- the pay of experienced and new hires within the same job
- employees as compared to the available salary range for their job
Memory Jogger
An example of pay compression occurs when tenured employees are _____________ in relation to new hires with the same or less experience.