audit questionnaire of compensation and benefits
TRANSCRIPT
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Audit questionnaire of compensation and benefits
1. How is the compensation program and total compensation package communicated to
employees?
2. What are the cultural issues or beliefs related to compensation in your organization?
3. What is the eligibility requirement for vacation?
4. Is there a cap to limit the amount of vacation accrued?
5. Are employees permitted to substitute sick leave for vacation?
6. How is unused accrued vacation treated?
7. Can employees contribute sick leave to other employees, and if so, what are the limits?
8. How is employee communication regarding compensation and benefits delivered in your
organization?
9. Describe the health insurance program provided by your organization?
10. Are dependents covered, and if so, in part or in full?
11. Are domestic partners covered?
12. What are the eligibility requirements for health insurance and other benefits?
13. requirements for coverage?
Dental
Vision
Disability
Employee Assistance Program
Life Insurance
Other wellness benefits
Flex benefit plan
Other benefits
14. What is the pension or retirement plan?
15. What is the vesting period?
16. Can employees contribute?
17. Can pretax dollars be put into some form of deferment plan?
18. What holidays are paid and who is eligible for them?
19. What is the vacation schedule, and how is it earned?
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20. Is there a formal compensation program?
21. How are wages set?
22. Are formal salary ranges set?
23. If formal salary ranges are set, are they made public to employees?
24. How are jobs rated?
25. How frequently are jobs re-evaluated or updated?
26. Are any salary surveys used? If so, which ones?
27. Are pay ranges revised as a result of these surveys? How frequently?
28. Who in your organization (what position) administers the compensation program?
29. Are merit increases given, and if so, are they integrated with performance evaluation?
30. Is there a bonus system, and if so how is it structured?
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Compensation andBenefitsThe compensation and benefits processes belong to mostimportant HR Processes, which are critical for the
organization and modern HR organization. The compensation
and benefits is about managing the personnel expenses
budget, setting the performance standards, setting the
transparent compensation policies and introducing the
competitive benefits for employees. The organization with
effective compensation and benefits drives its personnel
costs, manages the performance of employees and rewards
the extraordinary performance.
Compensation and Benefits Role
The compensation and benefits processes introduce thetransparency into Human Resources and rewarding employees forthe achieved performance. The compensation and benefits provides
the managers with the compensation tools to build a differenceamong employees as the high performance corporate culture can be
built in the organization.
The compensation and benefits department monitors the external
job market and optimizes the personnel expenses budget of the
organization. The compensation and benefits defines the
compensation strategy, sets the transparent and simple
compensation policy and defines the general rules for the
extraordinary payments, bonus schemes applied in the organization
and introduces general other compensation policies like the
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Relocation Policy, Short-Term Assignment Policies, Benefit Car
Policies and other.
Compensation and BenefitsResponsibilities
The compensation and benefits department is usually responsible
for the transparency in the compensation practices in theorganization and keeping the internal fairness of the total cash. The
compensation and benefits has to supervise the development of new
compensation components and keeping the general rules for the
design of the compensation component.
The compensation and benefits department is responsible for the
personnel expenses budget of the organization. The compensation
and benefits department sets the standards for the individual salary
increase, the mass salary review and the rules for the bonus payout
as the organization keeps the financial stability and the planned
personnel expenses budget is kept.
The compensation and benefits department has special processes to
monitor the external job market as it can set the right compensationpolicy, which is compliant with the approved compensation strategy.The compensation and benefits department is responsible for the
extensive monitoring of the market and designing the new
compensation components inspired by the HR Best Practices in the
compensation area.
The compensation and benefits department is always closely
attached to the development of the new compensation components,which support the performance and effectivity of the organization. It
co-operates with the different business units and it aligns their
requests into the general rules for the compensation components,
which are transparent and fair.
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The compensation and benefits designs new adjustments to the
compensation strategy and the compensation policy as theorganization does not lose its competitive advantage on the job
market.
Compensation and Benefits Content
Compensation Strategyo Compensation Strategy Key Contento Pay Market Strategic Position Settingo Compensation Consultants and Compensation Strategyo Compensation Strategy building Competitive Advantageo Why is compensation strategy important? Compensation Policy Executive Compensationo Executive Compensation Plans Salary Surveys Sales Incentives Compensation Plans
Compensation StrategyKey ContentThe compensation strategy is the underlying strategy for thegeneral HR Strategy and its main role is to support the
implementation of the HR Strategy and building the
competitive and effective organization with the high
performance corporate culture. The compensation strategy
http://www.simplehrguide.com/compensation-strategy.htmlhttp://www.simplehrguide.com/compensation-strategy-key-content.htmlhttp://www.simplehrguide.com/pay-market-strategic-position-setting.htmlhttp://www.simplehrguide.com/compensation-consultants-and-compensation-strategy.htmlhttp://www.simplehrguide.com/compensation-strategy-building-competitive-advantage.htmlhttp://www.simplehrguide.com/why-is-compensation-strategy-important.htmlhttp://www.simplehrguide.com/compensation-policy.htmlhttp://www.simplehrguide.com/executive-compensation.htmlhttp://www.simplehrguide.com/executive-compensation-plans.htmlhttp://www.simplehrguide.com/salary-surveys.htmlhttp://www.simplehrguide.com/sales-incentives-compensation-plans.htmlhttp://www.simplehrguide.com/sales-incentives-compensation-plans.htmlhttp://www.simplehrguide.com/salary-surveys.htmlhttp://www.simplehrguide.com/executive-compensation-plans.htmlhttp://www.simplehrguide.com/executive-compensation.htmlhttp://www.simplehrguide.com/compensation-policy.htmlhttp://www.simplehrguide.com/why-is-compensation-strategy-important.htmlhttp://www.simplehrguide.com/compensation-strategy-building-competitive-advantage.htmlhttp://www.simplehrguide.com/compensation-consultants-and-compensation-strategy.htmlhttp://www.simplehrguide.com/pay-market-strategic-position-setting.htmlhttp://www.simplehrguide.com/compensation-strategy-key-content.htmlhttp://www.simplehrguide.com/compensation-strategy.html -
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does not explain the detail of the compensation scheme and
the details of the individual compensation components, but it
sets the general guidelines for the compensation components
and sets the priorities to be implemented over the period of
the HR Strategy implementation.
The high performance corporate culture and the high performanceHuman Resources organization have to be supported by the
compensation strategy, which is designed to be business driven
strategy and with the right compensation tools, which motivate
employees to go the extra mile and rewarding the real successes.
Main Compensation Goals
The compensation strategy has to set the main compensation goalsof the organization and they have to be kept as the main target for
Human Resources to be achieved. The compensation goals have to
be set in accordance with the business strategy and they have to
visible in the HR Strategy.
The top management and Human Resources have to decide, what
the goals are of the compensation schemes in the organization. The
compensation goals should be aligned with the corporate culture
and the general long-term expectations of the employees, when the
organization does not implement a huge change in the corporate
culture.
Main compensation goal is about the role of the compensation in
the organization. Each organization pay salaries, but the role of the
compensation has to be balanced with the other aspects of the
overall motivation scheme applied in the organization. The
organization has to choose to pay higher salaries and offer less
development or career opportunities or it can offer lower salaries
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and better career opportunities to keep the motivation system
balanced.
When the organization defines its basic compensation goals, it can
continue with structuring the main compensation decisions
formulated in the compensation strategy.
Main Strategic CompensationDecisions
The compensation strategy allows smooth and efficient operation ofother HR Processes like the recruitment and staffing, performance
management, proper KPI and goal setting process, performance
appraisals. As the other HR Processes can run smoothly and they are
not blocked by the wrongly set compensation strategy, the main
compensation decisions have to be included in the compensation
strategy and the top management and Human Resources have to be
aligned in the understanding to the main compensation decisions.
Role of Compensation in Human Resources
The compensation is a part of the complex HR processes, policies
and procedures. The top management and Human Resources have
to decide, what will be the primary role of compensation in the
organization. Some organizations prefer the supplementary role of
the compensation and other organizations prefer the dominant role
of the compensation.
This compensation decision is extremely important as it sets the
general framework for the compensation components, if they will
exist in the organization or they will be the part of the other HR
policy.
The compensation strategy has definitely include the description of
the role of the compensation in the organization.
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Competitiveness
The competitiveness of the compensation is another important
compensation decision. The organization can decide to be
aggressive with the compensation strategy and it can set the
aggressive position on the pay market, but this strategy is extremely
expensive for the organization and it has to balance it with high
margin on the products and services.
On the other hand, the organization can choose to offer the career
and development opportunities, it can increase the responsibilities
of the individual employees and it can balance aim to the lower levelof the compensation on the pay market.
The decision about the competitiveness of the compensation
strategy is extremely important as it has a huge impact on the costs
of the organization and it requests the right setting of other HR
Processes.
Internal Structures
The organization does not have to follow the same pay market and
the same level for all the job positions. It is extremely important
compensation decision to be included in the compensation strategy.
The organization can decide about making huge pay differences
across different units or it can decide about the different pay level
for the experts and managers as it protects the know how.
Administration
The administration is a tough compensation decision in the
compensation strategy as it sets the roles and responsibilities of
Human Resources, managers, top managers in the compensation
processes.
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The organization can decide about preferring the decentralized
compensation model, when the manager decides most issues and
pay increases, but Human Resources is in a danger of not keeping
the total personnel expenses budget.
In the centralized compensation strategy, the HR Managers are the
main decision makers and the employees and managers do not feel
the comfort of the free decision.
Pay Market StrategicPosition SettingThe right position on the pay market is a key to successfulcompensation and benefits function in the organization.
Setting the right position enables other HR Processes with
value added to work and it supports the recruitment, staffing,
retention and talent management. The right position on the
pay market allows the organization to allocate the personnel
costs efficiently and to keep the organization competitive.
When the organization sets the strategic position on the pay market,it has to evaluate several basic questions, which help to set the
target position correctly. The decision is not formal as it forms other
compensation and benefits processes, has a huge impact on the
allocation of the personnel costs and limits the potential for quick
changes in the compensation schemes used in the organization.
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The main questions to be answered are:
1. What do we want to achieve by setting the strategic position on the pay market?2. Who are my competitors?3. What reactions will we see to follow from the competitors?4. How many strategic positions do we need?5. What are the costs of the setting the strategic position on the pay market?
Why to set the strategic position on
the pay market?
The modern organizations and modern and effective Human
Resources Management are based on setting the competitive
advantages. The right and efficient compensation strategy is a
definitely the competitive advantage and it cannot work without the
strategic position on the pay market.
The modern organizations are based on the talent management,
offering the career opportunities and having other HR Processes to
prolong the length of employment of the key employees and key job
positions. The strategic positioning on the pay market allows theother processes to function properly and keeps the organization
healthy.
The recruitment strategy cannot work without the adequate
compensation strategy as it can easily miss the goals. The company
can target the best potentials on the job market, but the salary
offered has to be adequate to the qualities of the candidates.
Knowing your competitors on the pay
market
The organization always knows its competitors in products and
services. But the organization has to know and understand the
competitors in Human Resources as well. They can be different. But
employees can see the competition on the job market differently.
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Knowing the competitors on the job market is extremely important
for Human Resources. HR Recruiters have to analyze, which
companies are sourcing the organization and the HR Front Office
has to monitor, what companies hire new employees from theorganization.
The compensation strategy has to be set as the organization can
compete with the competitors on the pay market and the
compensation strategy has to be inspired by their compensation
strategies. The employees from the competitors working for the
organization are usually open to help and they can provide the
excellent information, which can save many discussions in
determining the right compensation strategy.
Predicting the reaction of thecompetitors
It is extremely important to have several scenarios describing the
reactions of the competitors. When you are the market maker andyou change your compensation strategy, you can expect all the
competitors will react and you can start costly war on the job
market. When you are a niche player and you hire several employees
per year from your competitors, they will not react.
In case, you hire just the experts, you can expect, the initiatives to
protect the experts and key employees will evolve at your
competitors and the price of hiring the expert from the competitor
will rise.
One or more pay market strategicpositions
Human Resources has to decide, whether it will use just onestrategic pay market position for the whole organization or it will
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identify groups of specific job positions, which will be evaluated and
positioned on the pay market differently.
The general pay market position is simple, it is easy to explain, the
organization uses just one, but the organization loses the flexibility
in the setting of the compensation strategy and this can lead to
many exceptions in the compensation policy as the key groups of
employees are not protected by the compensation policy in general
and the managers will ask for the increased protection by using the
exceptions.
The general pay market position can be more expensive than more
pay market positions as the system tends to set the system to
protect the key employees and the key job positions and the rest of
the populations benefits from it.
The costs of setting the strategic paymarket position
Money is driving the compensation strategy. Each proposal forsetting the strategic pay market position has to be carefully
calculated, analyzed and Human Resources has to prepare the
predictions and forecasts of the future development.
Setting the strategic pay market position without the proper analysis
and calculation is just a hazard with the future of Human Resources
in the organization as the top management can be amazed, how
expensive the strategic pay market position is.
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CompensationConsultants andCompensation StrategyThe compensation strategy design and development is toodifficult to accomplish purely internally. The compensation
and benefits team is usually asked for the external
benchmarks and the common practice on the market and the
compensation consultants can be a huge help, when the HRteam is able to manage their deliverables.
The compensation consultants are expensive and HR has to have a
clear goal for the compensation consultant to be achieved. The
compensation consultant is always able to bring the creative andinnovative compensation solution, when the goal is not given. Theorganization has to pay for the services, which are not utilized. With
the clear goal, the compensation consultant has a clear navigation
tool and forces the effort to reach the defined vision.
Compensation Consultants Benefits or
Value Added
The compensation consultants bring the huge external know how in
the compensation and benefits area, the previous experience and
the experience with different solutions of the issues in the
compensation schemes.The compensation consultant should provide the advice on the
strategic position of the compensation strategy on the pay market
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and to provide the information about the best practices in the
compensation and benefits area. The compensation consultant
should never decide about the final compensation strategy, but can
provide the useful feedback and advice in the process of designingthe compensation strategy.
The excellent compensation consultant always asks the clients
about the feedback and how the solutions work in practice to have
the experience to build on. The compensation consultant can see a
new creative solution in one company, which can help to build the
HR competitive advantage in another organization. The
compensation consultant can help to design the state-of-the-artcompensation strategy and can save huge costs to the organizationin the future.
How to use CompensationConsultants
The organization should invite the external compensationconsultant at the right moment. The organization cannot leave the
compensation consultant to set the whole compensation strategy.
The organization has to set the clear goals for the compensation
consultant and it should use the deliverables of the compensation
consultant in the following decision process.
Without strict goals, the organization cannot manage the
compensation consultant and it cannot use the best know how of
the compensation consultant. The consultant has a deep knowledge
of the compensation pay market and has know how about the
compensation best practices and these should be used for building
the competitive advantage, but the organization has to keep the
final decision about the design of the compensation strategy.
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Compensation Consultants
Deliverables
The organization has to define the deliverables, which support theorganization in its decision process. The deliverable of the
compensation consultant can be easily the content of the
discussions with the executive top management as the consultant
has a broad knowledge of the pay market and the top executives
likes the discussions about the general market and the best pay
practices in the industry.
The common deliverables of the compensation consultant are about
the comparison of the proposal from Human Resources with the
best practices available and the comparison with the real pay data.
The consultant usually has the access to the detailed salary data and
is able to make a comparison and to point out the key components
and key jobs to be included in the compensation strategy as the
jobs building the competitive advantage.
Compensation Strategybuilding CompetitiveAdvantageThe competitive advantage is a necessary component for themodern organization. The competitive advantage has to be in
products, services, internal and external processes and in
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Human Resources Management. The employees are the
assets of the organization and the competitive advantage in
Human Resources Policies can generate a huge impact into
the net profits and overall performance and profitability of
the organization. The competitive advantage incompensation area usually generates a huge portion of theoverall competitive advantage in HR Management.
What is competitive advantage in
compensation?The competitive advantage in the compensation area is not aboutbeating the pay market by paying higher salaries and bonuses to all
employees. The managers tend to think, the better the pay of
employees, the more competitive the organization is. It is not true,
the organization has to carry the higher personnel expenses and
during the crisis or the recession, it can be a huge competitive
disadvantage in the compensation and the compensation strategy
has to be redesigned quickly as the organization can continue in its
operation and it has a destroying influence on the overall employee
satisfaction.
The competitive advantage can be built by using two general
approaches:
1. General competitive position on the pay market2. Competitive pay market position for key job positions
General competitive position on the pay market
Setting the higher position than the median on the pay market isquite common competitive advantage setting in smaller companies,
who have to fight for the best talents with the big organizations in
the same industry.
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It is quite dangerous to set the pay market position too high as the
organization has to carry the increased costs and eats more from
the margins on the products and services. The organization cannot
make quick changes and the recession can be deadly dangerous forthe organization as it carries higher costs to keep the processes
operating and functional. The competitors have a better and bigger
space to decrease the personnel costs in bad times.
The higher competitive position on the pay market can be used in
the time, the organization grows dramatically and it needs the best
talents from the job market and there is no time to decide about the
key job positions in the organization and all employees are treated
to be of the same importance.
Keeping the long term higher pay market position is suitable just for
the companies in the modern industries, with high margins and the
companies with the excellent brand name being known for
employing the best of the best.
Competitive advance through strategic paymarket position for key job positions
The competitive advantage in compensation can be set just for the
key job positions in the organization. This solution is cheaper as therest of the population can be kept in line with the median of the pay
market or it can be below the median as the whole organization
keeps the median in general. But, the organization has to be able toreach the consensus about the key job positions in the organization.
Setting the key job positions is the painful procedure for Human
Resources getting the consensus from the top management is a bit
mission impossible, but HR has to accomplish this procedure
successfully as the key job positions are identified and Human
Resources can set the right compensation strategy for the key job
positions.
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The differentiation in the compensation strategy and setting the
different pay level for the key job positions is quite usual for the
larger organizations as they save the personnel expenses and they
are able to protect the key employees. It does not protect the keyemployees automatically, but it support the managers and other HR
Processes as the employees feel pretty satisfied with their salaries.
The competitive advantage for the key job positions is usually the
best pay strategy for the mature organizations, which does not grow
aggressively and are purely focused on the product innovations. The
key employees bring the innovations and the rest is paid fair
enough for their job content.
Why is compensationstrategy important?The current competitive conditions in the business world
make it difficult to acquire and retain the top talents. Once
the organization is able to identify, it can be unable to offerthe right pay and to manage the pay increases to retain top
talents. The compensation strategy is the extremelyimportant piece of the overall HR Strategy to keep the
company competitive and successful. On the other hand, the
compensation strategy is important to keep the personnel
budget under the control and to manage the jobs in the right
salary (pay) brackets.
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The compensation strategy differentiates the organization on the
job market and builds the attractiveness of the company for the toptalents. They love to be hired by the attractive organization, they donot like to be hired by the average company offering the sameconditions as any other average organization in the industry.
Competitive Advantage and
Compensation Strategy
Today, the products are similar. It is difficult to distinguish the cars
from different car makers. The employees are in the same situation
as the consumers. They have the problem to distinguish theemployers and they are not able to recognize the excellentorganization, when it is not different from the rest. The competitive
advantage is the essential part of the mix for the success. The
organization has to present itself differently, not just by the
presentation, but it should differentiate itself by the different
approach toward its employees. The compensation strategy is one
of the most successful differentiators.
The excellent compensation strategy does not just differentiate the
organization from the other organizations on the job market, it
brings the differentiation into the organization as well as thesuccessful employees and top talents feel the success in their
pockets.
The effective compensation strategy makes people feel the success
and they speak about their successes with their friends. It build the
extremely excellent competitive advantage among the competitors
as the people feel, the organization really values the success and it
can pay the successful employees.
The effective compensation strategy manages the personnel
expenses of the organization, but it supports the performance
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management and differentiates the employees as the successful
ones are not motivated to search for a new job opportunity. The
good compensation strategy does not provoke employees to search
the web job boards during the working hours, it makes them tofocus on delivering the results as they can be highlighted and they
feel the highlight in their salaries.
The successful compensation strategy gains the competitive
advantage and can speed up the innovation processes and improve
the performance management practices in the organization.
For what HR Processes isCompensation Strategy important?
The compensation strategy is not important just for the competitive
advantage, but it supports the other HR Processes and helps them
to become highly efficient HR Processes and being on the top in the
industry (when measured and benchmarked).
The compensation strategy has a strong influence on the
performance of the whole Human Resources, which is a good vehicle
to manage the performance of Human Resources, but has to be
managed carefully as it does not destroy the performance of the
whole organization. Smart compensation strategy supports the HR
Processes and helps to bring the top talents from the job market to
the organization and helps to retain the best talents in the
organization as they do not feel the need to find a new job
opportunity elsewhere.
Recruitment and Compensation Strategy
The effective Recruitment and Staffing cannot exist without the
effective Compensation Strategy. The recruitment can be based on
the excellent HR Marketing Policies, but the HR Recruiters have to beable to offer the competitive salary packages, which are competitive
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externally and fully aligned with the policies and the compensation
strategy internally. The recruitment of the best top talents from the
job market cannot be based on exceptions from the compensation
policy.
The recruitment and staffing processes have to be supported and
backed by the excellent compensation strategy as the HR Recruiters
can offer the competitive conditions to the right talents from the job
market and they are able to identify the key job positions, where the
compensation strategy allows to be more aggressive against the pay
market.
The job candidates are extremely sensitive to the salary package
offered in the Job Offer letter and the compensation and benefits
department should measure the number of failures in the job offer
acceptations. It is the extremely important sign of the wrongly set
compensation strategy, when the job candidates do not accept the
job offers made by the organization.
Motivation and Compensation Strategy
The salaries or bonuses are extremely important for the motivation
of employees and managers. Generally, the motivation is not about
the compensations, but the compensation should support the
general motivation framework in the organization.
Even the best managers in the world are not able to keep highlymotivated teams, when the compensation strategy is not in line with
the job market. The employees usually know the common levels of
salaries in the industry and when the organization is below the
median or the average, it has to compensate the difference in other
area. But, when the difference is too high, the compensation by a
different motivation tool does not work and the employees start to
feel demotivated as they receive no equal value for their effort.
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Talent Development and Compensation Strategy
The compensation strategy provides the key support to the talentmanagement processes in the organization. The talents have to beclearly supported by the compensation strategy as the talents
usually expect higher salary increases than the average employees
and the compensation strategy has to allow the limited freedom to
managers to do so.
The successful top talents management cannot survive without the
adequate support from the compensation and benefits side. The
talents have to feel the different approach of the organization andthe compensation is extremely important in this. The top talents
cannot live on the promises for a long time. They have to see the
real improvements and advances. They deliver, they expect the
organization the same.
The compensation specialists have to co-operate closely with the
career advisors and career development specialist to introduce the
right mix of the career opportunities and the compensation
strategies for the top talents.
Executive CompensationPlans
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Top management needs an outstanding compensation plan.The executive management is responsible for the delivery of
the business results to shareholders. They represent the
company to the outside world. They handle the strategic
initiatives. They are in a risky position. Their job contract can
be cancelled within minutes. They want the protection. The
executive compensation plan has a highly motivatingcomponent, and it guarantees the income protection in case
of the job cancellation.
Executive Compensation Plan
Principles
The shareholders buy the shares of the company to keep the value
of money. They expect even more. They expect to earn the extra
from the increased value of shares. The top management is paid for
the constant increases in the valuation of the company. It is an
absolute rule of the business.
The shareholders define the executive compensation plan. Theyusually cooperate with the CEO, who engages Human Resources in
the process of designing the executive compensation. The
shareholders define targets; shareholders expect the executive
management to reach targets.
The executive managers are not paid for developing the warm and
friendly environment in the organization. They are not paid for the
sympathetic and people oriented corporate culture, when it does not
bring benefits of increased profits for shareholders. The company
exists to make profits, it does not exist to employ satisfied
employees.
The principles of the executive compensation are:
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Clear focus on profits generation Long-term orientation of the compensation scheme Motivation of manager by high bonuses Non-cash focus of the compensation (stock options, shares, share
phantom schemes) Risk Management Balanced Scorecard implemented into the Compensation Scheme
The executive compensation scheme has to support goals given by
shareholders. The executives take risks of failing. They have to be
over-compensated for meeting goals. They should receive an
enormous extra bonus for exceeding the expectations (goals given
by shareholders). The balance in the compensation has to be infavor of exceeding goals.
The HR Professionals have to support the CEO in setting the
executive compensation scheme, which support the top
management in pushing the organization. The top managers have to
make tough decisions. They have to be compensated for
overcoming the stress, the pressure of the line management and
employees complaints about constant changes in the business
operation.
Human Resources has to understand the main business goals. HR
has to help in setting the executive compensation and alignment
with the performance based compensation for the rest of the
organization.
Compensation Policy
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The compensation policy is the basic document, which drivesthe detail of the compensation practices in the organization.
As the compensation strategy sets the high level
compensation goals of the organization, the compensation
policy describes the details of the individual compensation
components, their behavior and their role in the
compensation scheme of the organization.
What is the compensation policy?
The compensation policy describes the details of the compensationcomponents in the organization, how they are used and theconditions for the employees as the compensation component can
be applied in their specific situation.
Each organization uses many compensation components and they
have to be described. The compensation policy provides the basic
explanation of the compensation component, how it is calculated,
who is eligible for the usage and the approval procedure.
The compensation policy belongs to most read and discussed
internal policies of the organization as it drives the salaries of theindividual employees. Each employee is interested in the structure
of the salary and the potential total cash achievable in the
organization. The compensation policy is the main tool to find out
the details about the compensation components and the way, how
to achieve the highest total cash.
The compensation policy drives the effort and performance of
employees as the employees will find the smart and easiest way how
to achieve the highest possible income with the smallest possible
individual performance. The compensation policy has to be set the
smart way as it avoids the potential work-around and abuse.
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What is important in the
compensation policy?
The compensation policy has to be transparent and it has to providejust the only way of the interpretation. It is extremely important,
the employees and managers are not unsure about the
compensation component and they understand clearly, what
conditions are applied for the approval of the specific compensation
component.
The transparent compensation policy supports the high
performance corporate culture organization as the employees
understand, what behavior and performance levels are expected to
be eligible for the specific compensation component and it drives
the behavior and performance specifically the right way for the
organization.
The policy has to cover all the compensation components, which are
used in the organization and affects large populations. Theexceptional managerial component tools can be referenced from the
general compensation policy, but they should not stay hidden. The
employees cannot trust the compensation policy, which does not
mention all the compensation components.
Salary SurveysThe salary surveys are extremely powerful compensation andbenefits benchmarking tool. They are important for thesetting right compensation strategy and for following and
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monitoring the desired pay market. The salary survey is
provided by the external compensation consultant, who
gather the compensation information and salary details about
the individuals, match the information and provides feedback
about the pay market and pay structures back to the
participating organizations.
The salary surveys are always based on the proper job evaluationmethodology, which is standardized across the industry as thecompensation consultant can compare the jobs with the same jobsize as the job titles are not the suitable for the salary comparisons.
The company has to choose the right and suitable job evaluation
methodology and this know how is usually provided by the
compensation consultants for free.
Salary Surveys Benefits
The salary survey measures the competitiveness of the organizationon the pay market and provides the benchmark information about
the salaries on the general pay market and the specific industry pay
markets, when the organization operates on several pay markets.
The salary survey helps to set the internal compensation policy andto set the right optimal salaries for each job and to keep the desired
position on the pay market as defined by the compensation
strategy.
The salary surveys provide the information about the average salary
review percentage and the allocation of the growth of the salaries
into specific job positions across the participating organizations.
The salary survey can act as a tool to identify the key job positions
in the organization as the competitors can protect the key job
positions and it is usually visible in the salary surveys.
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The salary surveys provide the information about the new trends in
the compensation and benefits area and many surveys bring the
additional information like the average number of employees per
manager, the average length of service for the company, thenumber of promotions and many other.
What is important to know about
Salary Surveys?
The participation in salary surveys is a difficult decision as the
organization has to choose the right compensation consultant. The
salary survey needs a standardized approach to the job position
creation and the job position evaluations as the results of the salary
survey are credible and useful.
Human Resources has to have a clear plan for the usage of the
salary survey results and the presentation including the action planhas to be prepared for the top management.
The salary survey is about strictly confidential data and the
compensation consultant has to be widely recognized for the data
privacy practices and has to present the large population of the
participating organizations in the salary survey.
How to participate in Salary Surveys?
The organization has to select the right compensation consultant,
who brings the methodology for the job evaluation and determining
the job size. The organization has to evaluate all job positions and
prepare the salary data in the predefined structure as the
compensation consultant compares the right data.
The good compensation consultant will prepare a detailed
implementation plan and will act as the project manager for the first
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initial salary survey and will provide the help, when Human
Resources prepares the salary survey results presentation.
Sales IncentivesCompensation PlansNo business company can survive without the sales. The
sales brings the blood of the organization. The organization
needs the sales to grow and to successfully compete with
other organizations on the market. The sales incentivescompensation plans are the compensation tools to supportand motivate the sales function to compete and to increase
the sales volumes of the organization.
The art of Sales Incentives
Compensation Plans
The sales incentives compensation plan can really motivate thesalesman to sell more products and services. Or, they can easily
destroy the company, when the design of the sales incentive plan is
not good and it does not support the business goals.
The sales incentive plans should be always focused on increasingthe profitability of the company or gaining the additional marketshare. That is the theory behind the sales incentives plans. As theincentive plans are usually introduced purely by the business
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function, they fail and they do not support the goals of the
organization, they just allow the employees to earn more.
The art of developing the sales incentives plans takes several years
of learning and measuring the results achieved. The senior manager
of the Sales function usually knows, what has to be achieved, but
does not know, how to achieve that by using the incentive plans,
which are cost-efficient and not hurting the future of the
organization.
The sales incentive plan has to be fair to the whole organization.
The employees in the Back Office and the support functions should
not feel the internal unfairness. They understand, that the sales
representatives have to be motivated by the additional
compensation component, but it should be aligned with the overall
compensation scheme and the compensation strategy applied in the
whole organization.
Sales Incentives DevelopmentThe development of the sales incentive scheme has to be a jointinitiative of Human Resources and the business function. HR has todefine the general principles, which have to be applied in each
incentive scheme as it follows the compensation strategy and does
not break the internal equity in the organization.
The effective sales incentive plan does not evolve on its own. Thedevelopment process is creative and full of the conflicts between HR
and the business. The good incentive plan is always tested on
several employees to see the real results from the field as the joint
team can do the adjustments into the incentive scheme and can
make it more realistic.
The sales incentive scheme can be developed in the co-operation
with the external compensation consultant and it is recommended
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for the first incentive scheme in the organization, but the
compensation consultants should not be invited later in the process
as they can set a generic incentive scheme, which does not fully
support the goals of the organization. The organization shoulddevelop its internal know-how for the development of the incentive
schemes.