Fair compensation does not mean the highest in town. Think of fair as “about average”.

Successful companies make it a priority to create fair paying jobs to remain competitive. If they do not, they risk losing talented people to other organizations.

Total compensation includes more than base pay. It often takes in account benefits, such as medical, dental, short and long-term disability, 401K or other deferred plans, retirement plan, bonuses and other long-term incentive plans such as stock or grants options.

This is the first of a three part series focusing on the basics of how base pay compensation is determined for a position and what that means to evaluating your current salary.

Large companies have a compensation department or person on staff. They may follow a methodology, such as Hay Group or have devised their own internal compensation system.

Do not fret, if the system is internally grown. Training and development in the area of compensation is very specific. Experts in this field go through rigorous requirements and examinations with WorldatWork Society of Certified Professionals and carry the CCP distinction.

If your organization is small, there is a greater chance they participate in local surveys often sponsored by the local chamber of commerce, government group or engage a regional firm specializing in this activity.

Understanding how a company determines their compensation strategy is an important step when figuring out if your pay is appropriate. This article will focus on the first steps a company undertakes to learn about the job itself, otherwise known as job content.

This approach helps to build an appropriate compensation structure to meet their business and employee needs. The core components are:

Job Analysis is the systematic and formal process of evaluating job content or the tasks of a job. It defines what information is important and essential to evaluating the job.

Examples of information used in this process include job description, organizational chart, and identification of skills, knowledge, abilities, duties, responsibilities, organizational goals and objectives and external survey data.

Job Documentation consists of what is written about the job content. Sources of information include job description, questionnaires, interview notes and any studies done on the job itself.

Job Evaluation is the process used to create the structure and relative value of jobs within an organization. There are several types of ways to do this analysis, through market-based job evaluation or evaluation of job content/value.

Market-based evaluation first assesses the labor market trends for the position; then evaluates how that information fits within the job structure of the organization. Typically, companies will collect data on at least 50% of the jobs in the organization.

The market based approach is simple to develop and easy to explain. The shortcomings of this approach often are in getting data on specific jobs, especially if the company is in a niche industry and may not address specific internal pay equity issues.

In a job content approach, the company assesses the job content internally first and then seeks to validate it through external market sources. There are a number of approaches to evaluating job content internally through ranking, classification or slotting.

If you want a simple approach, ranking is the one to choose. The company compares each job to one another and ranks their importance in order of highest to lowest.

The classification system is a common approach in the public sector. Often seen as grade levels, classifications distinguish what is similar and different in the scope and responsibility of a position and puts that in a similar group.

The final job content approach is slotting. The company may have a pre-established job-evaluation system and makes a determination of where that job fits in the overall structure. It is typical to use benchmarking (finding equivalent jobs in similar industries and company size) or some other independent standard to assist in the placement of the job.

In either market-based or job based evaluation, companies find they have to reconcile what the market is telling them vs. what they want to do internally. They can choose to elevate or conversely de-elevate positions within their organization, especially if some positions are core to their overall business strategies.

Your Homework:

Has your job changed significantly over the last few years? Some examples of this may be moving from an individual contributor to supervising people, handling a local account to managing complex global accounts or gaining profit and loss responsibilities.

How often does the company review changes in job requirements?

Are you communicating changes in job scope to your boss or Human Resources in writing?

Do you know what approach your company takes when evaluating jobs? Is it market or job content based?

In the next segment, I will discuss how companies establish pay ranges for a position once after they understand job content. By the end of this series, you will be able to know questions to ask your company to determine if your base pay is fair.