HR Effectiveness: How to Measure the Worth of Your Workforce

Do you know how valuable your workforce really is? HR effectiveness hinges on understanding the worth of both your current staff and applicants who pass through the hiring process. Of course each human is infinitely valuable, but from a business and compensation perspective, each worker can be evalutated based on their comensable factors.

Compensable factors should determine how an employee is paid and the total value of their compensation package, as well as measuring their effective value to the company. An effective HR team will know how to identify each employee’s value and spot value through the lens of compensable factors during each hiring or promotion process.

What Are Compensable Factors?

Compensable factors are the factors used to determine employee compensation. Experience, responsibility, credentials and risks all play an important role in determining how much an employee should be paid. However, it’s not just a matter of meeting market value and offer negotiations. Compensable factors put a mathematical value on each role and the qualities of each employee so that it is easier to achieve – and verify – equal pay standards.

Roles that require more from employees and employees who bring more to the table both earn higher compensation, which is easy to calculate using a standard of compensable factors. Likewise, any challenge to compensation fairness can be assessed using the company’s compensable factor policies.

Each company defines their own compensable factors and values, allowing for unique priorities and reward systems, but those factors are applied equally across each department and workforce.

Why Are Compensable Factors Important?

Compensable factors are critical for three reasons. First, they provide a baseline for equal pay standards. Using a calculated compensation method, employees of equal credentials and duties will be paid close to the same amount every time, eliminating the risk of unfair pay disputes and potential trouble with the EEOC.

Second, compensable factors allow companies to ensure competitive pay and practical offers based on the calculable value of each role. Employees will be offered salary or wage ranges appropriate to their level of responsibility, risk, qualifications, and so on across the board.

Third, the way a company defines and weighs compensable factors can be used to reflect company values and to fine-tune what a company rewards in terms of both new hires and internal incentivization.

Compensable Factors Examples

·         Most Common Compensable Factors

  • Skills:The skills and capabilities that are required for the job and the skills an employee brings to the team. Skills can be measured with performance, certification, training, and education.
  • Effort: The amount of effort – mental or physical – required to perform a job. Those who work the hardest should receive greater compensation.
  • Responsibility: Leadership of other employees, independent performance of important tasks, and the risks associated with failure are all types of responsibility that are typically measured and compensated.
  • Working conditions: Hazardous or high-stress working conditions are paid more to balance the toll taken on employees when doing the job.

·         Additional Compensable Factors�

  • Experience: The years of hands-on or educational experience an employee must have or brings to the job.
  • Level of education: The years of school or valuable training programs an employee must complete or has completed.
  • Supervisory received: How much supervision is necessary. Less supervision for reliable performance should equate to higher compensation.
  • Supervision exercised: How much supervision is expected to be provided by the employee over systems, projects, or teams.
  • Complexity: The complexity of the tasks an employee must complete to fulfill their role.
  • Impact of errors: The amount of responsibility an employee takes on if their errors could have a powerful negative impact.

Increasing HR Effectiveness by Understanding Compensable Factors

You can identify compensable factors based on what is most valued in each role. For roles that require a high degree of responsibility or independence, these become your compensable factors vs roles that require a high degree of training and precision skills.

Determining, weighting, and implementing compensable factors are vital for HR to secure fair pay standards and opportunities for employees to earn more by pursuing skills and training that are defined in your compensable factors.