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Remuneration Systems – think carefully!

September 21, 2017 / Comments (1)

Think carefully about how you structure a wage or salary.

When the conversation turns to pay systems many employers fail to recognize that a remuneration system is a core HR tool and used correctly can positively impact an organisation through reinforcing desired employee behavior and ultimately improve the bottom line. It is cool to say money is not everything however a pat on the back or photograph as employee of the week doesn’t pay the power bill or the kids university fees. Recognition and reward is a finely balanced act and this conversation is about the reward, money, not how much, just the how!

There are some first principles when considering a pay system change. There is a need to reconcile both the employer and employee’s needs. The starting point for an employer is to align rewards with business objectives coupled with an administratively simple system that also facilitates flexibility and adaptability. For example a skill deficit or health and safety issues can be positively influenced through remuneration initiatives. Employees on the other hand are looking for recognition and fair reward. This includes recognition of their contribution and opportunities to increase their earnings. They are also looking for a transparent system and a fair method of pay progression.

So what type of pay systems are we talking about? Pay for individual performance is a popular concept where some remuneration is put at risk. The upside is an output focused employee, the downside could be quality or input risk.  Performance shortfall is identified and accompanied by support systems performance gaps can be overcome.

Skill or knowledge linked remuneration works when additional reward is bolted on to each additional unit of skill or knowledge acquired. Any role barriers diminish, the system is relatively objective, transparent and work redesign is facilitated. A consequence of this system is outputs are ignored and significant investment in training and assessment is ongoing. Ongoing payroll cost escalation is likely.

What is obvious is there are plenty of remuneration options to choose from, for example a bonus structure based on individual or team performance, or perhaps profit related remuneration sounds good or maybe you think service related remuneration or some notion of market rate adjustment is ideal.

Whatever your preference all remuneration systems have implications for the employee and the business. Remuneration structure can and does encourage different behavior in the workplace and market place for that matter. If the business objective is a collegial culture then some remuneration options are automatically ruled out. If individual performance is important then a precise remuneration system is required.  Equally, if the employee has minimal influence on business performance then remuneration incentive based upon business performance is most likely to have minimal influence on the employee. Remuneration must be linked to the desired behavior to bring about the desired result. Paying a bonus or such like for an outcome the employee has minimal influence over is money wasted. Choose carefully.

 

 

Last modified: October 14, 2017