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Section1.2:
RewardElements
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Do reward systems influence an
organisations success?
The amount paid and the way it is
packaged can motivate, energize and
direct employees behaviour. Plays an important part in attracting and
retaining qualified, high-performance
workers.
Payroll costs comprise a large percentage
of total costs and as such decrease
profits.
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Key conceptsThe employee rewards proposition
Key remuneration and benefit processes in
the employee rewards proposition:Pay reward equation
Fixed and variable compensation
Incentive pay and line of sightBenefit selection and design
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Employee rewardspropositionRemuneration and benefits can on its own no
longer secure an appropriate talent pool fora high performance organisation.
An organisation aspiring to high performancestatus has to brand itself as an attractiveproposition to both existing and prospectiveemployees.
In branding itself it has to create what isgenerally referred to as an employeerewards proposition.
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EMPLOYEE REWARDSPROPOSITION
EMPLOYEE REWARDSPROPOSITION
Delivered
Effectivel
y
Empowering&Transparent
Training
&
Develo
pmen
t
Oppor
tunitie
s
Ope
nMin
ded
Freed
om
Th
rough
Responsibilit
y
Enterpr
ising
Spirit
StrengthfromDiversity
Coachin
g&
Mento
ring
Career
Managem
ent
P
eo
ple
&
Stra
tegic
Lea
dership
Employer
ofChoice
Comp
etitiv
e&
Flexible
COURTESY OF
BAT SA
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Remuneration Architecture Map
Competitive & Flexible
Competitive & Flexible
Effective Delivery
Effective Delivery
Pay Reward Equation
Pay Reward EquationMonetary Incentivisation
Monetary Incentivisation
Benefit Selection and Design
Benefit Selection and Design
Non Monetary Recognition
Non Monetary Recognition
Empowering & Transparent
Empowering & Transparent R&B Communication & Training
R&B Communication & Training
Decision Governance
Decision Governance
Infrastructure Selection
Infrastructure Selection
Infrastructure Efficiency
Infrastructure Efficiency
R
&
B
IN
TELLIGENCE
INTERNAL
STAKEHOLDER
MANAGEMENT
EXTERNAL
STAKEHOLDER
MAN
AGEMENT
KRAS
KRAS MACRO
PROCESSES
MACRO
PROCESSES
Remuneration that is:
FROM BAT SA
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Pay Reward Equation
Key Issues and Principles
Key Issues Key Principles
You cannot pay everyone the same salary,you therefore have to find a fair basis for
differentiating the salaries of employees.
Line Managers with adequate remunerainformation and appropriate decision su
placed to make fair decisions with regarsalaries of their staff.
In order to make this happen you howe
- For certain tools to be in place and op
- For certain key role players to assumeresponsibility for certain decisions;
- For certain measures to be in place into monitor whether the desired outcobeing achieved
Illustrated in model form, you need
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Pay Reward Equation
Macro Model
Board Compensation
Committee(BCC)
LineManagers
Decides what the
Overall IncreaseBudget is
Grant SalaryIncreases to
Individual Employees
JobEvaluation
PerformanceManagement
Salary Surveys andMarket Anchors
Salary Equity Model
Actual vs. TargetSalary Distribution
Internal EquityAudit Checklist
EmployeePerception of
Salary Fairness
Tools
Decisions
Measure
Role PlayersGuidance
FromHR
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The likely performance distributioa high performance organisation
Stars Solid Citizens
Nearly There &
Inadequate
5% -10%65% - 80%15% - 25%
Pay Reward EquationPerformance Management
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Issues relating to traditional performance management
12%
10%
8%
6%
4%
2%
0% 0%
4%
8%
12%
How manyperformancecategories ?
How do I reward mystars andstay within budget ?
and then came theright questionWhat salarydistribution am Itargeting and inrelation to which
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A 4-Point Performance Rating Scal
Pay Reward EquationPerformance Management
EXCEED
SUCCEED
NEARLY THERE
INADEQUATE
Outstanding Performance which has exceeded normal exby far.
The Individual scored a hat trick of 3 goals, includinggoal, and prevented a definite goal by the opposition.
Good Performance which met expectations. The Individual made a valuable contribution to the te
Signs of below average performance which did not meet The Individual had a very quiet match, but will be ret
team because of his potential. Will however be droppteam if his performance does not improve.
Performed well below normal expectations Scored an own goal and continually lost the ball to op
An opportunity has arisen for a new player to prove hi
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Ensuring Equity:
Developing a Pay Policy Line
PAY
Job Evaluation Points
80 120 160 200 240 280 320
monthly
salary
(R000)
8
7
6
5
4
3
2
1
40
Line of Best Fit
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Developing a Pay Policy Line
PAY
Job Evaluation Points
80 120 160 200 240 280 320
monthly
salary(R000)
8
7
6
5
4
3
2
1
40
Job Evaluation Points = 315
Predicted Salary = R7,128
Predicted Salary = R6,486
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Pay Reward EquationSalary Equity Model
A comparatio is your salary expressed as a percentage of the referencmarket
salary(market anchor) for your job grade:
Salary X 100
Market anchor for job grade
Example:Market AnchorSalary
R1000 R1100
R 1100 x 100
R 1000 = 110 Comparatio
Understanding what a comparatio is..
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What do you need from a Salary Survey in order to calculate Market An
Market Data
0
10000
20000
30000
40000
50000
60000
70000
Responsibility Levels (Job Grades)
Salari
L-Q/tiles Median U-Q/tiles
L-Q/tiles 48875 33440 18913 9570 5888 4465
Median 54625 36480 20612 10657 6272 4702
U-Q/tiles 60087 39330 21887 11070 6496 4797
F E D C B A
Upper quartile,Median and
Lower quartilevalues for each
of your jobgrades
Anticipatedannual
movementin each of
the
above
ion by company as to which pay line should be used as reference for mar
Pay Reward EquationSalary Surveys & Market Anchors
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Salary equity model
Comparatio
100Market
Anchor
95
125
Succeed
110
140Exceed
90
100
Nearly There
90
Inadequate
115Reward forexceptional
skills
Market 90thPercentile
Market Upper
Quartile
EmployeeA
130
30% monthlypremium forperformance
and skillscontribution
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Pay Reward Equation
Macro Model
Board CompensationCommittee(BCC)
LineManagers
Decides what theOverall Increase
Budget is
Grant SalaryIncreases to
Individual Employees
JobEvaluation
PerformanceManagement
Salary Surveys andMarket Anchors
Salary Equity Model
Actual vs. TargetSalary Distribution
Internal EquityAudit Checklist
EmployeePerception of
Salary Fairness
Tools
Decisions
Measure
Role PlayersGuidance
FromHR
Target Process
Results
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Monetary Incentivisation &
Non-Monetary RecognitionNon-Monetary Recognition Employees that feel valued are likely to engage in constructive behaviours
to the benefit of the company.
Such constructive behaviours can be facilitated by providing non-monetaryrecognition in one or more of the following ways:
Personalised Thank You Cards
Small Gifts / Vouchers to Express Gratitude
Achievement Oscars / Certificates
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Benefit Selection and DesignDeciding on WhichBenefits Offer
Defining open ended liabilities: Any benefit where the cost of the benefit to the company is
significantly or fully determined by factors outside the directcontrol of the company, is an open ended liability.
Examplesof open ended liability benefits:
Employee is given a fully paid andmaintained company car to use forbusiness and private purposes.
Company contributes 50% of and employeesmedical insurance premium.
The company pays the employees monthlyelectricity bill.
The other major problem usually associated with open endedliability benefits is the remuneration inequityit createsbetween same status employees.
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Communicating to employeesReward systems send messages about the beliefs on what is
important when valuing people in their roles: this is howwe value your contribution, this is what we are paying for transparency essential
Employees generally should understand: The reward policies in setting pay levels, benefits, progressing pay
Pay structure grades and pay ranges, how structure managed
Benefit structure range of benefits, details of pension scheme and other majorbenefits
Methods of grading and re-grading jobs job evaluation scheme and how it operates
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Communicating to employees
Individual employees should know and understand: Their job grade an how it was determined
The basis upon which their present rate of pay has been determined
The pay opportunities available to them the scope in their grade for pay progression, basis of linkbetween pay and performance, acquisition and effective use of skills and competence in careerdevelopment actions and behaviour expected of them for their pay to progress
Performance management how performance reviewed their part in agreeing to objectives and
formulating personal developmental and performance improvement plans Value of employee benefits they receive level of total remuneration, including pension, medical,
etc.
Appeals and grievances how they can appeal against grading and pay decisions or take up agrievance regarding any aspect of remuneration
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Grade and pay structures
Provide framework for managing pay
Although grade structures increasingly used apart of non-financial reward processes
mapping career paths without directreference to financial implications
Usual outcome of formal evaluationprogramme new/revised grade structure
with market rate analysis provides basis fordesigning and managing pay structures
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Grade structures
A grade structure consists of a sequence/-hierarchy of grades/bands/levels into whichgroups of jobs that are broadly comparable
in size are placed.May be a single structure with sequence of
narrow grades (often 8 12) or relativelyfew broad bands (often 4 - 5 )
May consists of number of career/job families(grouping jobs with similar characteristics),each divided into 6 8 levels
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Definition of grades, bands orlevels
By means of range of job evaluation points jobs allocated to grade/band/level if pointsfall within range/bracket of points
In words describing the characteristics of thework carried out in the jobs that arepositioned in each grade/level thesedefinitions set out key activities and
competencies/knowledge and skills requiredat different points in the hierarchy
By reference to benchmark jobs/roles thathave already been placed in the
grade/band/job family level
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Pay structuresPay structures provide framework for
managing pay
Grade structure becomes pay structure when
pay ranges/brackets are defined for eachgrade/band/level or when grades areattached to pay spine
Some broad banded structures, reference
points and pay zones are placed within thebands, these define the range of pay for jobsallocated to each band
May be single structure for whole organisation
or one for staff another for manual workers
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Types of pay structuresTwo main types:
Graded, broad banded, family structures:pay ranges/scales for jobs grouped intogrades/bands/job family levels define
different levels of pay for jobs/groups of jobsby reference to their relative internal valuedetermined by job evaluation, externalrelativities established by market ratesurveys and where relevant negotiated rates
for jobs also provide scope for payprogression linked to performance,competence, contribution or service
Pay spines: hierarchy of pay/spinal columnpoints between which are pay increments
and to which grades are attached
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Rationale for grade and paystructures
Provide logically designed framework within whichan organisations pay policies can beimplemented
Enable organisation to determine where jobsshould be placed in a hierarchy, define pay levelsand the scope of pay progression, provide basisupon which relativities can be managed,
equitable pay achieved and monitoring andcontrolling the implementation of pay practicescan take place
Medium through which the organisation can
communicate career and pay opportunitiesavailable
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Types of grade and pay structureSingle or narrow graded structures: consists of a
sequence of job grades into which jobs of broadlyequivalent value are placed pay range attached toeach grade
Maximum of each range typically 20% - 50% aboveminimum
Also described as % of midpoint
Midpoint often reference point/target salary, rate forfully competent employee usually aligned to
market rate in accordance with organisationspolicies (called market stance)
Pay ranges provide scope for pay progression usuallyrelated to performance, competence/contribution
May be 8/more grades in structure
Grades may be defined by job evaluation in point
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Single or narrow graded
structures Differentials between pay ranges typically around
20% - usually overlap between ranges (can be ashigh as 50%)
Overlap provides flexibility highly experiencedperson at top of range may contribute more thanone that is still learning at bottom of next highergrade
midpoint management techniques analyse andcontrol pay policies by comparing actual pay withmidpoint which is regarded as policy pay level comparatios can be used to asses the
relationship between actual and policy rates ofa as a % - if coincide com aratio = 100%
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Advantages of single or narrow
graded structuresProvide framework for managing relativities and for
ensuring equity
All jobs in single structure not divisive (criticismagainst job family structures)
Enable process of fixing rates of pay and payprogression practices to be controlled
Easy to manage and explain to employees
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Broad banded structuresThe number of grades compressed into a relatively
small number of much wider bands in which pay ismanaged more flexibly than in a conventional gradedstructure, increased attention to market relativities
Each band can span pay opportunities previously
covered by a number of separate grade and payranges - range of pay therefore wider than traditionalgraded structure (widths of 50% - 75% or 75% -100%)
Typically 4 6 bands in structure
Band boundaries often defined by job evaluationsJobs may be placed in bands by reference to market
rates or combination of market ratesBands can be described by overall description of jobs
allocated to them (e.g. senior management) or by
reference to the generic roles they contain
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Broad banded structuresReplacing narrow/single graded structures in many
organisations
Originally developed in USA (early 90s) to allow unlimitedprogression through bands many organisations have foundlack of structure unrealistic and unmanageable
Some method has to exist to control progression otherwisecosts increase too much, also difficult to ensure rewardsmatched levels of contribution - people unrealisticexpectations of future earnings
Most common solution to insert reference points into bands
which indicate normal rate for a job and are aligned tomarket rates ranges for pay progression may be builtaround the reference points (called zones)
Erosion of original broad banding concept advanced byrecognition in many organisations that in interest of equity
and equal pay, job evaluation has to be used to locatereference oints for obs within bands or to define se ments
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Advantages of broad banding Flexibility:
Scope to adapt rates of pay more readily tomarket increases
Reward lateral career development without beingrestricted by rigid grades
Reduction in cost of implementing a new paystructure as more jobs are incorporated in thebands, with less need to increase the pay for
jobs placed below the new pay ranges in astructure with narrower grades
Provides role specific and performancemanagement focus on reward moving awayfrom overly structured and bureaucraticapproach of typical multi-graded structures
Reduce time spent analysing and evaluating jobs
fewer levels to distinguish
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General disadvantages of broadbanding Harder to manage than narrower graded structure considerable demands on time of line and
HR managers
Inflated employee expectations of significant pay opportunities doomed if proper control ofsystem is maintained
Can be difficult to explain to employees how broad banding works, how they are affected anddecisions on movements in bands can be harder to justify objectively employees may beconcerned about apparent lack of structure and precision
These disadvantages lead to introduction of bands within bands/zones different from grades?(zones operate more flexibly w.r.t. grading, pay progression and reaction to marketpressures)
E l bl f b d
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Equal pay problems of broadbanding Reliance on external relativities (market rates) to place jobs in bands can reproduce existing
inequalities in the labour market Broader pay ranges in bands mean they include jobs of widely different values/sizes, may result
in gender/race discrimination Women/race groups may be assimilated at present rates in lower regions of bands and find it
impossible/very difficult to catch up with males who are place in upper ranges of bandsbased on existing pay rates
Objections lead to greater attention to placing jobs
in bands on basis of internal relativities, on basisof analytical job evaluation sensitive to marketrates but not slaves to them not reproduceexternal discriminatory practices
Scepticism about broad banding concept lead to
more attention to career family and job familystructures