Question

What is a compensable factor? How do you know compensable from noncompensable factors? (Hint: Consider how you would assign weights to potential compensable factors.) Why is this distinction important?

Answer 1

When a job position is created/vacant or evaluated, there are certain skill-sets or qualifications that are must have and the recruiting organization inherently pays for those skills/qualifications. These set of competencies or qualifications are known as compensable factors. In simple words, these are the qualifications or skills for which the company has a set of dependent wage factors.

For example, an organization may look for an MBA graduate with 4 years of work experience in a retail industry. In such descriptions, it may very well be possible that the organization is willing to recruit people who are not from retail industry or who does not have and MBA. However, for such candidates that fall short of their expected requirement, they will likely receive lower compensation. Hence you can understand the factors which influence the wage/compensation of a candidate. These factors are known as compensable factors.

Compensable factors are usually the certain must have factors. These are often defined according to the job description and the job requirement. Compensable factors usually are given certain weights based on which the candidate’s value is determined by the hiring team and the HR. Some of the examples of compensable factors could be

• Education level
• Experience (number of years and/or industry)
• Working record (type of company)
• Work type (people manager, problem solver, etc)
• Mental & physical demand (long hours of work, shift based work, etc)

The distinction between compensable and non-compensable factors are important to understand and evaluate a candidate suitability for a certain role. Non-compensable factors are often “good to have” skills but even without those qualities/skills/qualifications the candidate could be a good fit for the role. However, compensable factors are the one’s which are required to perform the job. Hence compromising on these factors need serious thought on cost-benefit analysis.