The concept of base pay ensures that a company compensates its work force at levels in line with market trends, not metrics indicating whether the business is in its operational heyday or whether it's dealing with temporary or sustained commercial woes. Fairly paying corporate personnel goes a long way toward preventing high staff turnover, low morale and anemic productivity over time.
An employee's base pay is the rate the worker and the company agree on before employment starts. This number excludes additional pay, whether it be bonuses, on-call compensation, seniority monetary rewards and overtime money. A company may set a base pay that gradually increases based on employee seniority and positioning in the organizational hierarchical structure. This arrangement may go from grade 1 through grade 10, with the latter being the top brass. The base pay may start at $10,000 for entry-level personnel, evolve by $10,000 increments for each grade and end up at $100,000.
In the corporate context, personnel who help determine base pays share a general attraction for numbers, an obsession with detail, regulatory acumen with respect to occupational rules and a clear mode of speech. Generally hailing from the human resources department, compensation management employees determine the best way to reward corporate personnel without breaking the company's bank. The goal is to figure out what rivals are doing in terms of worker compensation, determine whether competitors' moves are working, bring in pay consultants to provide guidance on corporate remuneration, and find a way to expand the term "pay" so employees agree that non-cash benefits also are useful and important for long-term prosperity.
Profit Generation and Cost Leadership
To set a competitive base pay and ensure that it remains so, department heads familiarize themselves about marketplace trends, the state of the economy, unemployment trends and U.S. Department of Labor's minimum pay regulations. By becoming well-versed in the sundries of pay and productivity, functional heads can make good judgments about how much to pay, what to include in an employee compensation package and what to leave out altogether. This thinking pattern can help the business save money, reduce overall costs and take tangible steps to generate healthy profits down the road.
For a company, base pay is an administrative expense, whether the compensation is competitive or not. As such, financial managers include pay amounts in the "selling, general and administrative charges" section of an income statement. Other SG&A charges include rent, litigation and office supplies.
- Auburn University: Compensation Policy and Base Pay Administration Guidelines For Administrative/Professional and University Staff Employees; February 2007
- Business Dictionary: Competitive
- Pennsylvania State University: Regulation, Subordinated Debt and Incentive Features of CEO Compensation in the Banking Industry: John Kose et al.; August 2003
- Medical University of South Carolina: Class & Comp Glossary of Terms; February 2009