What Are Compensable Factors?Compensable factors help employers decide how much a job is worth by identifying the most valuable elements of each position in your workforce: the factors on which you base compensation. Examples include skills, experience, and education. Companies must not only decide what factors are necessary for successful performance in each job but also how to reward employees according to these elements. Generally, the more strengths an employee has that relate to their performance on the job, the more value they create for the company. Their pay should reflect this value. Show
Why Are Compensable Factors Important?Appropriately creating pay structures and setting pay rates is a big advantage for companies in attracting and retaining employees. It also impacts employee motivation and performance and promotes a culture of fairness and equity.
Common Compensable FactorsThe Equal Pay Act of 1963 sets forth broadly used factors—namely skill, effort, and responsibility under similar working conditions–that may be used to compare the value of the jobs in the workplace. Most companies separate these into specialized subfactors. Let’s explore a few of the most commonly used factors. ExperienceExperience can include industry knowledge gained in other companies as well as experience within your company. Employers often reward seniority as a retention incentive because an employee’s ability to contribute increases over time. New hires with significant industry experience are usually able to onboard and contribute more quickly than less experienced candidates, increasing their value as well. EducationSome employers observe that employees with formal education, certifications or other specialized training add more value than those who don’t have such backgrounds. Rewarding employees for education and training can motivate employees to seek additional training opportunities as a way to increase their earning potential. Supervisory ResponsibilitySupervisory responsibility may include the number of employees supervised or the complexity of supervision required. The ability to train and mentor team members can also be considered in this category. Generally, the more difficult the task, the more supervision, and training may be required. More team members to oversee also increases the burden on the supervisor. Companies often provide additional compensation for those with such supervisory responsibilities. Budget AccountabilityEmployees who manage large projects with large budgets are typically rewarded with extra compensation over those whose fiscal authority is limited. ComplexityDoes the job require critical thinking and decision-making skills? Can the employee work with minimal supervision? The complexity of the role typically influences how much the job is worth. Mental and Physical DemandsChallenging and stressful positions, such as leadership roles, generally command more compensation than less demanding positions. Hazardous positions and positions requiring frequent physical exertion may also be factors that increase pay. Other Examples of Compensable FactorsEach job has a unique mix of valued criteria that are linked to successful outcomes for the company. Other examples of compensable factors may be communication skills, technical proficiency, consequences of errors, job knowledge, and time management. How to Determine Compensable FactorsDetermining compensable factors is part of the larger job evaluation process. Eddy has a great article that provides more detail on job evaluation and some different methods that can be used. While quantitative job evaluation methods rely specifically on compensable factors, other methods incorporate these in a less data-driven way. Whichever job evaluation method you use, selecting and documenting appropriate compensable factors will influence the success of your compensation strategy. Here are a few steps to begin the process. Identify and Define the Criteria that Are Valued in Your Company and in Each JobConsider your organizational values and objectives. What you reward will be visible to those inside and outside your company. For each job, identify the top three to five factors or more that influence success. Prioritize the Success FactorsDetermine the relevance of each factor in the larger view of determining overall pay rates. If you are using a quantitative job evaluation method, assign a weight to the criteria. Match the Criteria to the Job DescriptionEnsure job descriptions are up to date and that the compensable factors in the compensation plan are aligned with and clearly listed in job descriptions. When recruiting, make sure your candidates are aware of what is valued and rewarded in your company. This can be especially helpful when competing with other companies for talent, as candidates are looking for opportunities to grow and increase their earning potential. Audit Job Descriptions and Corresponding Compensable Factors Regularly to Ensure RelevanceAudit and update job descriptions as part of your regular review of your positions and compensation plans. Make sure that what you reward is still relevant to your company’s success, as jobs and the needs of companies change over time. Some companies do this at fixed intervals, while others utilize the process when they undergo restructuring, during a growth phase, or at other significant crossroads. Communicate Compensation Strategy RegularlyExcellent communication helps employees understand and buy into the company’s compensation philosophy. Transparency in communication is especially important when compensable factors or other aspects of job evaluation change how employees are paid. What are the 4 compensable factors?The Equal Pay Act of 1963 has defined 4 most basic compensable factors: effort, skill, responsibility and working conditions.
What is an example of a compensable factor?A compensable factor is a value or trait that employers use to determine how much to pay an employee. Compensable factors for sales employees could include the dollar value of new account registrations, contract extensions and upselling activities, as well as experience, education, and tenure.
Which job evaluation method has compensable parts broken down into pieces degrees that are numerically scaled and weights reflecting the relative importance of each?Point methods have three common characteristics: (1) compensable factors, with (2) factor degrees numerically scaled and (3) weights reflecting the relative importance of each factor. job determine its position in the job structure.
Which job evaluation method identifies compensable factors quizlet?The point method plan of job evaluation identifies several compensable factors, each having several degrees; as well as the degree to which each of these factors is present in the job. 81) The point method of job evaluation is easily explained to employees.
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