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Bernadette Miller
Human Resource Management
October 18, 2013
Compensation Decisions
Upon completion of the HRM:590 compensation template, I was able to quickly
asses who would qualify for an increase along with a bonus. I made the decision early
on that I was going to divide evenly the salary budget which I thought this would have
been given based upon company-wide growth unless there was a performance issue. The
bonus amount would also be divided evenly to each employee unless there was a
discrepancy with work ethic and performance, then the bonus was withheld which was
solely based upon work performance and skills. The risk with withholding the increase
and bonus from employees could either drive the person to a satisfactory work
performance or have the employee consider retirement or they would leave the company.
The risk of losing a person to retirement or leaving the company a poor performance
would actually be beneficial to the company and the employee could be replaced with a
higher performer and given a lower salary to start the job. The consequence of making
this decision not to give certain employees an increase in pay or a bonus could be that
they stay and continue to decline in work performance and eventually need to be let go or
replaced. I would also be prepared to show the decline in work performance and explain
that there would have to significant change in performance in order to regain increase and
bonus. I honestly struggled with some of the decisions of compensation but I had to
analyze what was being said from each manager in order to come to these conclusions.
In our book on line it says when compensating employees and organization they do not
have to choose one program over another. The combination of different programs is the

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best solution, they gave examples of one program fostering team work and cooperation
and another program based on initial individual contribution to the company. The
balance would be that this would increase the pay performance intended effects and
reduce the unintended consequences or problems (Wright, et al., 2013, p.526). I tried to
take that type of approach when I was filling out the increases and bonuses. My thinking
was that the companys overall performance was given and evenly divided by each
person to give an increase unless the performance was below average and the bonuses
were evenly divided but based upon grade, performance and rating.
Literature Review
After going through the process from Job analysis to compensation there may be
some things to change or consider. According to our book for this class there are various
ways for Job analysis the two that are frequently used are PAQ (position Analysis
Questionnaire) and the O*NET (Occupational Information Network) (Wright, et al.,
2013, p.173-174). Both these approaches provide thought about the approach, taskfocused and are person oriented in order to conduct the job analysis. The PAQ is used to
represent Job behaviors, work conditions and Job characteristics through over hundred
and ninety four questions. The O*NET was created in the 1930s by the US department
of labor to help with placing people in manufacturing jobs however as technology
evolved this method became obsolete. The GATB (Aptitude Test Battery) has become
useful today in providing guidance around ability to perform the job (Wright, et al., 2013,
p.173-174). I would consider utilizing the aptitude test and use the PAQ in addition to
the Task statement and KSAs for job analysis if there wasnt the latest technology system
put in place for organization.

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Then when reviewing the compensation piece I was searching for a method or
approach to giving out increases and bonuses; this I found to be not very clear on a
specific method or formula as it seems many companies have a different approach. I
found the easiest was to divide evenly the increase as company-wide goals were met and
divide evenly the bonus based upon performance, grade and rating. Some shared
assumptions: That the best way to motivate employees is to reward them with money that
they then spend on themselves (Lalin Anik, Lara B., et al, 2013). There was a study
done through Harvard Business School about bonuses they tried to find out the reaction
of employees when they were given a personal bonus for their own spending and giving
them a Prosocial bonus to be spend on their team or outside charity or taking a
coworker to lunch the result was that people were much happier spending their own
money but when given extra Prosocial bonus for their group this also increased
happiness, job satisfaction and even improved team performance. The overall result was
to shift from self to others and there was a minor adjustment to bonuses after this (Lalin
Anik, Lara B., et al, 2013). I really enjoyed reading this and I would agree with this
article that this kind of a shift needs to take place and giving less of a personal bonus and
having some money for a Prosocial bonus to drive employees to work as a team and
make the workplace an environment where you look forward to going to work and having
a free lunch with a coworker, this I would also add to my compensation plan (Lalin Anik,
Lara B., et al, 2013).
Regarding general compensation decisions its really important to set up goals and
objectives company-wide which would drive increases in compensation. In this
newsletter I found on business development compensation they give five steps to follow

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when creating an effective plan. The first step is to set proper business goals and goals
set around performance should have proper alignment with incentives and actions
required company-wide (Enns, 2013). The second step is to determine target
compensation level which is calculated on a few factors; Experience / Seniority, market
considerations and results required (Enns, 2013). Step three is to establish a base
employees want to know that their salary isnt at a cap and there is incentive to have a
higher earning potential and employers should construct a high base plan (Enns, 2013).
Step four should be to add performance incentives which are commonly commissions
and bonuses. Commissions earn whatever the firm earns and bonuses are awarded for
meeting specific goals (Enns, 2013).

Step five is final considerations which are to

bonus or not to bonus should you give a bonus to an employee that hasnt given 12
months of service to the company (Enns, 2013)? Which all depends upon the business
development plan and then incentives for non-business developmental personnel should
there be a finders fee (Enns, 2013)? I found this article very interesting and helped me
understand the importance of coming up with the business development plan ahead of
time.
With variable compensation plans these programs help motivate employees to
meet individual goals and company-wide goals. In the online article I found on variable
compensation when company performance is strong, variable compensations will be
high and when company performance is low, variable compensation will be low
(Auxillium West HR Software, (2011). This article gave some recommended steps for
determining bonuses, profit sharing and miscellaneous rewards. In order to determine
bonus the first step is to determine the size of the bonus pool and they gave the

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example of having this based up each organizations contribution to the business interest
of the company (Auxillium West HR Software, (2011).

Second is to determine

eligibility whether this is all full time employees or just those that participate in
incentive plans (Auxillium West HR Software, (2011). Third establish bonus award
criteria; is the accomplishment from a specific individual or team, does it exceed
expectation and is it critical of company program, and is this result of a cost savings,
profit, problem solve or avoided (Auxillium West HR Software, (2011)? Step four is to
establish bonus award guidelines determining maximum and minimum amounts for
awards (Auxillium West HR Software, (2011). Step five was to issue awards
throughout the year these are given to individuals that achieve outstanding achievements
and its presented by the manager as a letter of commendation with a bonus check
(Auxillium West HR Software, (2011). Step six is to maintain a record in recipients
file and the last step is to track the bonus expenditures and inform the manager
(Auxillium West HR Software, (2011). I found this information very useful and these
steps in determining a bonus structure to be extremely easy to follow. These variable
compensation plans are gaining attention of corporations and seem to really help with
incentive and accomplishing company-wide goals. As I clicked within this article I also
stumbled upon some really great software for customizing HR data and helping with
creating tools and workflows in HR its called HR source tm and is generated through
Auxillium West HR software company (Auxillium West HR Software, (2011). This
system is used for tracking, reporting and analyzing HR data. The company was
established in 1996 and has over 50 years of HR management and systems experience. I
think this tool would be really helpful for any HR business partner.

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In conclusion, I have learned there is a lot to consider when approaching
compensation and some of these articles confirmed that I was on the right track with my
thinking and approach however there were some things to consider in adjusting and
deciding upon when I completed the substantiation and risk analysis. I did end up
changing some of my numbers for the bonus considering pay grade and gave a little more
compensation to those given a higher salary grade and a more difficult position. I have
learned that there is nothing to assume when assessing the information and with proper
job analysis to job performance review then to compensation plan there is a lot of
planning necessary. Choosing the appropriate Business development plan is key to
having a successful compensation program and taking into consideration the salary grade,
appraisal rating and managers comments are all a part of the decision for bonuses.

In

the article that I found called 5 Strategic Compensation Decisions Business should
make there are five important questions to ask when setting up a compensation plan.
First one how can we reinforce our business model in how we pay people (Vision Link
Advisory Group, (2013)? In other words, the business model should be distinct from the
business strategy and we should ask what are the outcomes that reinforce the business
model then in return what kind of pay strategies reinforce the business model (Vision
Link Advisory Group, (2013)? The second question was; What kind of value-sharing
approach best reflects the kind of partnership we want to have with our employees
(Vision Link Advisory Group, (2013)? Leaders need to consider short and long term
reward programs and give employees the value-sharing opportunities as a stakeholder in
the company. Third question is What components will best foster a unified financial
vision for growing the business (Vision Link Advisory Group, (2013)? This question

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empowers employees to think about how they are paid not what they are paid and drive a
basic rewards philosophy. The fourth question is What structure do we need to maintain
to ensure our compensation strategies produce the desired results (Vision Link Advisory
Group, (2013)? This involves putting together a compensation committee to review and
make decisions as needed. The last question is How can we communicate our rewards
strategies in a way that best impacts the mindset of our employees (Vision Link
Advisory Group, (2013)? Having a strategic approach and building reward programs
should engage employees in the vision of the company, the business model and how they
will be rewarded when they meet expectations (Vision Link Advisory Group, (2013). I
found this article to be reinforcing in how I was thinking and very helpful when
considering putting together an effective strategic compensation plan. I have really
enjoyed learning more about this subject and would consider all of these approaches
when writing a HR plan.

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References
Auxillium West HR Software, (2011). HR source tm HRIS for small to midsize
companies. Retrieved from http://www.auxillium.com/hrsourcePS.html

Auxillium West HR Software, (2011). Establishing Variable Compensation Plans.

Retrieved from http://www.auxillium.com/VirtualHR/variapay.htm

Enns, Blair (2013). Business Development Compensation. Retrieved from

http://www.winwithoutpitching.com/business-development-compensation-plans

Lalin Anik, Lara B., et al. (2013). Bonus Increase Employee Satisfaction Team
Performance. Retrieved from
http://hbswk.hbs.edu/item/7260.html

Vision Link Advisory Group, (2013) 5 Strategic Compensation Decisions every

Business must make. Retrieved from
http://blog.vladvisors.com/compensation-and-business-growth/5-strategiccompensation-decisions-every-business-must-make

Wright, Patrick M., et al. Human Resource Management. New York, NY:
McGraw-Hill/Irwin, 2013. Retrieved from
http://devry.vitalsource.com/#/books/007779012X/pages/61727052

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