COMPENSATION
DEFINITIONS
The First Article in a Series
Here are some
basic compensation definitions. In
future articles we will look at additional concepts.
Have you ever been in a staff meeting or other location and
had a visit from a Human Resource Professional to discuss Compensation?
Or maybe you’ve inquired about your salary or hourly rate – have you
been bombarded with terminology? Here
are some basic compensation terms with definitions.
Compensation Program: Refers to the kind of pay that the organization uses.
It can refer to hourly vs. salary, can include compensation philosophies
(discussed below) and usually includes listings and/or values for compensation
items such as health insurance, vacation, holidays and tuition reimbursement.
Pay Structure:
Is the grouping of pay grades or pay bands. There can be more than one pay structure in a Compensation
Program. For instance, there may be
one pay structure for service and maintenance positions, one for professional
and one for managerial. Or, the
organization may have just one structure for all positions.
Salary vs. Hourly Compensation:
Salary compensation is a base rate based on annual compensation for an
employee who does not receive over time pay.
A salaried employee will receive the same compensation regardless of the
number of hours worked. Hourly
compensation refers to pay based on hours worked.
An hourly employee will receive a set hourly fee for each hour worked and
should receive time and one half for any hours worked above 40 in one week.
Pay Grade: is
the name for a pay range used to determine pay for grouping of jobs within a pay
structure. All jobs in one pay
grade will be paid similarly. It is
made up of a minimum and maximum. The
organization may assign a name to the pay grade which would indicate where it
falls in comparison to other pay grades. For
instance, pay grade 27 would have a lower minimum than a pay grade 29.
All individuals working in jobs that fall under one pay grade should
be paid somewhere within the minimum and maximum of the range.
Pay Band or Broad Band: Some organizations now use
Pay Bands. These are similar
to pay grades but are usually much wider and encompass more jobs.
The philosophy behind utilizing a pay band vs. a pay grade pay structure
usually is one that provides managers with more flexibility for rewarding
employees for taking on additional tasks or for working at a higher level.
Some organizations will also adopt this kind of structure to help
emphasize a policy of promotion within.
Pay Grade Minimum:
is the lowest pay that anyone should receive for a job that falls within
the grade. Generally, the minimum
of the range should be a new hire rate for someone who just meets the minimum
requirements of the job.
Pay Grade Median:
is the middle of the pay grade. Organizations
generally target the median of the pay range to the average rate paid for
similar jobs in other organizations. In
most compensation programs, the goal is to pay fully functioning (knows all
aspects of the job – may takes several years) employees the median of the pay
grade – or close to it.
Pay Grade Maximum:
The top of the pay grade. This
is the most that an employee can make while staying in the same job.
Depending on the compensation philosophy of the organization, it can take
years to reach the maximum of the range in organizations.
Or, if the compensation plan is based on performance, only a handful will
ever reach it.
Kirsten Ross is mother of two sons and is
a Certified Human Resource Professional (SPHR) dedicated to helping women
achieve more life balance and to transforming the design of work.
Visit Womans-Work.com at http://www.womans-work.com
to search our revolutionary flexible work job board featuring more than 35,000
fresh work from home, part time, job share, flex time and telecommuting
opportunities, search for a job share partner or
read valuable career, life balance and family articles. You may also email
her at mailto:KRoss@Womans-Work.com
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