Compensation administration is an important part of running a business. When you have a payroll management system in place, you have better control over personnel costs, improve employee morale, and reduce turnover.
Entrepreneurs too often define their compensation offer in a rough fashion, which can have costly consequences, especially since compensation represents a considerable percentage of a company’s overhead costs. You can use the #1 Leading Payroll Software in Singapore – Payboy, but the salary that is justified for your employees is to be decided by you only. The risks of pay inequity (Employees having the feeling that their pay stubs are less than they deserve) between employees and the resulting dissatisfaction are also increased. A compensation plan is the best way to go about this.
HOW CAN A COMPENSATION PLAN HELP YOU?
A compensation plan helps you manage your employees and your business. He can help you:
The salary system offers competitive hiring rates, which can attract new employees.
Performance plans and salary increases can improve an employee’s performance and career development within your company.
Compensation plans provide incentives for employees to seek new opportunities and get a promotion within the company.
A formal compensation management process will also help you ensure that income tax and deductions are taken.
DEVELOP A PLAN AND IMPLEMENT IT
Developing a formal compensation plan does not have to be a long and expensive process. One of the most important things to consider when developing your compensation system is to gain the support, understanding, and approval of your managers and supervisors.
The basic steps towards creating a compensation plan are as follows:
- Define positions
- Evaluate positions
- Establish a salary for the positions
- Implement the plan
- Announce the plan to employees
- Evaluate employee performance
STEP 1: DEFINE POSITION
The first step towards installing an official plan is to prepare a job description for each position.
A job description usually includes:
- The job title
- Hierarchical links
- Job characteristics
- Tasks related to the position
- Qualifications required (formal education or training, experience, and background, unusual working conditions)
Once completed, the job descriptions can also be used to:
- Hire and train employees
STEP 2: ASSESSING POSITIONS
A good valuation method for businesses with 100 or fewer employees is a basic ranking system. To use this type of system, the job descriptions are compared and classified according to difficulty and responsibility.
After categorizing the job descriptions, the next step is to group positions similar in scope and responsibility in the same pay step. After separating the job types, you can organize these groups into a series of pay grades from highest to lowest.
The number of steps will depend on the number of positions and types of positions in the organization. A business with fewer than 100 positions will usually only use 10 or 12 pay steps.
STEP 3: ESTABLISHING A SALARY FOR POSITIONS
To assign a salary value to each of your echelons, you can look at the current salaries for similar positions in your area. You can get the data you need from your local chamber of commerce, major businesses in your area, or government agencies. If you are part of a trade association, the trade association may be able to provide you with standard good salary ranges for different positions in your industry. Remember, you must pay your employees at least the minimum wage established in the province.
When analyzing salaries in your area, be sure to compare job descriptions, not just job titles. Job titles can be misleading, and there are normally differences in describing similar positions depending on the organization.
STAGE 4: TURN THE PLAN IMPLEMENTATION
When you have a general plan, you will want to decide how it will be managed to provide the individual salary increases. You can use different approaches:
- Merit increases, awarded in recognition of performance and contribution
- Increased promotion for employees who are assigned to different positions in the upper echelons
- A gradual increase in salary for employees who are below the minimum hiring step
- General increases, granted to maintain an appreciable real income according to economic factors and to keep the salary competitive
The majority of annual increases are made based on the cost of living, seniority, or the labor market situation. You can use any, all, or a combination of these augmentation methods in your business.
It may be helpful to keep a form that documents salary increases and the reasons for the increase. These documents are important for pay administration.
STAGE 5: ANNOUNCE PLAN TO EMPLOYEES
After you have implemented your compensation plan, you should consider how to announce it to your employees. Having a good program is your priority, but it is also very important to communicate this plan clearly and honestly to your employees.
Ensure all supervisors in your business understand the plan and explain it to the rest of the staff.
It is also advisable to periodically review the plan with all employees.
STEP 6: ESTIMATE THE PERFORMANCE OF EMPLOYEES
The final element of payroll administration is performance appraisal. The majority of employees in Canada work under a system of merit-based pay increases, which requires periodic reviews and appraisals of employees’ performance in performing their assigned duties.
You can design your own performance appraisal forms using examples from people management books, but make sure the forms you choose match the position you want to appraise.
UPDATE THE PLAN
Review your plan on an annual basis and ask yourself the following questions: Do you have the kind of employees you want to have? What’s your retention rate? Do the employees seem to care about the business? By keeping your plan up to date, you can make adjustments when needed and help your business succeed.