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Pay and Benefits
Many organisations have found that their strategy for compensation and benefits evolves over a period of time, largely determined by the needs of the moment. The benefits of having a proper strategy, of having thought about what one is trying to do with the package and how to use it to achieve corporate objectives is often seen as "something that big companies do" In point of fact it is as important for the small organisations as well if they want to get more "bangs for their bucks"!
There are a number of factors which will influence the strategy - usually listed as the four elements:
Click on the blue triangle beside each heading to see more
 1. Support Business Goals
There are a number of factors which must be the starting point of deciding how much and how people are paid. Clearly in all businesses, there has to be an element of affordability. People in the business can only be paid according to the income and cost structures of the business, regardless of what the skills of those individuals are worth in the market place. As Mr Micawber put it "Income 20 shillings, outgoings 20 shillings and sixpence, result misery!"
Therefore the starting point must be around the budget and the predicted turnover of the business.
Any successful policy should support overall business objectives. All compensation must be cost effective and affordable by the business in relation to its business success, and equitable to employees, customers and shareholders.
2. Competitive in the Market Place
Over arching all this is the market place and what the skills and competencies are worth in a competitive market place. This means that the Directors will need to think about where they want to be in the Market place, high, low or in the middle? How will they then put together a clear and unequivocal definition and description of that to be communicated to employees?
The company will need to aim to provide salaries and benefits which are fully competitive at whatever position in the market in which they compete for business and people, for the skills and abilities required, which will enable them to recruit and retain effective people.
3. Internally Equitable
Another issue is to ensure that the total Pay and Benefits package reflects the value and the contribution of each job to the Company.
One very natural interests of all employees in a business is that they are properly rewarded relative to the reward of others, not only in performance but in what they are required to do. Clearly jobs have different shapes, some are multi skilled and broad but not deep, whilst others can be deep and focused on one area. To determine the relative weights, requires that the jobs be accurately described, not only in terms of the tasks carried out, but also the skills and competencies required for successful performance. From that can be built a "felt-fair" system of determining value to the business by whatever means is appropriate.
4. Pay for Performance
The next factor is the relative performance of the jobs by individuals or teams and this requires that there are a set of performance related objectives, so that critical success factors can be determined.
Pay for the individual should have some relationship to the contribution to the business by the individual, their team and the business as a whole.
Complicating this is that there needs to be a balance drawn between base and variable pay. This will partly depend on individual pay needs and partly on what behaviours the organisation wishes to reward, and over what time scales.
So what does a total Compensation portfolio consist of?
Basically it is made up of several components, selected appropriately, including base pay , bonus, short-term incentives, long-term incentives, Stock purchase programme, pensions and benefits, etc. Unfortunately most of these items tend to be seen by employees as arriving at different times and in different ways, so that the value of their total reward is never immediately visible. In addition most managers never talk with their employees about the combined value of these components, ignoring a major opportunity to place the true value of the companies spend on compensation into employee's minds.
Very often this mix of fixed versus variable compensation shifts as an employee's job responsibilities expand. Typically, lower level employees and entry level professionals receive most of their compensation from fixed components while senior executives may have a majority of their compensation tied to short or long term variable plans.
It is important for Managers to inform their employees about their various compensation opportunities. It is equally important to take time educating them on the reasons why they have different components.
A fundamental compensation concept is based upon the principle that compensation has a direct correlation to the skills, responsibilities and experience a given job requires. The combination of these factors determine the "worth" of a job in the marketplace and the various compensation components. Actual compensation for individuals performing a job is determined based upon the skills and experience they bring to the position along with their performance over a given time period. As employees increase their skills and responsibilities, and/or increase their impact on the organisation, the make-up of their compensation begins to shift from short term, low risk to longer term, higher risk incentives.
Benefits also impact the value of the package and can also make a major contribution to the way that the employees perceive the organisation, since there is always a series of choices for the company to make as to the proportion of pay to benefits.
It is important therefore that the Directors of a business focus on the elements described above - what can be afforded, what are the jobs, how will success be determined and relative contribution, what are the behaviours to be rewarded and how will these be measured, what should the balance of base and total pay be, whilst ensuring that individuals have enough to live on, and finally what does the market indicate are the appropriate rates for such jobs and where does the company wish to position itself against the market place.
The best way to do this effectively is to:
Develop a Reward Strategy
The key to a motivated workforce is accurately targeted reward. But how many organisations know what actually motivates their workforce? What actually constitutes “reward”? Based on employee opinion research, we have formulated a view of “employee-centred” reward which suggests that “reward” as seen by employees is often not the same as that offered by the organisation.
The employee view of Reward
Research shows their view is more holistic:
So, how can Corporate HR Partners help?
- We can help you design and align your employees’ motivators with your business’s key objectives.
- We have particular expertise in all elements of Reward Strategy, including development of compensation and benefits policies, job evaluation, market surveys, variable pay and the links to performance management, as well as developing the reward elements of training and development and work environment.
- We have carried out a wide range of projects ranging from Reviewing Board level compensation and Stock Option programmes, to basic practical problems like moving compensation from a rolling to a fixed point review.
- We have developed job descriptions for all position within organisations, and designed and introduced a job evaluation scheme.
- We have created Salary structure and recommended and written guidelines of its use for managers, developed level descriptors, reviewed total bonus structures for both sales and non-sales staff, recommended salary budgeting methods, developed criticality factors for employee reward and reviewed senior executive stock option alternatives.
We have also assisted with developing offer and reward packages for overseas locations and researched employment requirements for countries in all the continents.
If you feel the need to review your rewards practices and strategy, then contact us
If you have any queries, please email us.
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