Compensation Philosophy Assignment Wk 3
By Humberto Villagomez
5/29/2014

Compensation is the total amount of the monetary and non-monetary pay provided to an employee for his or her work. Compensation can be based on market research about the same worth of similar jobs in the marketplace, employee contributions, and accomplishments the availability of employees with similar skills. Compensation can also include payments such as bonuses, profit sharing , overtime pay, merit programs, or even sales commissions. Also compensation can come in non-monetary forms such as stock options, company paid housing, or company paid car.
Compensation philosophies are created by the Human Resource Department in collaboration with other departments within the organization. This philosophy is based on many factors. These factors include Companies financial position, the size of the organization, objectives, compensation surveys, qualified applicants based on the economy and the organizations overall current circumstances.
A good compensation philosophy supports the organization strategic plans, business goals, objectives, and reward strategies. Most compensation philosophies support the following: * Identify the organization pay systems or programs * Identify how pay systems help promote the organizations business strategy and human capital needs. * Good compensation systems attract more people to join the organization. * Motivate employees to perform at their best. * Define how an organization plans to pay and reward completely, based on business conditions and competition.
Companies rely on strategic ways on getting information like compensation surveys. They use these surveys set pay and recruit the best applicants and to retain high valued employees. Compensation professionals create market competitive pay systems based on four activities: * Conducting strategic analyses * Assessing competitors pay practices with compensation surveys * Integrating the internal job structure with external market pay rates * Determining compensation policies

Furthermore, companies need these compensation surveys because it is critical to developing effective compensation systems. One fact is because compensation professionals usually want to know about its competitors. What companies can learn from these surveys is base pay levels, incentive award structures, and discretionary benefits. Benefits like health insurance that counts for about 40 percent of total dollars spent on employee benefits. With this information compensation professionals can make sound decisions on what to pay their employees. Whenever there is competition in pay high valued employees will go for the company that pays the more compensation. This is one of the many reasons why compensation could be very important.
Companies can choose to use different practices for compensation policies and strategic mandates. They can choose from these three pay level policies: * Market lead * Market lag * Market match
The market lead policy distinguishes the organization by paying its employees much better than other competitors. On the other hand the market lag policy which is the opposite in paying its employees much less and below the market pay rates. The market match policy follow the market pay rates because companies are paying according to the market pay line. The market lead policy would be the most effective and popular one because it is promoting motivation for the employee which creates lots many good things for the organization like competition, organization, attention to detail. The companies need to pay the employees sometimes above market pay rates, therefore they get the best out of the employee.