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[Music] HR basics is a series of short courses designed to highlight what you need to know about a particular human resource management topic in today's HR basics we explore how to build a compensation plan outlining the seven steps use to create a pay structure compensation is pay provided by an employer to an employee in return for work building a compensation plan takes you through seven critical steps to formulate a base pay structure and manage your compensation plan to be effective compensation must be perceived by employees as fair competitive in the market accurately based motivating and easy to understand HR professionals might create a compensation plan for their organization or they might work with an external compensation consultant a basic model for building a compensation plan includes internal alignment external competitiveness and compensation management seven steps fit into each of these areas including job analysis job evaluation pay policy market analysis base pay structure pay for performance and communicating the plan let's take a look at each step internal alignment pay comparisons among jobs or skill levels inside a single organization how it differently should different types and levels of skills and work be paid within the organization internal alignment includes the steps of job analysis job evaluation and pay policy identification step1 job analysis which is the systematic process of collecting information that identifies similarities and differences in work the outcome of job analysis is job documentation or job descriptions step 2 job evaluation which is the systematic process of determining the relative worth of jobs the outcome of job evaluation is the development of internal structure or hierarchical rankings of jobs step 3 pay policy which is the process of determining whether the organization wants to lead leg or meet the market in compensation next is external competitiveness pay comparisons with competitors other organizations that hire people with the same or similar knowledge skills and abilities how much do we want to pay in relation to our competitors external competitiveness includes the steps of market analysis and the development of a base pay structure step for market analysis which is the process of analyzing compensation data gathered from other employers in a survey of the relevant labor market gathering external pay data is essential to keep the organization's compensation extremely competitive step 5 base pay structure the internal structure developed through job evaluation is merged with the external market pay rates in a simple regression to develop a market pay line from which pay grades and ranges are developed depending on pay policy the market pay line can be adjusted up or down finally compensation management making your compensation plan work by addressing individual contributions and clear communication with employees how do we recognize individual contributions and make pay decisions clear to all employees compensation management includes the steps of pay for performance and communicating the compensation plan to employees step 6 pay for performance determining the use of pay that varies with some measure of individual or organizational performance such as merit incentives and variable pay steps communicate the plan ensuring all employees understand their compensation and have a clear line of sight between organizational mission culture and their compensation compensation is a critical element of your total reward strategy a strong base pay structure is built through internal alignment external competitiveness and compensation management [Music] you