Jayendra Rimal

 This type of compensation policy should be developed to fit in with the competitive advantage of a company.  It has a role in attracting and retaining the most qualified employees.  A well designed pay system should promote the attainment of competitive strategies.  But paying more than necessary can undermine low cost strategies as it is an undue burden. It also restricts the company’s ability to invest in other strategic activities.  Hence companies that pursue differentiation strategy must strike a balance between offering sufficiently high salaries to attract and retain talented people and providing sufficient resources to enable them to be productively creative.

1. Conducting strategic analysis 2. Assessing competitors’ pay practices with compensation surveys 3. Integrating the internal job structure with external market pay rates and 4. Determining compensation policies

 Examination of a company’s external market context and internal factors.  External factors could include industry profile, information about competitors, growth prospects ( short and long-term)  Internal factors encompass financial conditions, marketing capabilities, available human resources etc.

 Entails collection and subsequent analysis of competitors’ compensation data focusing on wage and salary practices.  These days all benefits, allowances, perks etc. are collected and analysed as these are key elements in market competitive pay systems.  Surveys enable companies to obtain realistic view of competitors’ pay practices.  In the absence of surveys professionals would have to use guess work to build market competitive pay systems leading to wrong guesses resulting in noncompetitive pay.  Data is usually collected on base pay levels, incentive award structures and mix and levels of discretionary benefits.  In Nepal, companies have to take the initiative to conduct compensation surveys as there is a lack of existing compensation survey reports.

 Defining the relevant labor market:  This represents the fields of potentially qualified candidates for particular jobs.  Relevant markets are defined on the basis of occupational classification, geography and product or service market competitors  Choosing Benchmark Jobs:  Benchmark jobs are key to conducting effective job evaluation as they play an important role in compensation surveys.  HR professional determine pay levels for jobs based on typical market pay rates for similar jobs.  Benchmark jobs are (i) well known, stable and agreed by employees (ii) common across different employers (iii) represent the entire range of jobs that are being evaluated within a company and (iv) these jobs are generally accepted in the labor market for the purpose of setting pay levels.

 It is important that companies set pay rates by using market pay rates as reference points as paying well below or well above the typical market rates can create competitive disadvantage for companies.  Companies value jobs that possess higher degrees of compensable factors (10 years of experience) than jobs with fewer degrees of compensable factors (1 year of experience) resulting in pay differences based on compensation survey data.

 Normally companies can choose from three pay level policies:  Market lead: This distinguishes a company from the competitors by compensating employees more highly than most competitors. Pay levels are above market pay lines  Market lag: This also distinguishes a company but by compensating employees less than competitors. Pay levels fall below the market pay line.  Market match policy: This closely follows the typical market pay rates as companies pay as per the market pay. Pay rates fall along the market pay lines.