Remuneration and Rewards

Job evaluation

-A systematic process for establishing the relative importance of jobs based on a study of job content -Guides the setting of internal pay rates -Involves allocating numerical points to jobs based on evaluating the compensable factors they possess

What's new in base pay?

-Moves away from the payment of penal rates for overtime (or at least a reduction in the rate paid) -The all-salaried workforce -Lump-sum pay increases -Broadbanding -Pay-for-skills/competency-based-pay -Challenges with job evaluation

Skills-based/competency-based pay .Definition .Two important elements

.An alternative to job-based pay that sets pay levels on the basis of how many skills or competencies an employee has 1. Skills-based pay rewards people for their skills rather than for the job they hold. This shifts the remuneration emphasis to a persons value to the organisation 2. There are two options for a skill-based pay system: EITHER employees are rewarded on skill acquisition OR when they use these skills/competencies in their jobs

Paying for the job

.Base Pay .Job Evaluation .Salary Surveys .Pay Policy .Pay grade .Pay ranges .Benefits

Organisation Performance Schemes .Profit sharing .But

.Based on quarterly, six month or annual results .Split a predetermined % of profits with some or all employees .Can have poor 'line of sight' in terms of the connection between individual employee performance and company performance .Potential equity issues - pays poor and high performers equally .Encourages employees to focus on generating profit as a good thing for all .Aids retention .Puts workers on a common footing with owners

Advantages of flexible benefits

.Employees know exactly what benefits they can get from their employer and what they are worth in $ (i.e. it's a transparent system which promotes equity and fairness perceptions) .Decreased risk that a firm is wasting money in providing benefits that employees do not want .The overall cost of the benefit system should be reduced by eliminating those that are not wanted by most employees. .Increase employee satisfaction with their benefits, thereby increasing their reward value in attracting and retaining employees

Salary surveys

.Important for determining external equity .Allows a firm to compare what it pays for a job in the same labour market. Comparisons are based on: -Job matching -Job size .Salary surveys show the market rate for a job .Pay leaders are those that pay in the top quartile .Pay followers pay in the bottom quartile

Indirect remuneration

.Involuntary and voluntary benefits .Involuntary benefits = those mandated by law -4 weeks paid holiday a year -paid statutory holidays -paid sick/bereavement leave -Parental leave

The Hay Group Job Evaluation System Compensable factors include: .Know-how .Problem solving .Accountability

.Know-how -Amount of knowledge required -Ability to co-ordinate many functions -Ability to deal with and motivate people .Problem solving -Thinking environment (routine - abstract) -Thinking challenge presented by problems .Accountability -Freedom to act (autonomy) -Impact on end results -Monetary impact on the job

Incentive Pay .Paying for the person .Paying for performance

.Knowledge-based pay .Skills-based pay Mainly refers to what is variously called: .At risk pay .Variable pay .Merit pay .Bonuses -Can be individual or team based

Indirect Remuneration or voluntary benefits

.Non-cash 'perks'/'fringe benefits' voluntarily provided by employers to some or all employees .Primary purpose = employee attraction and retention .Increasingly a transparent part of total remuneration (i.e. monetary value of the benefit is made explicit to the employee) .Current business focus in NZ is on cost management

Remuneration Policy

.Salary Ranges .Reward Criterion .Appointment & the merit parts of the salary range .Movement within ranges .Fixed Remuneration .Market Benchmarks .Recruitment and Retention Initiatives .Bonus Payments .Remuneration Reviews .Approvals

Other individual base schemes .Piece rates: .Commission plans: .Time savings plans: .Re-earnable bonuses: .Suggestion reward schemes:

.The oldest form of p-f-p. Pay per unit/piece of work rather than by time. Minimum Wage Act still applies .Usually based on $ sales. 100% commission plans now rare due to a variety of problems e.g. employee retention .Common in project work .One-off gifts to an employee for outstanding performance or some special service .Rewards individuals for suggestions that improve business processes/decrease costs/improve productivity. Can be lump sum or a % of the savings

ESOP - Employee share ownership plans

.Turns workers into owners by giving them shares in the company they work for .Aids retention of employees .Focuses employee attention on generating both profits and adding market value to the company .(Can serve to protect firms from hostile takeovers) .To work, needs: -To have employee ownership as a key part of the company culture -Extensive employee education on shares -Regular communication to employees on company -financial performance

Individual Employee Performance, Merit pay

.Typically individuals judged as higher performers get better pay within a pay grade/band .Common problems: poor transparency, subject to perceived favouritism and bias, rating errors .Can create expectations of entitlement .Annuity problem - typically merit pay rises are not at risk once awarded as they become a permanent part of ones annual wage/salary

Rewards are anything that

1.Satisfy an individual's needs 2.Are perceived by those individuals as fair in relation to the effort expended to earn the reward 3.Are seen as equitable in relation to the perceived rewards and effort of other people

Making incentives work - some design principles

1.What is the incentive scheme trying to achieve? Be clear on your objectives. 2.Involve both managers and non-managerial employees in the design stage. 3.Do a feasibility study. 4.Determine the incentive plan coverage. 5.Select the rewards that are to be used. 6.Select the measures of performance to be used. 7.Determine the frequency of reward distribution. 8.Decide on the level of pay secrecy.

Base pay - wages and salaries .Basic purpose .Historically determined by:

Attract and retain employees, get them to turn up to work, motivate effort to reach minimum agreed performance standards .What they thought the organisation could afford .What they have been forced to pay by legislation, trade unions and individual negotiation .What the prevailing labour market rates are for a job, as determined by salary and wage surveys .A need to maintain internal pay equity (as determined by job evaluations)

Team Performance Schemes .Example schemes

Incentives are paid to individual team members depending on the performance/productivity of their team. Usually a % of individual base pay: -Team suggestion systems -Goal-based plans -Gain-sharing schemes: Payments based on team productivity improvements

Flexible/cafeteria benefit systems .Issue .Solution

Issue: Potential individual differences in how specific benefits are valued by employees hence variable retention and attraction value Solution: Provide employees with a 'menu' of benefits from which they select the ones they want Specify the $ value of each benefit Each employee has an upper $ amount in their remuneration package that they can use to purchase benefits from the menu

Employment contract

The employment contract is an exchange between an employee, who provides effort to some agreed level or standard, and an employer that provides rewards for that effort.

Total Remuneration

The total direct and indirect forms of monetary income value an employee receives in exchange for their labour

Direct remuneration

Various forms of cash payments Cash payments made up of: -hourly wages -overtime pay -salaries -lump sum payments -skills-based pay -performance/incentive pay