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Strategic Compensation Level Policy

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1. You are the compensation manager for a startup internet company. The CEO wants to know what the best pay level policy is for this organization. Prepare a memo to the CEO explaining the three options the company can choose from and what your recommendation is, and why.

2. Explain the similarities and differences that exist among merit pay systems, incentive pay systems, and person-focused pay systems. Of the three of these pay systems, which one would you implement at your company? Explain your choice.

3.You are the compensation manager for a local Internet training company. Your CEO would like you to determine how well the salaries he pays his instructional designers measure up to other companies in the same field. Outline the steps you would take to determine this and compose a memo to your CEO showing your results. Also, make recommendations to your CEO concerning the pay rates based on the information you gathered from your research.

4. Why is it important to design internally consistent compensation systems? Explain how the job analysis process is used to create a compensation system.

Course Textbook
Martocchio, J.J. (2013). Strategic compensation: A human resource management approach (7th ed.). Upper Saddle River, NJ: Prentice Hall.

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Solution Preview

1. You are the compensation manager for a startup internet company. The CEO wants to know what the best pay level policy is for this organization. Prepare a memo to the CEO explaining the three options the company can choose from and what your recommendation is, and why.

Dear Sir or Madam:

In response to your query about the best pay level policy for our company I have done some research. Typically, organizations choose from a market survey approach (comparing pay to what competitor's pay), a pay policy line (this is more mathematical and has to do with the relationship between salary and job evaluation points [Martocchio, 2013), or a pay grade (based on having all jobs evaluated and paid accordingly [like the military].
Here is my advice: Initially, we must determine the market pay line, based on the type of positions we currently have. Since we are essentially a very small organization currently, this is fairly easy. We have engineers, sales staff, and designers primarily. We need to consider what our competitors currently pay for these positions (including benefits and stock options). We also need to consider what tasks we expect our employees to perform in comparison to what our competitors expect.
Based on these positions we need to determine pay levels (the relative pay for the different jobs based on the education, responsibility, skills). Hiring qualified engineers is harder than hiring designers and sales staff, so we can make some judgement based on this as well. Our pay policies should be attached to the jobs, not individual workers (Martocchio, 2013), but within positions you can distinguish pay level by experience, skills, and contribution.
Furthermore, we must consider our resources, and our ability to compensate employees. Based on this information, and your own philosophy, we can then set salaries that will help us get and keep employees.

2. Explain the similarities and differences that exist among merit pay ...

Solution Summary

This is a very detailed solution that discusses how to choose best pay level policy, similarities/differences between merit pay, pay for performance, and incentive pay, how to do market survey, and the importance of internally consistent compensation programs. Includes APA formatted reference.

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