Environments of Compensation and Benefits Administration

Organization Size

An organization's size can serve to free or restrict its compensation decisions. The size of an organization can be measured in several ways including:

• number of employees
• revenue
• assets

Small Organizations

Organizations with less than 100 employees are considered "small" for this discussion. These organizations, if combined with limited economic resources, may have a tendency to restrict the range of compensation levels. However, the flexibility permitted by their small size may be an advantage in most other compensation decisions. Pay relationships between different jobs may be less important because each member can arrange their terms with the owner or the top decision maker. Unique pay arrangements with individuals may be worked out to attract needed individuals. Pay increases are more likely to be closely tied to performance. Profit-sharing and stock option plans may have stronger performance-motivation in small organizations than in large organizations.

Large Organizations

Large organizations, with more than 100 employees, on the other hand, may have greater profitability and be less restricted in determining pay levels. However, large organizations typically have more controls, guidelines, and policies in place which may restrict compensation decisions. More attention must be paid to internal pay relationships. Issues regarding internal equity and external competitiveness can become more problematic.

More serious is the difficulty of relating pay to performance, especially compensation for non-executive positions that may not be tied to company performance. Lower-level managers in large organizations have the information to assess performance and pay, but many times budgets are spread thin and the relationship between pay and performance is lost prior to implementation. A common result appears to be that large organizations desire to relate pay to performance more but actually use this relationship less than small organizations.

Communication of the pay program in large organizations can present a challenge since different organizational units may be treated differently. Consistency and transparency is key to ensuring that the entire organization understands and applies the compensation program and its administrative guidelines in a uniform manner.

Pay for Individual Positions

While having a broader impact on pay practices, the size of the organization can also have a significant impact on pay established for a specific position. As illustrated by ERI's Salary Assessor® tool, in general, executive-level jobs (director level and above) tend to be paid more by larger employers. For example, a CEO who works for a company with an annual revenue of $100 million will most likely have greater responsibilities than a CEO of an organization with a revenue of $1 million. Due to greater job responsibilities and pressures, as well as compensation that is often tied to the company's performance, a CEO of a larger organization will most likely be compensated at a higher level than a CEO of a smaller organization. However, Accountants with the same job description, the same experience, and the same job performance will, as a group, tend to have comparable salaries that do not seem to significantly increase or decrease as a function of company size.

Organization Age

Almost all organizations attempt to grow, so the age of an organization may be associated with its size. Age may also be considered an independent influence on compensation and benefits administration. New organizations may be designed around a homogeneous workforce, a particular management style and non-traditional pay systems.

Organization Structure

The more jobs and employees an organization has adds to the complexity of managing compensation and benefits. A small organization may have only 1-3 management levels between the individual contributor and the CEO. A very large organization could have more than 7-8 levels between the individual contributor and the CEO. Internal equity and external competitiveness tend to become more complex in larger organizations. In addition, performance management requires additional variables.