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, MONTECASINO
6-7 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

 Individual activity:
 Complete the following statement by inserting one word only. In order to
effectively implement strategic reward management in my work
environment, my organization needs to/to
be………………………………………………………
 Jot this word down and find other learners who have written down the
same 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 and
implementation of strategies and policies that aim to reward
people fairly, equitably and consistently in accordance with their
value to the organization.
 Reward management consists of analyzing and controlling
employee remuneration, compensation and all of the
other 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 a
reward structure for an organization.
 Reward management deals with processes, policies and strategies
which are required to guarantee that the contribution of
employees to the business is recognized by all means.
 Reward system exists in order to motivate employees to work
towards achieving strategic goals which are set by organizations.
 Reward management is not only concerned with pay and employee
benefits. It is equally concerned with non-financial rewards e.g.
recognition, training, development and increased job responsibility.
OBJECTIVES OF REWARD
MANAGEMENT

THE EVOLUTION OF REWARDS
MANAGEMENT

BEST PRACTICE REWARD
MANAGEMENT PRINCIPLES

 STATISTIC: 24% of participants do not measure reward and recognition
programme success.
 Review your programs and rewards frequently to keep them aligned with
corporate goals as well as employee expectations.
 Measure the effectiveness and impact of your reward and recognition
programmes.
 Create a performance measurement framework so you can measure the impact
of your reward and recognition programme.
 Track the performance metrics that form the basis of your reward structure and
conduct surveys to gain qualitative feedback from employees and supervisors.
 IMPERATIVE: Measure your reward and recognition programme impact and
improve based on your results.
EVALUATION GUIDELINES

 https://www.surveymonkey.com/r/PQWGNJJ
 #1 Your organization offers competitive and market-related/above market-related
remuneration 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 and
variable.
 #3 Your organization applies fairness in payroll methods, procedures and practices for
compensating, recognizing and rewarding employee contributions.
 #4 Your organization applies equitable payroll methods, procedures and practices for
compensating, recognizing and rewarding employee contributions.
 #5 Your organization promotes transparency through sharing information about their
compensation practices, pay rates criteria and how they are determined – especially at the
managerial and executive levels.
DIAGNOSIS OF CURRENT REWARD
MANAGEMENT PRACTICES

 #6 Your organization applies consistency (standardization) in the allocation of
remuneration and rewards e.g. performance bonuses and incentives etc.,
thereby serving as a retention and motivation mechanism.
 #7 Your organization applies objectivity throughout the performance
management process, as the pre-cursor and chief determinant of performance
bonuses.
 #8 Your organization has an efficient, user-friendly and stream-lined job
evaluation and job grading process.
 #9 The value of remuneration and rewards offered by your organization is
affordable (feasible) promoting business sustainability and continuity.
 #10 Your organization’s reward system is effective in that it directly contributes
to and enables the achievement of business management goals e.g. higher levels
of 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’s
current rewards management structure against the 10 best
practice criteria.
 Group (Analysis): Identify gaps and recommend improvement
strategies 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 is
highly attuned, sensitive to and pro-actively responsive of change
 #4: Rewards Management is future-focused (ensuring that the
organization 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, enabling
smarter business decision making (operationally and strategically)
 #7: Enables the organization to gain a sustainable, strategic competitive
advantage
 #8: Reward management practices contribute to a positive
organizational climate, culture and higher levels of employee
engagement.

REMUNERATION AND RELATED METRICS
 Human capital value added (revenue minus operating expense and cost of
compensation/benefit divided by the total amount of full time employees)
 Human capital return on investment: Revenue minus operating expenses and
cost of compensation benefit divided by cost of compensation/benefit
 Total compensation revenue ratio which is cost of compensation/benefit
divided by revenue
 Labour cost revenue ratio, which is cost of compensation/benefit plus other
employee 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 took
to generate a rand of revenue (as an indication of compensation
effectiveness, where this year's ratio would be compared to last years
ratio)
 % of employees that are satisfied with their compensation (survey of a
sample of employees on their satisfaction between the rewards and the
expectations 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 the
right amount of rewards, to the right people, at the right time, for the
right 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 your
employees as well as your organization.
 Appropriate Total Rewards Framework
 To be effective, a total rewards package must tie together the
organizational strategy, workforce strategy, and HR strategy. Total
rewards should align each employee with the organizational objectives.
CONTEXTUAL INTRODUCTION TO
STORM

 “Effective reward is about finding the right reward programs for the
strategic direction of your business.” (Tom McMullen)
 Strategic reward management involves the formulation and
implementation of an equitable reward system that is congruent
with the organization’s strategic objectives.
 The reward system must be congruent with the management style
and other organizational systems, in particular, communication
and decision-making. (Lawler)
THE STRATEGIC IMPERATIVE OF
REWARD MANAGEMENT

 Strategic reward is based on the design and implementation of
long-term reward policies and practices to closely support and
advance business or organizational objectives as well as employee
aspirations.
 The concept of total reward encompasses all aspects of work that
are valued by employees, including elements such as learning and
development opportunities and/or an attractive working
environment, 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 business
strategy.
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 with
business 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 program
investment
Strategic and Performance-related: Connects with the business strategy
to 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 the
board)
Weighting: Attempting to measure the comparative value of certain
rewards
BUILDING A BUSINESS CASE FOR
STORM

 Develop a business case for Strategic Total Rewards Management
(STORM). Do the benefits outweigh the costs? Justify and
motivate your viewpoint.
LEARNING ACTIVITY 2

 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 each
individual employee, demonstrating the organization's investment in ensuring
employees are competitively rewarded for their skills, contribution and
performance.
 The rewards package that organizations provide to their employees is among the
organization's most significant investments.
 Total reward statements may help reduce turnover and increase retention rates
 A Total reward statement provides employees with a personalized document
that 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 of
less tangible benefits such as work/life programs, learning and development
and flexible work arrangements.
TOTAL REWARDS STATEMENTS
(TRS) – RATIONALE AND VALUE

 To attract, motivate and retain employees.
 Differentiation: To reinforce employer brand and set the employer
apart from other organizations.
 Raise awareness and appreciation by focusing attention on the
benefits the organization offers.
 To reduce the cost of benefits administration by providing an
employee self-service tool that results in fewer phone calls thereby
enabling HR to focus on more strategic initiatives.
OBJECTIVES 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 to
join and stay in the organization. (Armstrong, 2011)
 EVP is a statement of what an organization will provide for people that they will value - why
the 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 workforce
planning strategies because it has been informed by existing employees and the external
target 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)

 Unique Selling Points (USP) - Employer brand that is unique and
special
 Creation of a Brand image of the organization for prospective
employees
 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 of
an attractive brand and ensure these are inculcated into organizational
value system
 Define the features of the employer brand on the basis of examination
and 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 of
improvement
 Pragmatic approach: be honest and realistic
CREATING AN EMPLOYER BRANDING
STRATEGY

 For a defined organization, craft and develop the following key
statements 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 Trends
Report - 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-year
financial period
 90% of leaders think an engagement strategy will impact business success
 Only 40% of the workforce knew about their company’s goals, strategies and
tactics
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 to
accelerate 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 enhance
employee engagement are:
The work itself
The work environment
Leadership
Opportunities for personal growth
Opportunities to contribute
ENGAGEMENT

 According to Dale Carnegie research:
 Senior managers must articulate the company vision in a clear and compelling
way
 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 to
the overall company success
 Senior leaders should create a climate of trust and encourage managers to
demonstrate 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 them
a sense of empowerment
ENGAGEMENT

 According to Gallup (2013) research, the best organizations deeply
integrate 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

MOTIVATIONAL APPROACHES
CARROT STICK

MANAGER-EMPLOYEE PERCEPTUAL
GAP (OF MOTIVATION)

 40% of employees who do not meaningfully feel recognized will not
go above and beyond their formal work responsibilities to get the
job done. 86% of those who feel recognized will.
 83% of employees cited recognition for contributions is more
fulfilling than rewards and gifts.
 Type of recognition matters – 68% favoured individual above team-
based recognition; 88% found recognition from their managers as
very/extremely motivating and 76% found praise from peers as
very/extremely motivating.
 Recognition strategies
RECOGNITION - STATISTICS

 According to Dr. Mark Bussin, traditionally there are four main
components of remuneration – base pay; fringe benefits and perks;
short- and medium-term incentives; and long-term incentives, but to
these he adds a fifth component – retention schemes.
 Retention schemes - this is often added when the long-term incentives
are not in place or not working for some reason or another.
 When implementing retention scheme you need to decide who it will
benefit (scarce skills, for example).
 Most importantly, such a scheme needs to be underpinned by a robust
business case.
TALENT RETENTION STRATEGIES

THE LINK BETWEEN TALENT ATTRACTION
AND EMPLOYEE ENGAGEMENT

 Describe which motivational strategies can be applied in your
organization to reward employees and boost performance and
productivity.
 Describe which employee engagement strategies can be applied
in your organization to enhance retention and productivity levels.
 Evaluate the current degree of your organization’s employee
retention by gauging against the 10 retention criteria and the
Irresistible 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 structure
remuneration packages that meet their organization’s objectives
and ensure that the company is able to retain key talent. Getting it
right is critical.
 “The need for remuneration policy, strategy and systems to underpin
business strategy has never been greater.” (Dr. Mark Bussin)
 “There is no such thing as the ‘best’ policy or strategy. There are so
many different ways to determine remuneration and in different
situations 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 drive
business 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 salary
structuring process. By consideration of the four factors (refer to
paragraph 4.1), apply the approach which you believe is most
viable, 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

 Measured against their purpose and objectives, critically evaluate
your organization’s remuneration structure. Identify gaps and
recommend 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 intensify
work? Chidiebere Ogbonnaya, Kevin Daniels, Karina Nielsen (2017)
 N = 13 657
 The analysis showed that performance-related pay was positively associated
with job satisfaction, organizational commitment, and trust in management.
 Profit-related pay did not have similar positive effects; in fact, some levels of
profit-related pay resulted in employees being less committed and trusting
management less.
 When it comes to share ownership, however, we found a direct negative
relationship with job satisfaction and no significant relationships with
employees’ commitment and trust in management. High employee uptake of
share 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 is
more intense.
 What should managers keep in mind? The positive relationship between performance-related
pay and all three well-being outcomes indicates that employees may see increases in pay as a
reasonable and even positive trade-off for contributing toward organizational success.
 Contrary to what many employers believe, organization-wide incentives such as profit-related
pay and share-ownership may not generate such positive effects, as they were found to have
negative relationships with employee well-being.
 The results regarding work intensity and individual-based incentive pay should give managers
pause.
 In some circumstances, performance-related pay may be experienced as a burden that only
provides extra pay for workers through an intensification of the work process.
 This raises critical questions regarding the extent to which individual-based incentives can
influence 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 excite
and retain employees.
 They want the opportunity to earn variable compensation to bolster
their basic salary.
 Today's employees are also looking for more when they decide to come
on board and work for an employer.
 Employees now expect comprehensive benefits packages that
are tailored to their own personal needs - not just to broadly defined
demographics.
 The greater the flexibility and variety of the benefits programme, the
more 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 competitive
package
 Reward participants directly for individual, team and organization
performance achieved over a monthly, quarterly or annual time
frame
 Support the achievements of the tactical and strategic objectives
of the organization by influencing the behaviour of the
participants
PURPOSE OF STI’s

 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 market
competitive package
 Reward participants for medium- to long-term
organization performance or outperformance
 Align management with shareholder or
stakeholder 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

 By referring to the STI’s and LTI’s, critically evaluate your current
structure of your organization’s variable pay schemes. Identify
gaps and recommend improvements.
LEARNING ACTIVITY 7

 Alternative structures are more flexible than traditional
pay structures and encourage employees to assume
different roles without triggering compensation
increases or decreases
Broadbanding
Competency-based pay
Skills-based pay
ALTERNATIVE REMUNERATION
STRUCTURES

 Practice in which the number of grades in a pay-scale structure is
reduced, and the differential between one grade and the next is
increased.
 Broadbanding is said to decrease intra-firm rivalry in employees and to
increase inter-firm (or cross-departmental) flexibility.
 Broadbanding is defined as a strategy for salary structures that
consolidate a large number of pay grades into a few "broad bands.“
 In a broadband pay structure, the numbers of salary grades are
consolidated into fewer, but broader, pay ranges. In broadbanding, the
spread of the pay ranges is wider and there is less overlap with other pay
ranges.
DEFINING BROADBANDING

 Defining Competency-based pay:
 Competency-based pay is a pay structure that rewards employees
based on how well they perform in the workplace, rather than the
hierarchy 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 are
linked to the number or depth of skills an employee acquires and
applies and it is a means of developing broader and deeper skills
among the workforce.
 Such increases are in addition to, and not in lieu of, general
pay 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 skills
which makes the employee multi-skilled and therefore flexible.
 It positively encourages skills development.
 A skill-based pay system may not necessarily reflect how well the
skill is used, as this falls within the performance component of pay.
 The system needs to be underpinned by opportunities for training
which is critical to the success of the system.
DIFFERENCE FROM TRADITIONAL PAY
SYSTEMS

 Critically evaluate the relative merits of the following alternative
pay 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

Remuneration Strategy and Salary Structuring

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