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Pay Policies

In: Business and Management

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Importance of pay policies
A competitive pay policy articulates an organization’s strategy for competing within targeted labour markets to recruit the employees it needs to achieve business success. Such policy guides managers in making effective decisions regarding the company’s investment in human capital assets. How a company articulates its competitive pay policy, therefore, is instrumental to optimizing pay program effectiveness.
An effective pay policy is an important aspect of a company’s overall competitive strategy. Just as organizations compete to sell their products and services, they also compete with one another for talented employees. Toward that end, a competitive pay policy is the cornerstone of an organization’s human capital investment strategy.
A pay policy dictates: * The extent to which qualified employees are available in targeted recruiting markets. * The aggressiveness of other employers competing within those same recruiting markets. * The company’s clout in the marketplace to recruit qualified employees (e.g., financial resources to pay employees, perception of the company as an employer of choice, etc.).
A pay policy articulates the company’s strategic position for competing within its recruiting markets in terms of the pay elements it will offer employees and the pay levels it will target for each element.
The policy sets forth the principles that guide design, implementation, and administration of the company’s compensation program.
In addition to this, a pay policy is important in the following ways: * Attract, retain, and productively employ the human capital assets of the company using a total rewards model * In designing a competitive pay policy, a company considers the relative emphasis of these total rewards components to build its human capital investment strategy. If, for example, the organization emphasized compensation, it would position itself to compete for talent by offering employees base salaries and incentive payments that meet or exceed cash compensation levels offered by the competition. As an offset to placing greater emphasis on cash compensation, the company might offer benefits that are less favourable than those of competitors. Although one element of the total rewards model may be emphasized, decisions must be made with regard to the company’s competitive stance on all three elements. Emphasis on one element versus another is a strategic decision based on company requirements to recruit needed employees. In the right combination, these elements can be used to craft a system for administering pay that helps accomplish the company’s strategic objectives. * Analysing pay practices within recruiting markets to assess competitive standing: Compensation professionals identify the market range of pay for a company job by analysing available survey data for the specified recruiting market. Further analysis predicts the market value necessary for the employer to attract and retain employees with the desired qualifications of the job. A company uses such analysis to arrive at its competitive pay policy and to assess its competitive standing. Competitive standing is a measure of an employer’s compensation levels compared to those employers within its recruiting market. As a fairness criterion, competitiveness (external equity) implies that the employer compensates employees at levels that correspond to prevailing external market rates. * Pay policies are just as important for start-ups as they are for established companies, because without them companies risk underpaying or overpaying their employees. When a company develops a new pay policy, company leadership ensures alignment with company objectives and assumes ownership for effective implementation. * Benchmarking: payment policies allow the internal HR department to compare its pay structures with the industry’s structure and the governing bodies for purposes of compliance. * Industrial peace: existence of payment policies reduces union unrests as it reflects what the overall industry offers. * Assessing the Competitiveness of Employee Pay * Considerations For Performance Management

Characteristics of pay policies

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