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What are compensable factors and why are they important?

Compensable factors help employers pay employees fairly based on their merits and responsibilities.

A compensable factor is a value or trait that employers use to determine how much to pay an employee. Compensable factors for sales employees could include the dollar value of new account registrations, contract extensions and upselling activities, as well as experience, education, and tenure.

The greater the employee’s experience, strengths, and responsibilities, the more value they (generally) create for the company. These are compensable factors commonly used by businesses.

1. Experience

Experience is important because it will impact how quickly the employee onboards, and how much industry knowledge and new ideas they bring to the company. The learning curve for experienced candidates is typically shorter than the learning curve for non-experienced candidates. More experienced candidates have solved a greater number of problems and will often bring new information or connections with them.

2. Complexity

The complexity of an employee’s responsibilities will influence their pay. It will take into account several things, including:

  • Are duties standardized?
  • Does the employee have to work with different departments and stakeholders?
  • Does the employee need to create new strategies, methods and products?
  • Are there any targets or goals the employee is expected to reach?

3. Level of education

Education refers to how much formal education and training an employee has. Formal training can include post-secondary education, workshops, certifications and on-the-job training.

4. Type of supervision required

This factor evaluates the extent and closeness of supervision an employee needs from their supervisor.

5. Impact of errors

This factor evaluates how the business could be affected if the employee made an error. Could the employee’s errors affect liability, reputation, customer relationships, workplace culture and financial performance?

6. Fiscal accountability

This factor identifies the budget and financial resources that the employee will handle. The more spending they are responsible for, the more value is managed and the higher their compensation.

7. Confidentiality

Businesses manage huge amounts of sensitive data and confidential information, such as trade secrets, contracts, employment records, and both customer and employee personal data. This factor takes into account how much sensitive data the employee will handle, as they will have to take additional precautions to ensure its safety.

8. Mental and physical demands

This factor evaluates how challenging and stressful the responsibilities of the employee are. A CEO might have to oversee a large organization that has many departments and employees. A surgeon might have to perform critical surgeries that might require focus and concentration for multiple hours at a time.

9. Accountability

This factor measures how responsible the employee is for preventing liability, damage and losses. A facility manager might be responsible for the smooth operation of a factory especially if any operational issues can directly affect financial performance. These are high-value responsibilities with expensive consequences if something goes wrong.

10. Number of Employees Supervised

This factor evaluates how many employees will be supervised by the new employee.

Why do compensable factors matter?

High employee turnover is expensive, particularly for sales teams. The average tenure of a B2B Account Executive is less than two years, and it takes the average B2B account executive six months to be fully productive. Compensation is one major reason top salespeople leave their jobs.

An employee who is not valued and compensated properly will quickly become dissatisfied, disengaged and unproductive.

Understanding which factors are important for each role helps HR professionals ensure compensation levels match the job description, complexity of duties, and value created by each employee.

Artificial intelligence can also help businesses develop compensation plans that tie business performance to pay with increasing accuracy.

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