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Compensable factors can be simply understood as the criteria used to evaluate a job and on the basis of which salary/wages of the employee is computed. 

It is like the organization is willing to pay based on certain must have competencies or other eligibility factors. Compensable factors are usually determined and defined based on the values and objectives of the organization.

Each of the compensable factors have their own importance and weight in the process of final evaluation. The Equal Pay Act of 1963 has defined 4 most basic compensable factors: effort, skill, responsibility and working conditions. There are usually 5 to 12 compensable factors in any evaluation procedure. The compensable factors are different for different evaluations.

For example, following could be the compensable factors for preparing a job description:-

1. Experience– the prior experience of the employee, whether he has worked in similar industry previously or some other.

2. Education– all the educational qualifications that are mandatory for the job.

3. Working Condition– the working condition of the job in which the employee would be working.

4. Confidential Data- the extent to which the employee is exposed to the confidential data.

5. Consequences of errors– consequences of the error occurrence by the employees, results of the mistake.

6. Complexity of duties- the difficulty level of the task, whether too much decision making is required or not.

7. Responsibility– the extent of the responsibility the employee entitled to.

8. Mental and physical demands– the degree of concentration and the environment accordingly.

Following are the Advantages of compensable factors:-

1. It eliminates ambiguity for the evaluation procedure.

2. It clearly mentions the criteria to the applicants.

3. Every factor has certain weightage in the selection process.

4. It can be applied for a wide range of jobs.

5. The value of job is expressed in terms of money.

6. It can also be easily applied to the newly created jobs.

Following are its disadvantages:-

1. The applicant might question the authority if doesn’t get selected and has met all the criteria.

2. Increases the accountability of the firm.

3. The parameters for deciding the pay might have created biases that can effect certain specific bunch of employees.