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Topic 7: Remuneration and Rewards

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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  1. Topic 7: Remuneration and Rewards Dr Johanna Macneil

  2. Topic overview Definitions Objectives Determining pay Pay and Equity Designing a remuneration and rewards system – “the money is the message” 2

  3. 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

  4. 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

  5. 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].

  6. 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].

  7. 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].

  8. 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.

  9. 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.

  10. 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!

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. Issues in relation to equitable pay Gender pay gap: Many possible causes of gender discrimination in pay rates

  17. Issues in relation to equitable pay Gender pay gap: Biased job evaluation as one cause of the gender pay gap

  18. Type of employee rewards

  19. 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

  20. 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.

  21. 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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