Topic 7 remuneration and rewards
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Topic 7: Remuneration and Rewards. Dr Johanna Macneil. T opic o verview. Definitions Objectives Determining pay Pay and Equity Designing a remuneration and rewards system – “the money is the message ”. 2. Readings. Required reading:

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Topic 7: Remuneration and Rewards

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Topic 7: Remuneration and Rewards

Dr Johanna Macneil


Topic overview

Definitions

Objectives

Determining pay

Pay and Equity

Designing a remuneration and rewards system –

“the money is the message”

2


Readings

Required reading:

  • Stone, R. (2014). Human Resource Management, 8th ed., Wiley: Sydney, Ch 12, pp. 466-497, on remuneration

  • Mitra, T, Gupta, N, and Shaw, J (2010). A comparative examination of traditional and skill-based pay plans, Journal of Managerial Psychology, 26(4), pp. 278-296, on pay systems

    Recommended readings:

  • Ellis, V and Taylor, M (2011) Banks, bailouts and bonuses: a personal account of working in Halifax Bank, Work, Employment and Society, 24(4): 803–812

  • Hendry, C, Woodward, S, Bradley, P and Perkins, S (2000) Performance and rewards: cleaning out the stables, Human Resource Management Journal 10(3): 46-62

www.newcastle.edu.au


Definitions

Cash remuneration : pay

Total Remuneration

  • All remuneration that employees receive in exchange for their work, which includes pay but also other benefits

    Remuneration policy

  • reflects the organisation’s strategic business objectives and culture

    Rewards

  • Total remuneration AND any intrinsic and/or psychological benefits that an organisation provides for its employees in exchange for their work


  • Warehouse workers

    • Coles Breakthrough: Dispute is over at the Coles distribution centre in Somerton as its workers had a meeting with the union and accepted the pay deal which will see them get 11%25 pay rise over three years. [online]. National Nine News (NINE Melbourne); Time: 18:03; Broadcast Date: Monday, 23rd July 2012; Duration: 1 min., 1 sec. Availability: <http://0-search.informit.com.au.library.newcastle.edu.au/documentSummary;dn=TEV20123005736;res=TVNEWS> [cited 18 Mar 13].


    Politicians

    • To cite this article: Pay Rise: Federal politicians are under fire over their latest pay rise, with some admitting it puts them on the nose with voters more than ever [online]. Ten 5pm News (TEN Melbourne); Time: 17:09; Broadcast Date: Wednesday, 4th July 2012; Duration: 1 min., 51 sec. Availability: <http://0-search.informit.com.au.library.newcastle.edu.au/documentSummary;dn=TEV20122705647;res=TVNEWS> [cited 18 Mar 13].


    Executives – private sector

    • To cite this article: Not Expected: The former Barclays chief executive, Bob Diamond isn't going to get quite the golden-handshake he was expecting [online]. World News Australia (SBS Melbourne); Time: 18:54; Broadcast Date: Wednesday, 11th July 2012; Duration: 2 min., 40 sec. Availability: <http://0-search.informit.com.au.library.newcastle.edu.au/documentSummary;dn=TEV20122805749;res=TVNEWS> [cited 18 Mar 13].


    Organisational objectives for remuneration and rewards systems

    • Attract and keep desired quality/mix of employees

    • Ensure equitable treatment

    • Motivate employees to improve their performance

    • Reinforce organisation’s key values, desired culture

    • Drive and reinforce desired employee behaviour

    • Ensure remuneration is maintained at the desired competitive level

    • Control remuneration costs

    • Ensure optimum value for each remuneration dollar spent

    • Comply with legal requirements.


    Employee objectives for remuneration and rewards systems

    • Ensure equitable treatment

    • Accurately measure and appropriately reward performance and contribution to the achievement of the organisation’s strategic business objectives

    • Provide appropriate remuneration changes based on performance, promotion, transfer or changing conditions

    • Provide regular remuneration and performance reviews.


    Determining pay

    • Relies very heavily on job evaluation

      • The systematic determination of the relative worth of jobs within an organisation.

      • Concerned with ‘how big’ or ‘how small’ a job is.

      • Aim is to ensure that jobs of different sizes or relative worth attract the appropriate pay differentials.

      • Basis for establishing the organisation’s job hierarchy and associated pay structure.

    • Frequently conducted by external specialists, using ‘point systems’, and making judgements on requirements for education, experience, responsibility, mental and physical demands, working conditions

    • Needs good /current job descriptions!


    Determining pay

    • Pay structure

      • Presents all pay ranges over the whole spectrum of job sizes

      • The standard range: most generally accepted pay range for professionals and managerial position is plus or minus 20 from the midpoint pay.

    • Pay line

      • Graphically depicts the remuneration currently being paid for jobs, related to job size

      • Used to inform decisions based on market posture ie above, at, below market rates


    Types of variable pay system

    • Skill-based pay

      • A system that compensates employees on the basis of job-related skills and the knowledge they possess.

      • Employees are paid for the skills, competencies and knowledge they are capable of using and not for the job they are performing, their job title or seniority.

    • Individual Incentive based pay

      • Guaranteed vs. at-risk remuneration (bonuses, stock options)

      • Bonuses: paid for achieving performance targets.

      • Options: An option to buy shares at some future date (usually, but not always, if certain performance targets are met).

    • Group performance-based pay

      • Gain sharing

      • Profit sharing


    The importance of equity (or justice)

    • Distributive justice : the actual allocation (distribution) of rewards or punishments is fair

    • Procedural justice : the rules (procedures) for determining rewards or punishments is fair


    Outputsp

    Outputso

    <, >, or =

    Inputsp

    Inputso

    Evaluating equity in relation to PAY

    Equity Theory: People evaluate the fairness of their situations by comparing them with those of other people.

    If you feel the ratio of Outputs:Inputsis equal to that of the person to your reference person, you will perceive that as equitable.

    If you feel there is a discrepancy in your favour, or in favour of your reference person, you will see that as inequitable.

    NB. See pp. 447-8 in Stone 2014


    Evaluating pay equity based on different reference people/groups

    • Individual equity

      • Evaluating differences between individual people

      • Heavily influenced by an individual’s perceptions about relative skills, work, position, relationships

    • Group equity

      • Evaluating differences relative to other groups eg. comparable occupations or professions, male v. female dominated work

      • Heavily influenced by social history, changes in social norms

    • Internal equity

      • Evaluating pay differentials within the organisation

      • Determined by job analysis and evaluation, value put on outcomes

    • External equity

      • Evaluating pay relative to ‘the market’

      • Determined by salary surveys, industry knowledge, job offers


    Issues in relation to equitable pay

    Gender pay gap: Many possible causes of gender discrimination in pay rates


    Issues in relation to equitable pay

    Gender pay gap: Biased job evaluation as one cause of the gender pay gap


    Type of employee rewards


    The money and the message

    Base pay

    +

    Base pay progression

    Variable pay

    =

    Total pay

    +

    Benefits

    +

    Intrinsic rewards

    =

    Total rewards

    +

    TYPICAL DELIVERY MECHANISMS

    • Hourly/ weekly wage

    • salary

    • Step rates

    • Merit pay

    • Pay for skills

    • bands

    • Goal sharing

    • Profit sharing

    • Ind. bonuses

    • Commissions

    • piecework

    • Various leave

    • Reimbursing self-education

    • Flexible hours

    • Job design

    • Decision-making

    • Performance management

    • HRD

    $

    MESSAGE THAT IS COMMUNICATED

    Gaining experience & skill improves your value

    You are paid what the market or the law requires

    You deserve a share in the value you create

    OR You’re only as good as your output

    We meet your needs in a broader way than just money

    We provide opportunities for you to develop


    RecapRemuneration and Rewards

    • Rewards refers to total remuneration (pay plus benefits) AND any intrinsic and/or psychological benefits that an organisation provides for its employees in exchange for their work

  • Remuneration and rewards are influenced by many factors–

    • the person, the job, the organisation

    • the industry, product and labour market conditions, the region/country

    • other ‘rules’ and ‘norms’ – professional, historical, self-interest

  • Employee remuneration is a critical part of strategic HRM.

    • From the employees’ perspective, perceptions of equity/fairness strongly influence whether pay/rewards strategy is successful

    • Money must match the message.


  • Exercise: Designing a skill-based pay system for the Cumberland Beverage Company (CBC)

    In your groups, begin by reviewing what you already know … then answer the following questions:

    • What types of pay-for-skills design would you propose for CBC? In your design, please describe:

      • skill areas (tasks/skills to be learned/grouped together)

      • skill levels

      • minimum effectiveness level (if appropriate)

    • What concerns do you have about the pay-for-skills concept?

    • How might pay-for-skills help meet the needs of the business? The needs of the employees?


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