How an organisation pays and rewards its people has a significant impact on its ability to attract and retain the best people and ensure that they are challenged and motivated.
The fundamental stage in the overall management of wages and/or salaries is to ascertain the appropriate pay rates for employees, and to ensure that this process is fair and objective.
Some things to consider when developing salary or wage scales are:
- Any Modern Award, enterprise agreement or individual agreement condition that may apply
- Market competitiveness
- Fairness and objectivity
- Market availability of relevant skill sets
- Whether to link pay to performance.
Objective
The objective of a Remuneration Strategy is to support the overall organisation strategy, the HR strategy and the desired organisational culture. It is important to have a strategy which outlines the approach your organisation takes when remunerating employees. By doing this, you are ensuring the return on your organisation’s remuneration investment is improved as the link to the organisational strategy and objectives is better defined.
For a Remuneration Strategy to be successful, it needs to be fair and transparent.
A successful Remuneration Strategy will support the ability to recruit the right people, with the right mix of skills, to ensure that your organisation can meet its business objectives. To do this your remuneration strategy must balance four conflicting forces:
- Your organisation’s needs and values
- The needs and aspirations of your employees
- The internal relativities between positions and roles
- The external market value of the positions and skills needed
Key elements
When designing a Remuneration Strategy, it is important to keep in mind that the strategy:
- motivates employees to improve their performance continually and to strive to achieve the organisation’s strategic business objectives;
- ensures equitable treatment of employees;
- attracts and retains the desired talent
- reinforces the organisation’s key values and the desired organisational culture;
- driving and reinforcing desired employee behaviour;
- ensures remuneration is maintained at the desired competitive level;
- controls remuneration costs
- complies with legal requirements.
Organisations need to consider where they want to position themselves in the salary market – does your organisation want to be highly competitive or to be in the medium range of the market, but able to offer other non-monetary benefits? Where you position yourself can depend on both internal and external factors. For example:
- capacity to pay high salaries;
- demand for, and scarcity of, skills now and in the future;
- competitors; and
- other pressures e.g., turnover, difficulty in attracting talent etc.
Choosing the right Remuneration Strategy
The organisation’s structure, the market in which it operates, the culture, its position in the organisation’s life cycle and taxation to mention a few areas all impact on the remuneration strategy for the organisation. For example; a charity is unlikely to have a remuneration strategy with a very aggressive variable pay plan. The people attracted to these types of organisations are not usually motivated so much by money as some other market sectors and a high incentive payment could be viewed as taking money from those that the charity is assisting.
When selecting a Remuneration Strategy, it is important to conduct financial modelling to ensure the organisation can afford the design. This is to test various scenarios, calculate the cost of new projects, decide on budgets, and allocate corporate resources in order to be able to validate the proposals are feasible for the organisation.
Typical Remuneration Strategies
Gleaning information from the HRMS to develop a vision for the future workforce is a primary selling point. Companies that take a proactive approach to optimising the workforce are more resilient to change, have higher retention of top talent and better employee engagement.
Position | Definition |
50th Percentile | Pay employees at the “middle” of the chosen market. |
75th Percentile | Pay employees in the top 25% of the chosen market.
|
High fixed/Low variable | Fixed remuneration is high with low variable pay.
|
Median Fixed with Upper quartile Total Remuneration | Pay fixed remuneration at the 50th percentile but aims to pay at the 75th percentile when variable pay is included. This model places emphasis on the incentive earning performance. |
Flexible Working Conditions | Pay at the lower end of the market but balance this arrangement with more flexible working conditions such as a 4 day week (that is work 38 hours in 4 days instead of 5 days) or flexible working hours. |
Fixed Remuneration, Variable Pay and Benefits
Using all the information from the analysis process, the organisation will be in a position to decide on its mix of remuneration elements and to align its remuneration strategy to suit the organisation. It will also be in position to decide where it wants to position its remuneration against its chosen market
Examples of organisation type and possible remuneration strategy they will adopt:
Workforce Management
This is where employee development is tracked; performance review process is managed; time and attendance are recorded; and a healthy and safe work environment is measured. It is where compensation planning, performance management, learning and incident recording functions reside. HR can develop timesheet structures, overtime rules, time-off policies and approval chains in ways that maximise automation, control and efficiency
Type of Organization | Possible Remuneration Strategy |
Not for profit | Lower fixed pay, emphasis on FBT free benefits |
Start Up Public Company | Low fixed pay and large allocation of options |
Competitive Sales Market | Low fixed pay and high incentive earnings |
Mature Market | High fixed pay and low incentive payments |
Linking Organizational Performance and Remuneration
If there is a strong alignment between vision, values, strategic plans, business plans and reward & recognition elements then it can have a significant impact on business performance. A reward effectiveness model can be the basis for establishing the link between the vision, values, culture and remuneration and benefits.
Some of the more common remuneration program objectives are to:
- attract and keep the desired quality and mix of employees
- ensure equitable treatment, to motivate employees to continually improve their performance
- reinforce the values of the organisation and the desired culture
- drive and reinforce desired employee behaviours
- comply with legal requirements, and
- control remuneration costs.
Creating an effective remuneration and benefits program involves matching your organisation’s overall values and strategy with its Remuneration Strategy. It involves answering the following key questions:
- How does your organisation’s vision, values and strategy influence your remuneration strategy?
- Where does your organisation want to position itself in relation to the remuneration market?
- How often are remuneration packages reviewed?
- On what basis are salary increases granted?
- What benefits will be available to employees?
- How do you reward and encourage high performance?
- Will your organisation offer performance based or at-risk pay?
Design issues to consider
- Designing the system to focus on the organisation’s specific goals
- Creating performance measures that actually measure the desired performance
- Supporting new products, quality, teamwork etc
- Matching pay to performance
- Linkage to employees learning and development.
The Role of HR
The Human Resource team plays a key role when developing and implementing an effective Remuneration Strategy. The responsibilities of HR will be:
- Develop a Remuneration Strategy and relevant policies and procedure aligned to the organisation’s strategic objectives.
- Promote and increase awareness of the remuneration strategy across the business.
- Drive the right behaviours and improve productivity by supporting the organization’s values.
- Conduct Benchmark exercise in order to compare the remuneration strategy against the market to ensure that it remains competitive and is fair, transparent and equitable for employees and the employer.
- Deal with employee queries and concerns around remuneration.
- Provide relevant reporting to Senior management and other relevant authorities depending on the company structure.
Remuneration Policy
A Remuneration Policy, also called Compensation Policy, will outline an organisation’s remuneration strategy. A Remuneration Policy will include the following information:
- Guidance and structure of how remuneration is handled across the organization.
- The objectives that the organisation wants to achieve via its Remuneration Strategy.
- The roles and responsibilities of key parties including the Human Resources department, the Chief Executive Officer, the Board and the Remuneration Committee.
The Remuneration Policy should be clearly articulated across the organisation to ensure that employees are fully aware of how remuneration is set and reviewed. It may also be supported by other policies such as Performance Management Policy, Salary Review Policy, Benefits Policy and Employee Incentive Plan Policies.
Remuneration Committee
Depending on the organization size, some will have a Remuneration Committee to provide guidance and make decisions on the remuneration strategy and its execution.
The Remuneration Committee’s key responsibilities include:
- To assist and advise Management and/or the Board on matters relating to Remuneration Strategy including compensation, bonuses, incentives and the Chief Executive Officer’s remuneration
- Overseer the organisation’s remuneration arrangements including review and approval of key policies and procedures.
- Make sure Remuneration policies and procedures and aligned with the organization strategy and values.
- Review remuneration and ensure alignment to market rates.
For more information, visit the page Workplace Gender Equality Agency – Designing an equitable remuneration policy.
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Updated February 2022