WHY YOU NEED A COMP DEPARTMENT

Several times over the past year and a half members have asked me, "Do we really need a compensation department when we aren’t delivering increases, paying out bonuses or hiring staff?" My short answer is absolutely, positively YES!

Salaries in the marketplace will continue to move, even if your organization has frozen pay and hiring programs. I define a compensation department as one HR professional with compensation expertise, or an entire compensation department consisting of several professionals.

This month I share my long answer and the reasons why you need a compensation department.

David Weaver
President, The Survey Group

One of the major responsibilities of the compensation department is managing the base salary program. This includes the following:

• Participating in salary surveys and performing an external salary review on a yearly basis to ensure your organization is paying market competitive wages. This helps control turnover and assists in recruiting efforts.
• Auditing job descriptions so that they are up to date and reflect the essential job functions to comply with the Americans with Disabilities Act (ADA).
• Maintaining competitive salary ranges or broadbands so you can control fixed salary expenses and support merit increases and promotional opportunities.
• Utilizing a job evaluation process to determine the relative value of a job within the organization. Job evaluations are typically required when a new job is created or when there have been major changes in job responsibilities.
• Administering salary increases to keep employee’s wages competitive and to recognize various levels of performance.
• Providing promotional increases when employees take on greater responsibility and move to higher-level positions.
• Helping the organization to be in compliance with all wage laws and regulatory requirements including correctly classifying positions as exempt or non-exempt under the Fair Labor Standards Act (FLSA).
• Communicating salary program guidelines to managers and employees so each component of the compensation system is understood and administered consistently.

Another important responsibility of the compensation function is managing the annual short-term incentive program, including:

• Working with senior management to determine bonus plan performance goals and objectives that are aligned with company goals and are measurable.
• Establishing bonus target percentages that are appropriate for the job and competitive with the external market.
• Validating incentive plan design features such as performance thresholds for minimum expectations and award targets for superior performance that is significantly above plan.
• Providing communications materials to managers and employees that describe the objectives, performance measures, eligibility, award targets and timing of payouts.

And finally, if your organization is a public company, the compensation department may have responsibility for administering the long-term incentive program including:

• Providing stock option programs that reinforce the achievement of multi-year financial goals and create shareholder value.
• Administering stock programs for special recognition and retention purposes.
• Creating employee communications that provide information on eligibility, types of long-term incentive awards, vesting requirements, tax consequences, frequency of grants and performance periods.