Compensation Factors

12 08 2010

The four basic factors for determining wage compensation are legal, union, policy, and equity (Olver et al, 233).  While the term legal is fairly self-defined, in that it sets the tone by law, the other three factors are not as clear.  The union factor is dependent upon the existence of a union to set the standards; the policy factor is specific to the company itself; and equity is a factor defined by the industry standard.

The legal factors in determining the rate of pay for an employee include meeting the Fair Labor Standards Act, which determines minimum wage, overtime pay, and governs pay equality.  It defines employer, so that there is a clear cut definition as to what companies must follow the law; and also defines employee, determining who is protected by the law (Cornell Law School).  This law also defines a job position as exempt or non-exempt, which sets the standard for pay and benefits, such as overtime wages (Chamberlain et al).  The Civil Rights Act, Americans with Disabilities Act, and Age Discrimination in Employment Act are each other legal factors in mandating equality and prohibiting discrimination in compensation (Olver et al, 235).

If a business has unionized employees, then the labor union to which they belong helps establish the pay standard for the employees, as well as their hours and other benefits (Silverman).  The union is a political body with elected representatives and works to negotiate with the business what the acceptable wages for the represented employees will be set at.  If the company agrees to this negotiated rate, they cannot legally overturn it later (Silverman).  The National Labor Relations Act is a law that protects employees who utilize a union to bargain with the business (Olver et al, 235).

Policy factors are structured by the individual business, written into their company policy (Olver et al, 236).  The policy is usually written around a clear objective, what they hope to achieve and what standards the company wants to be met, and then defines how they will compensate employees who meet and achieve those goals, based on their position within the business (Georgia Perimeter College).  The company will then follow the policies as defined in order to determine the pay of each employee; rewriting the policy if the objectives and standards are changed (Payscale Blogs).

Through salary surveys of like businesses and like job descriptions, a business can determine equity, the final of the four factors (Olver et al, 236).  Each position within the business is compared with similar positions in the same business market through strategic work valuation, creating a fair pay structure that is comparable to other businesses and also acknowledging of the contribution of that position to the individual business as well (E-Myth).  Each job position is ranked to determine their financial value to the company, but also their desirability to like markets to help set a wage that will retain the employee (E-Myth).

As an employer you must ask: is your business meeting the legal pay standards; are your employees represented by a union that has negotiated standards you must meet; are you adhering to the pay standards defined in your company’s written policy; and are your employees being paid their equitable value?  Each of these factors must be acknowledged and upheld when determining the wage compensation for your staff.  By considering these established factors, you can retain employees who feel properly compensated for the work they provide.

Works Cited

“Creating an Equitable Pay Structure – E-Myth Worldwide.” Entrepreneurial Myth – Small Business Coaching and Strategies – E-Myth Worldwide. 12 Nov. 2009. Web. 12 Aug. 2010. <;.

“Fair Labor Standards Act (FLSA) Coverage (Exempt vs. Non-Exempt — The Online Wages, Hours and Overtime Pay Resource.” FLSA. Chamberlain, Kaufman and Jones, 2003. Web. 12 Aug. 2010. <;.

“United States Code: Title 29,203. Definitions | LII / Legal Information Institute.” Legal Information Institute at Cornell Law School. Cornell Law School. Web. 12 Aug. 2010. <—-000-.html&gt;.

“Compensation Policy.” Georgia Perimeter College. Web. 12 Aug. 2010. <;.

“How to Design an Executive Compensation Policy – Compensation Today.” PayScale Blogs. Web. 12 Aug. 2010. <;.

Olver, Ph.D., James M., Theresa K. Lant, Ph.D., Robert Plant, Ph.D., Karl D. Majeske, Ph.D., and Steven R. Kursh, Ph.D., CSDP, eds. Essentials of Human Resources. Pearson Custom, 2009. Print.

“Labor Unions.” Infoplease: Encyclopedia, Almanac, Atlas, Biographies, Dictionary, Thesaurus. Free Online Reference, Research & Homework Help. — Pearson Education, 2009. Web. 12 Aug. 2010. < >.

Silverman, Jacob. “HowStuffWorks “How Labor Unions Work”” HowStuffWorks – Learn How Everything Works! HowStuffWorks, 7 June 2007. Web. 12 Aug. 2010. <;.




6 responses

9 09 2010

keep it real, iight

17 09 2010

I try.

11 09 2010

im feeling it

17 09 2010

I’m happy for you :)

14 09 2010

trying to follow you on twitter but cant find your name

17 09 2010

Heh. I don’t tweet. ;)

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