remuneration strategy and salary structuring
TRANSCRIPT
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
Twitter: @Charles_Cotter
http://www.slideshare.net/CharlesCotter