M Business Strategy and Reward Management Section 1.2

8/2/2019 M Business Strategy and Reward Management Section 1.2

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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

Documents

M Business Strategy and Reward Management Section 1.2