remuneration strategy and salary structuring

REMUNERATION STRATEGY AND SALARY STRUCTURING

CHARLES COTTER Ph.D candidate, MBA, B.A (Hons), B.A

LUSHIE CONSULTANCY AND BUSINESS SERVICES

THE PIVOT HOTEL, MONTECASINO6-7 JULY 2017

www.slideshare.net/CharlesCotter

Introduction to Rewards Management

Diagnosis and Analysis of current reward management practices

Business case: Strategic Total Rewards Management (STORM)

Utilizing STORM to attract, retain, motivate and engage top talent

Building a salary structure – process, principles and practice

Variable pay schemes – STI’s & LTI’s

Alternative remuneration structures

2-DAY, TRAINING PROGRAMME OVERVIEW

AGREE OR DISAGREE?

Individual activity:

Complete the following statement by inserting one word only. In order toeffectively implement strategic reward management in my workenvironment, my organization needs to/tobe………………………………………………………

Jot this word down and find other learners who have written down thesame word.

Write this word down on the flip-chart.

You’ll be given the opportunity to substantiate your choice of word.

INTRODUCTORY LEARNING ACTIVITY

Definition of Reward Management

Objective of Reward Management

Types of rewards

The evolution of Reward Management

Best Practice Reward Management

THE FUNDAMENTALS OF REWARD MANAGEMENT

Reward management is concerned with the formulation andimplementation of strategies and policies that aim to rewardpeople fairly, equitably and consistently in accordance with theirvalue to the organization.

Reward management consists of analyzing and controllingemployee remuneration, compensation and all of theother benefits for the employees.

Reward structure usually consists of pay policy and practices,salary and payroll administration, total reward, minimum wage,executive pay and team reward.

DEFINITION OF REWARD MANAGEMENT

Reward management aims to create and efficiently operate areward structure for an organization.

Reward management deals with processes, policies and strategieswhich are required to guarantee that the contribution ofemployees to the business is recognized by all means.

Reward system exists in order to motivate employees to worktowards achieving strategic goals which are set by organizations.

Reward management is not only concerned with pay and employeebenefits. It is equally concerned with non-financial rewards e.g.recognition, training, development and increased job responsibility.

OBJECTIVES OF REWARD MANAGEMENT

TYPES OF REWARDS

THE EVOLUTION OF REWARDS MANAGEMENT

BEST PRACTICE REWARD MANAGEMENT PRINCIPLES

STATISTIC: 24% of participants do not measure reward and recognitionprogramme success.

Review your programs and rewards frequently to keep them aligned withcorporate goals as well as employee expectations.

Measure the effectiveness and impact of your reward and recognitionprogrammes.

Create a performance measurement framework so you can measure the impactof your reward and recognition programme.

Track the performance metrics that form the basis of your reward structure andconduct surveys to gain qualitative feedback from employees and supervisors.

IMPERATIVE: Measure your reward and recognition programme impact andimprove based on your results.

EVALUATION GUIDELINES

https://www.surveymonkey.com/r/PQWGNJJ

#1 Your organization offers competitive and market-related/above market-relatedremuneration packages to employees (prospective employees).

#2 Your organization adequately and accurately recognizes the knowledge, skills,competencies and experience of employees and rewards are sufficiently flexible andvariable.

#3 Your organization applies fairness in payroll methods, procedures and practices forcompensating, recognizing and rewarding employee contributions.

#4 Your organization applies equitable payroll methods, procedures and practices forcompensating, recognizing and rewarding employee contributions.

#5 Your organization promotes transparency through sharing information about theircompensation practices, pay rates criteria and how they are determined – especially at themanagerial and executive levels.

DIAGNOSIS OF CURRENT REWARD MANAGEMENT PRACTICES

#6 Your organization applies consistency (standardization) in the allocation ofremuneration and rewards e.g. performance bonuses and incentives etc.,thereby serving as a retention and motivation mechanism.

#7 Your organization applies objectivity throughout the performancemanagement process, as the pre-cursor and chief determinant of performancebonuses.

#8 Your organization has an efficient, user-friendly and stream-lined jobevaluation and job grading process.

#9 The value of remuneration and rewards offered by your organization isaffordable (feasible) promoting business sustainability and continuity.

#10 Your organization’s reward system is effective in that it directly contributesto and enables the achievement of business management goals e.g. higher levelsof productivity and performance.

DIAGNOSIS OF CURRENT REWARD MANAGEMENT PRACTICES

Complete the online survey https://www.surveymonkey.com/r/PQWGNJJ

Individual (Diagnosis): Critically evaluate your organization’scurrent rewards management structure against the 10 bestpractice criteria.

Group (Analysis): Identify gaps and recommend improvementstrategies for these gaps.

LEARNING ACTIVITY 1

Contextual introduction to STORM

The strategic imperative of Reward Management

Defining the fundamental concepts

Creating/Developing a reward strategy

Implementing Strategic Reward Management

STRATEGIC TOTAL REWARD MANAGEMENT (STORM)

8 STRATEGIC MANAGEMENT PRINCIPLES (APPLICABLE TO REWARD MANAGEMENT)

Complete the online survey https://www.surveymonkey.com/r/PHKFGQL

#1: (Vertical) Alignment with business strategy, goals and objectives

#2: (Horizontal) integration of HRM value chain functions (bundling)

#3: Rewards Management conducts environmental scanning and ishighly attuned, sensitive to and pro-actively responsive of change

#4: Rewards Management is future-focused (ensuring that theorganization is future-proof)

8 STRATEGIC MANAGEMENT PRINCIPLES (APPLICABLE TO REWARD MANAGEMENT)

https://www.surveymonkey.com/r/PHKFGQL

#5: Reward management adopts a measurement culture e.g. scorecards,dashboards, metrics, risk analysis and audits etc.

#6: Reward management generates business intelligence, enablingsmarter business decision making (operationally and strategically)

#7: Enables the organization to gain a sustainable, strategic competitiveadvantage

#8: Reward management practices contribute to a positiveorganizational climate, culture and higher levels of employeeengagement.

REMUNERATION AND RELATED METRICS

Human capital value added (revenue minus operating expense and cost ofcompensation/benefit divided by the total amount of full time employees)

Human capital return on investment: Revenue minus operating expenses andcost of compensation benefit divided by cost of compensation/benefit

Total compensation revenue ratio which is cost of compensation/benefitdivided by revenue

Labour cost revenue ratio, which is cost of compensation/benefit plus otheremployee costs (bonuses, mileage paid, incentives) divided by revenue

Labour Cost per FTE - the average labour cost to the organization for each FTE

The number of cents in total compensation and benefits costs that it tookto generate a rand of revenue (as an indication of compensationeffectiveness, where this year's ratio would be compared to last yearsratio)

% of employees that are satisfied with their compensation (survey of asample of employees on their satisfaction between the rewards and theexpectations of the firm)

% of employees that are rated in the top performance appraisal level -that are paid above the average salary for their position and vice versa

Benefits as % of Total Compensation

Resignation Rate and Exit Survey Data

REMUNERATION AND RELATED METRICS

STRATEGIC TOTAL REWARDS MANAGEMENT MODEL

An effective total rewards strategy enables organizations to deliver theright amount of rewards, to the right people, at the right time, for theright reason.

Best Fit vs. Best Practice vs. Hybrid (integration)

Reward strategies must be anchored in business reality to be effective.Which means linking it to your business strategy, the needs of youremployees as well as your organization.

Appropriate Total Rewards Framework

To be effective, a total rewards package must tie together theorganizational strategy, workforce strategy, and HR strategy. Totalrewards should align each employee with the organizational objectives.

CONTEXTUAL INTRODUCTION TO STORM

“Effective reward is about finding the right reward programs for thestrategic direction of your business.” (Tom McMullen)

Strategic reward management involves the formulation andimplementation of an equitable reward system that is congruentwith the organization’s strategic objectives.

The reward system must be congruent with the management styleand other organizational systems, in particular, communicationand decision-making. (Lawler)

THE STRATEGIC IMPERATIVE OF REWARD MANAGEMENT

Strategic reward is based on the design and implementation oflong-term reward policies and practices to closely support andadvance business or organizational objectives as well as employeeaspirations.

The concept of total reward encompasses all aspects of work thatare valued by employees, including elements such as learning anddevelopment opportunities and/or an attractive workingenvironment, in addition to the wider pay and benefits package.

Links between strategic and total reward

DEFINING THE FUNDAMENTAL CONCEPTS

Step 1: Define the context and issues (environmental analysis)

Step 2: Set the total reward strategy (guiding principles and reward priorities)

Step 3: Set reward change agenda (status quo relative to desired end state)

Step 4: Implementation overview

Step 5: Design individual plans

Step 6: Implement

Step 7: Measure and manage

Outcome: A cohesive and comprehensive reward strategy that is both value-oriented and cost-effective and aligned with the organization's businessstrategy.

CREATING/DEVELOPING A REWARD STRATEGY (7-STEP PROCESS)

CREATING AND DEVELOPING A REWARD STRATEGY - PROCESS

Holistic

Best fit

Strategic

People-centred

Customized

Distinctive

Evolutionary

Integrative

GUIDING PRINCIPLES OF TOTAL REWARD SYSTEM

INTEGRATION OF REWARD MANAGEMENT

A clear, executable remuneration philosophy aligned withbusiness strategy

Employee-centricity

Investment in front-line manager capability

Well thought-through decision-support data and tools

A continual process, not a one-off project

5 KEY FOCUS FOR STRONG REMUNERATION IMPLEMENTATION (AON HEWITT)

Advantages/Benefits:

Economic: Creates affordable and sustainable costs

Financial: Generates maximum return on the reward programinvestment

Strategic and Performance-related: Connects with the business strategyto create a high performance culture

Reputational: Supports the employment brand

BUILDING A BUSINESS CASE FOR STORM

Costs/drawbacks:

Management: Managerial apathy

Cultural: Organizational cultural resistance and readiness

Provision: The supply of resource-constrained rewards (across theboard)

Weighting: Attempting to measure the comparative value of certainrewards

BUILDING A BUSINESS CASE FOR STORM

Develop a business case for Strategic Total Rewards Management(STORM). Do the benefits outweigh the costs? Justify andmotivate your viewpoint.

LEARNING ACTIVITY 2

AGREE OR DISAGREE?

Total Rewards Statement (TRS)

Strategic Talent Attraction:

Employee Value Proposition (EVP)

Employer Branding

Employee Engagement

Motivation

Retention

UTILIZING STORM TO ATTRACT, RETAIN, MOTIVATE AND ENGAGE TOP TALENT

TOTAL REWARDS STRATEGY -PROCESS FLOW

Organizations need to communicate the total rewards provided to eachindividual employee, demonstrating the organization's investment in ensuringemployees are competitively rewarded for their skills, contribution andperformance.

The rewards package that organizations provide to their employees is among theorganization's most significant investments.

Total reward statements may help reduce turnover and increase retention rates

A Total reward statement provides employees with a personalized documentthat communicates the overall value of their financial rewards such as base pay,incentives and employee benefits.

Total reward statements can also be used to reinforce the communication ofless tangible benefits such as work/life programs, learning and developmentand flexible work arrangements.

TOTAL REWARDS STATEMENTS (TRS) – RATIONALE AND VALUE

To attract, motivate and retain employees.

Differentiation: To reinforce employer brand and set the employerapart from other organizations.

Raise awareness and appreciation by focusing attention on thebenefits the organization offers.

To reduce the cost of benefits administration by providing anemployee self-service tool that results in fewer phone calls therebyenabling HR to focus on more strategic initiatives.

OBJECTIVES OF TRS

BENEFITS OF TRS

Objective: Magnetically attracting the “Cream of the Crop”

Objective: Facilitating an optimal Person-Environment (P-E) fit

Strategy: Developing, articulating and advocating of a compelling Employee Value Proposition (EVP)

Strategy: Employer Branding – (re) positioning as an “Employer of Choice”

STRATEGIC TALENT ATTRACTING

A resourcing strategy is concerned with shaping what an organization has to offer to people tojoin and stay in the organization. (Armstrong, 2011)

EVP is a statement of what an organization will provide for people that they will value - whythe total work experience at their organization is superior to that at other organizations.

The EVP is an employee-centered approach that is aligned to existing, integrated workforceplanning strategies because it has been informed by existing employees and the externaltarget audience.

Key Selling Points (KSP): Host of financial and non-financial benefits

Non-financial benefits:

The attractiveness of the organization Responsibility – corporate conduct, ethics and CSR/CSI Respect – diversity and inclusiveness Work-life balance Opportunities for personal and professional growth

EMPLOYEE VALUE PROPOSITION (EVP)

COMPONENTS OF VIABLE EVP

Unique Selling Points (USP) - Employer brand that is unique andspecial

Creation of a Brand image of the organization for prospectiveemployees

Influenced by the reputation of the organization

Creating an Employer Branding strategy

EMPLOYER BRANDING

Analyze what ideal (preferred) applicants need and want

Establish how far core values of the organization support the creation ofan attractive brand and ensure these are inculcated into organizationalvalue system

Define the features of the employer brand on the basis of examinationand review of each of the areas that affect the perception of people e.g.quality of management

Benchmark the approaches of top performing companies as a means ofimprovement

Pragmatic approach: be honest and realistic

CREATING AN EMPLOYER BRANDING STRATEGY

For a defined organization, craft and develop the following keystatements as a form of attracting top talent:

Total Rewards Statement (TRS)

Employee Value Proposition

Employer brand

LEARNING ACTIVITY 3

LINK BETWEEN TALENT ATTRACTION AND ENGAGEMENT

THE VALUE OF EMPLOYEE ENGAGEMENT

The Global Assessment Trends Report (GATR) (2013 Global Assessment TrendsReport - SHL.com) identifies the top priorities for HR globally as follows:Engagement and retention (55%)

71% of USA employees are disengaged – 92% of S.A employees are disengaged

Highly engaged employees are 26% more productive than disengaged employees

Companies earned 13% greater total returns for shareholders over a 5-yearfinancial period

90% of leaders think an engagement strategy will impact business success

Only 40% of the workforce knew about their company’s goals, strategies andtactics

EMPLOYEE ENGAGEMENT –INTERESTING STATISTICS

ENGAGEMENT’S EFFECT ON 9 KEY PERFORMANCE INDICATORS

202% better performance

$11 billion is lost annually due to employee turnover

Direct correlation to 9 key business performance indicators

BENEFITS OF EMPLOYEE ENGAGEMENT –GALLUP (2013)

Relationship with the immediate supervisor

Senior Leadership’s ability to lead the company and communicate its goals

Organizational Pride - vision of organization and corporate social responsibility

KEY DRIVERS OF EMPLOYEE ENGAGEMENT – DALE CARNEGIE

According to Gallup (2013), three (3) strategies toaccelerate employee engagement are:

Select the Right People and Managers

Develop employees’ strengths

Enhance employees’ well-being

STRATEGIES TO DEVELOP EMPLOYEE ENGAGEMENT

According to Armstrong (2011), the five (5) strategies to enhanceemployee engagement are:

The work itself

The work environment

Leadership

Opportunities for personal growth

Opportunities to contribute

STRATEGIES TO DEVELOP EMPLOYEE ENGAGEMENT

According to Dale Carnegie research:

Senior managers must articulate the company vision in a clear and compellingway

Senior managers need to define organizational goals and objectives in realistic,clear and attainable manner

Leaders should project a positive manner with employees, and be accessible

Leaders should ensure that employees understand how their role contributes tothe overall company success

Senior leaders should create a climate of trust and encourage managers todemonstrate that they care about employees (on personal level)

LEADERSHIP STRATEGIES TO DEVELOP EMPLOYEE ENGAGEMENT

According to Dale Carnegie research:

Managers should determine how each employee’s personal motivators align with organizational goals

Managers should praise publicly, reprimand privately and coach team members who demonstrate disengaged behaviour

Employees should be encouraged to communicate clearly and provide input into the company vision

Direct managers should foster healthy relationships with employees

Senior leadership should continuously demonstrate that employees have an impact on their work environment

Managers should show that employees are valued as true contributors, giving thema sense of empowerment

STRATEGIES TO DEVELOP EMPLOYEE ENGAGEMENT

According to Gallup (2013) research, the best organizations deeplyintegrate employee engagement into the following four areas:

Strategy and Leadership Philosophy

Accountability and Performance

Communication and Knowledge Management

Development and on-going Learning Opportunities

BEST PRACTICE EMPLOYEE ENGAGEMENT

WHAT MOTIVATES EMPLOYEES?

MOTIVATIONAL APPROACHES

CARROT STICK

MANAGER-EMPLOYEE PERCEPTUAL GAP (OF MOTIVATION)

40% of employees who do not meaningfully feel recognized will notgo above and beyond their formal work responsibilities to get thejob done. 86% of those who feel recognized will.

83% of employees cited recognition for contributions is morefulfilling than rewards and gifts.

Type of recognition matters – 68% favoured individual above team-based recognition; 88% found recognition from their managers asvery/extremely motivating and 76% found praise from peers asvery/extremely motivating.

Recognition strategies

RECOGNITION - STATISTICS

RECOGNITION - STATISTICS

According to Dr. Mark Bussin, traditionally there are four maincomponents of remuneration – base pay; fringe benefits and perks;short- and medium-term incentives; and long-term incentives, but tothese he adds a fifth component – retention schemes.

Retention schemes - this is often added when the long-term incentivesare not in place or not working for some reason or another.

When implementing retention scheme you need to decide who it willbenefit (scarce skills, for example).

Most importantly, such a scheme needs to be underpinned by a robustbusiness case.

TALENT RETENTION STRATEGIES

THE LINK BETWEEN TALENT ATTRACTION AND EMPLOYEE ENGAGEMENT

Describe which motivational strategies can be applied in yourorganization to reward employees and boost performance andproductivity.

Describe which employee engagement strategies can be appliedin your organization to enhance retention and productivity levels.

Evaluate the current degree of your organization’s employeeretention by gauging against the 10 retention criteria and theIrresistible Organization.

LEARNING ACTIVITY 4

Process of value based compensation design

Factors to consider when structuring salaries

5-step process

Ten steps for building a salary structure

BUILDING A SALARY STRUCTURE

Most small business owners find it difficult to structureremuneration packages that meet their organization’s objectivesand ensure that the company is able to retain key talent. Getting itright is critical.

“The need for remuneration policy, strategy and systems to underpinbusiness strategy has never been greater.” (Dr. Mark Bussin)

“There is no such thing as the ‘best’ policy or strategy. There are somany different ways to determine remuneration and in differentsituations or circumstances, you may make different choices.”

Bussin advises business owners to take several factors into account.

FACTORS TO CONSIDER WHEN STRUCTURING SALARIES

Organization strategy:

The extent to which you want a centralized or decentralized approach

The culture and design of the organization

Where the organization is in its lifecycle

Remuneration trends

FACTORS TO CONSIDER WHEN STRUCTURING SALARIES

Five strategic remuneration and benefits trends that will drivebusiness success:

SEGMENTATION AND DIFFERENTIATION

FLEXIBILITY

HEALTH AND WELLNESS

COMMUNICATION

ANALYTICS AND DECISION-MAKING

REMUNERATION TRENDS - Willis Towers Watson (2016)

1. The approach to merit increases will change

2. Cash bonuses will increase

3. Top performers will continue to receive larger salary increases than average performers

4. The hiring of “boomerang” employees will continue to rise

5. Companies will address the gender pay gap

6. Millennial remuneration will undergo philosophy changes

7. Structurally high unemployment / underemployment

8. Simplification

9. Performance management – reboot

10. Cost control

REMUNERATION TRENDS – 21st

CENTURY (BUSSIN)

Retention

Flat structures

Flexibility

Long term incentives

Board fees

Governance

REMUNERATION TRENDS – 21st

CENTURY (BUSSIN)

Step 1: Establish your compensation philosophy

Step 2: Gather market data

Step 3: Identify benchmark jobs

Step 4: Measure your market position

Step 5: Calculate the compa-ratio

TEN STEPS FOR BUILDING A SALARY STRUCTURE

Step 6: Check your budget

Step 7: Start allocating

Step 8: Final adjustments

Step 9: Management approval

Step 10: Communicate

TEN STEPS FOR BUILDING A SALARY STRUCTURE

Group Discussion:

Evaluate the relative merits of the two approaches to the salarystructuring process. By consideration of the four factors (refer toparagraph 4.1), apply the approach which you believe is mostviable, feasible and sustainable in your organization.

LEARNING ACTIVITY 5

COMPONENTS OF TOTAL REWARD STRATEGY

“Every element of a remuneration system serves a purpose and it’s critical to understand what the organization is trying to achieve

with each” (Mark Bussin).

PURPOSE AND OBJECTIVES OF A REMUNERATION SYSTEM

Group Discussion:

Measured against their purpose and objectives, critically evaluateyour organization’s remuneration structure. Identify gaps andrecommend improvements.

LEARNING ACTIVITY 6

Introduction to variable pay

Short-term incentives

Long-term incentives

VARIABLE PAY SCHEMES

Does contingent pay encourage positive employee attitudes and intensifywork? Chidiebere Ogbonnaya, Kevin Daniels, Karina Nielsen (2017)

N = 13 657

The analysis showed that performance-related pay was positively associatedwith job satisfaction, organizational commitment, and trust in management.

Profit-related pay did not have similar positive effects; in fact, some levels ofprofit-related pay resulted in employees being less committed and trustingmanagement less.

When it comes to share ownership, however, we found a direct negativerelationship with job satisfaction and no significant relationships withemployees’ commitment and trust in management. High employee uptake ofshare ownership also revealed no significant relationships with employee well-being.

UK-BASED RESEARCH STUDY (2017) –The impact of contingent pay

Only performance-related pay was positively associated with the perception that work ismore intense.

What should managers keep in mind? The positive relationship between performance-relatedpay and all three well-being outcomes indicates that employees may see increases in pay as areasonable and even positive trade-off for contributing toward organizational success.

Contrary to what many employers believe, organization-wide incentives such as profit-relatedpay and share-ownership may not generate such positive effects, as they were found to havenegative relationships with employee well-being.

The results regarding work intensity and individual-based incentive pay should give managerspause.

In some circumstances, performance-related pay may be experienced as a burden that onlyprovides extra pay for workers through an intensification of the work process.

This raises critical questions regarding the extent to which individual-based incentives caninfluence employee well-being in a sustainable way.

UK-BASED RESEARCH STUDY (2017) –The impact of contingent pay

Variable pay is an expected employee benefit if you are going to exciteand retain employees.

They want the opportunity to earn variable compensation to bolstertheir basic salary.

Today's employees are also looking for more when they decide to comeon board and work for an employer.

Employees now expect comprehensive benefits packages thatare tailored to their own personal needs - not just to broadly defineddemographics.

The greater the flexibility and variety of the benefits programme, themore likely all of your employees are to feel appreciated.

VARIABLE PAY AS A SOURCE OF RETENTION

Attract and retain participants as part of a market competitivepackage

Reward participants directly for individual, team and organizationperformance achieved over a monthly, quarterly or annual timeframe

Support the achievements of the tactical and strategic objectivesof the organization by influencing the behaviour of theparticipants

PURPOSE OF STI’s

STI’s - ILLUSTRATED

Alignment

A performance culture

Affordability

Simplicity

Communication

Instrumentality

Good governance

As far as possible, STIs should promote high performance with high integrity

STI’s DESIGN PRINCIPLES

Eligibility

Funding methods to determine the bonus pool:

Continuous funding

On-target bonus with stretch and super-stretch targets

Distribution methods to allocate payments

Administrative rules

Reporting and disclosure

SCOPE OF STI’s

Attract and retain participants as part of a marketcompetitive package

Reward participants for medium- to long-termorganization performance or outperformance

Align management with shareholder orstakeholder interests

PURPOSE OF LTI’s

Instruments

Scheme documentation

Adoption process:

Design Approval Implementation

Administrative rules

Performance conditions

Taxation

Accounting

SCOPE OF LTI’s

Exercise & employee settlement election

Settlement

Risk management

Quantification of awards

Leverage of LTI instruments

Disclosure and reporting

SCOPE OF LTI’s

Group Discussion:

By referring to the STI’s and LTI’s, critically evaluate your currentstructure of your organization’s variable pay schemes. Identifygaps and recommend improvements.

LEARNING ACTIVITY 7

Alternative structures are more flexible than traditionalpay structures and encourage employees to assumedifferent roles without triggering compensationincreases or decreases

Broadbanding

Competency-based pay

Skills-based pay

ALTERNATIVE REMUNERATION STRUCTURES

Practice in which the number of grades in a pay-scale structure isreduced, and the differential between one grade and the next isincreased.

Broadbanding is said to decrease intra-firm rivalry in employees and toincrease inter-firm (or cross-departmental) flexibility.

Broadbanding is defined as a strategy for salary structures thatconsolidate a large number of pay grades into a few "broad bands.“

In a broadband pay structure, the numbers of salary grades areconsolidated into fewer, but broader, pay ranges. In broadbanding, thespread of the pay ranges is wider and there is less overlap with other payranges.

DEFINING BROADBANDING

Defining Competency-based pay:

Competency-based pay is a pay structure that rewards employeesbased on how well they perform in the workplace, rather than thehierarchy of their position or years of experience.

The benefits of competency-based pay structures:

Serves as a motivational tool

It reinforces a culture of self-improvement

It may improve staff retention

It encourages corporate transparency

FUNDAMENTALS OF COMPETENCY-BASED PAY

Skill-based pay refers to a pay system in which pay increases arelinked to the number or depth of skills an employee acquires andapplies and it is a means of developing broader and deeper skillsamong the workforce.

Such increases are in addition to, and not in lieu of, generalpay increases employees may receive.

The pay increases are usually tied to three types of skills:

horizontal skills

vertical skills

depth skills

DEFINING THE SCOPE OF SKILLS-BASED PAY

Difference from traditional pay systems

Reasons for Skill-Based Pay

Advantages Of Skill-Based Pay

SKILLS-BASED PAY

Skill-based pay is a person-based and not a job-based, system.

It rewards (and therefore emphasizes) a broad range of skillswhich makes the employee multi-skilled and therefore flexible.

It positively encourages skills development.

A skill-based pay system may not necessarily reflect how well theskill is used, as this falls within the performance component of pay.

The system needs to be underpinned by opportunities for trainingwhich is critical to the success of the system.

DIFFERENCE FROM TRADITIONAL PAY SYSTEMS

Group Discussion:

Critically evaluate the relative merits of the following alternativepay schemes for your organization, in terms of their viability,feasibility and sustainability.

Broadbanding

Competency-based pay

Skills-based pay

LEARNING ACTIVITY 8

CONCLUSION

Key points

Summary

Questions

Certification

CONTACT DETAILS

Charles Cotter

(+27) 84 562 9446

charlescot@polka.co.za

LinkedIn

Twitter: @Charles_Cotter

http://www.slideshare.net/CharlesCotter