Compensation Fundamentals: Building Blocks

Author: Joseph J. Martocchio, Professor Emeritus, University of Illinois at Urbana-Champaign

Introduction

Employee compensation encompasses the rewards employees receive for performing their jobs, to adjust for cost-of-living increases, for their seniority, job performance over time, or acquiring new competencies, skills or knowledge sets.

HR professionals collaborate with high-level managers to determine the optimal compensation plans that will facilitate recruitment, employee job performance and retention - all within budgetary limits. Then, HR relies on its expertise to create and oversee the implementation of compensation programs.

A comprehensive compensation system can be broken down into its component parts. These parts include the building blocks and system design elements.

This guide discusses the key building blocks of an employee compensation system. It should be reviewed together with the other parts of the Compensation Fundamentals series:

• System Design Elements,
• Common Pay Structures, and
• Legal Considerations and Assessing Effectiveness.