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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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t opic o verview
Topic overview



Determining pay

Pay and Equity

Designing a remuneration and rewards system –

“the money is the message”



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


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


  • Total remuneration AND any intrinsic and/or psychological benefits that an organisation provides for its employees in exchange for their work
warehouse workers
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: [cited 18 Mar 13].
  • 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: [cited 18 Mar 13].
executives private sector
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: [cited 18 Mar 13].
organisational objectives for remuneration and rewards systems
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
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
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 pay1
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
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
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


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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
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
Issues in relation to equitable pay

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

issues in relation to equitable pay1
Issues in relation to equitable pay

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

the money and the message
The money and the message

Base pay


Base pay progression

Variable pay


Total pay




Intrinsic rewards


Total rewards



  • 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



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

recap remuneration and rewards
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
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?