Building an Internally Compensation System

An effective internal compensation system will require careful planning as it will play a significant role even more so in workforce planning. The paper will go over the strategic process that will be implemented to provide a road map to ensure that the correct processes are in put place to facilitate the increased in the workforce.

Necessity for Compensation Systems

According to Martocchio (2017), internally consistent compensation systems undoubtedly outline the comparative value of each job among all jobs within a company.

Internal compensation decision will be based on the mission while taking into account the budget, and so a lot of factors will come into play. With that being the case, since internal compensation will play a pivotal role in the hiring process, it will require a very systematic process to identify and address the gaps between the workforce of today and the human capital need for the organization. Any company that does not have an effective compensation system can become slow, stagnant, and fail to achieve its goals, as it will not be able to attract knowledge workers.

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On top of that, retirement rates will be growing in the coming years, while at the same time, the qualified applicant pool will shrink; thus, this is the right time to develop smart strategy to build the organization's compensation systems.

The Process Involved in Creating an Internally Compensation Systems

Since job evaluation is the strategic tool which is used as the key for casting internally consistent compensation system there will be several steps to create the compensation structure which includes; strategic direction, workforce analysis, job analysis, and job evaluation (Martocchio, 2017).

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Strategic direction takes a look at the big picture to understand where the organization is headed. It links workforce planning with strategic and Human Capital Management plans. In this step there will be a hard look at the work activities required to accomplish the organization's strategic objectives. The workforce analysis step will be used to analyzes the current workforce and think about what it might look like in the future to see how the new hire will fit with organization's direction.

Workforce analysis will help to identify if there are any gaps between current and projected workforce needs, who may leave within the next one to three years, what skill set do they possess, and how to keep the employee that the organization need to accomplish the mission now and in the future. Job analysis is the systemic descriptive process that is used for gathering, documenting, and analyzing information in order to describe jobs (Martocchio, 2017). To be effective job analysis identifies and defines job content which covers the actual activities that employees must perform on the job (Martocchio, 2017). Workers requirement covers the minimum qualification to include the knowledge, skills, and abilities that an employee need to complete their job (Martocchio, 2017). The physical condition that the employee will work in is also part of the job analysis.

The job analysis process has five main activities:

  1. Determine a job analysis.
  2. Select and train analysis.
  3. Direct job analyst orientation.
  4. Conduct the study: data collection methods and sources of data.
  5. Summarize the results: writing job descriptions (Martocchio, 2017).

The job evaluation step is used to determine distinguish variances in the number of positions and job design in relation to the organization's structure to create pay modifications between a set of jobs within the organization (Martocchio, 2017). The job evaluation partly replicates the values and priorities that management places on various positions within the company (Martocchio, 2017).

The job evaluation according to Martocchio (2017) process has six steps:

  1. Determining single versus multiple job evaluation techniques
  2. Choosing the job evaluation committee.
  3. Training employees to conduct job evaluations.
  4. Documenting the job evaluation plan.
  5. Communicating with employees.
  6. Setting up the appeals process.


The paper establishes the importance of implement an internally compensation system.


Martocchio, J. J. (2017). Strategic compensation: A human resource management approach (9th ed.). Hoboken, NJ: Pearson.

Updated: Jul 06, 2022
Cite this page

Building an Internally Compensation System. (2015, Jun 30). Retrieved from

Building an Internally Compensation System essay
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