Time for a Comp Department?

By Stephen Miller Jun 29, 2010

SAN DIEGO—There comes a point in the life of growing companies when it’s time to formalize the pay structure by bringing on board a dedicated compensation professional, or even a comp team, explained Timothy N. Tanis, SPHR, GPHR, manager of compensation (or, officially, "compbearsation") at Build-A-Bear Workshop in St. Louis, Mo., in his June 28, 2010 session at the SHRM Annual Conference titled “Building a Compensation Department.”

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“It can be a challenge to centralize the pay process, especially for companies that have given line managers broad latitude to determine pay,” Tanis noted. Key questions to ask include: What is your organization ready for? Is it willing to pay for an in-house comp analyst and provide the tools and systems he or she will need? Will the organization accept having a pay structure that’s handled centrally?

Formalizing the Process

An in-house comp specialist or team will be responsible for strategic and tactical pay-process decisions, Tanis said. Additional value that a comp department can create on the tactical side includes overseeing HRIS/payroll interaction and formalizing job titles and job descriptions. On the strategic side, value can be created by developing pay ranges, bonus/discretionary pay programs, and professional communications to employees.

On the latter point, Tanis noted that some companies fail even to explain to employees that they will be receiving a bonus (“it just shows up in their paychecks”), diminishing the value of using variable pay to incent performance.

Once there is buy-in to create a comp department, steps to take include:

Performing a gap analysis. What policies and guidelines do you already have? What are the business units doing with contractors vs. hiring additional staff?.

• Identifying the future environment. What are the company’s strategic initiatives and the business units’ tactical objectives? What role does compensation play to ensure that the right talent will be onboard?

• Implementation. What is the project plan? What policies are being changed/rolled out?

And continual re-evaluation. “The life span for most pay structures is four to seven years,” said Tanis, who noted that evaluating pay structures annually is crucial. In addition, part of implementation is to determine what level of senior management will review the comp manager’s decisions.

Don’t Reinvent the Wheel

The cost of using an outside consultant to build a pay structure for an organization can easily run $30,000 to $50,000, Tanis said, and often it's much higher. He recommended that comp managers solicit policies from their peers and adapt them to their organization’s needs. Model policies might be available from professional organizations, and even from state agencies.

Stephen Miller is an online editor/manager for SHRM.

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