Human Resource

Management

Managing Compensa-on

Objectives
1 Understand the strategic considerations, challenges and
choices involved in employee reward management
2 Appreciate the importance of reward management in
contemporary human resource management strategy
and practice
3

Identify the four main elements of a total reward

approach: namely, financial, developmental, social and
intrinsic rewards

Compare and contrast the main components of

employee remuneration and distinguish between base
pay, benefits and performance-related pay

Objectives
5

Critically analyse the main types of performancerelated reward, including individual and collective
plans, short-term and long-term plans, and the
advantages and disadvantages of each

Explain the processes and challenges involved in

developing a strategically-aligned reward management
system

Assess the arguments for and against pay secrecy.

Introduction

A reward may be anything tangible ... or

intangible ... that an organisation oers to its
employees in exchange for their potential or actual
work contribution ... to which employees as
individuals attach a positive value as a satisfier of
certain self-defined needs.

Nankervis et. al. p. 428.

Total reward management

Extrinsic
associated with but external to the job.

Financial rewards
base pay
benefits
performance-related.

Development rewards
Social rewards
Intrinsic
from the content of the job itself.

Elements of
total reward

Strategic reward management

Strategic reward management has two main objec-ves:

rst, the organisa-ons HR strategy, plans and policies should
inform its strategy and prac-ces.
Second the reward strategy should align or t with the
organisa-ons overall strategic plan.

Depending on the choice of organisa-onal business strategy,

a range of strategic reward management op-ons are
available.
Alignment of strategy, structure, culture and performance is
cri-cal in the management of contemporary rewards.

A strategic model of reward management

Aligning rewards with business

strategy
One size does not fit all

Provide all legally mandated employee entitlements

Tailored to the particular strategy of each organisation
and, where appropriate, to the specific strategies of
distinct business units within the organisation.

Reward philosophy and strategy

Succinctly define the broad role that reward practices
A set of guiding principles as to how associated
practices will be applied to support the organisations
aims.

Pay determination in the changing Australian

regulatory environment
20th century remuneration standards for the majority shaped by
award determinations
Last two decades have witnessed an accelerating trend away from
centralised system of pay-setting and pay adjustment towards
agreement-making at enterprise and individual levels
WorkChoices Act 2005
Fair Work Act 2009.

Pay-setting by means of individual agreement-making is good for

business; pay-setting by means of collective agreements is bad for
business. Discuss this statement.

METHODS OF PAY SETTING, AUSTRALIA MAY 2010

Base pay

Three main categories of monetary reward plans:
1 Base pay plans
dened as part of the cash remunera-on that is largely xed orguaranteed

Benefits plans
can be direct or indirect.
benets are nancial en-tlements that directly support the base cash pay, such
as superannua-on and health/medical insurance, paid leave and so on.
benets incorporate non-nancial rewards, such as unpaid leave, wellness
programs and advisory services.

Performance-related pay and rewards plans.

Performance-related rewards (or incen-ves) recognise past performance in order
to enhance future performance.
As such, performance is said to be variable and at risk rather than xed or guaranteed.

Base pay: nature and importance

Base pay is the foundational or fixed component of

employee remuneration
Job-based base pay
x pay according to the job or posi-on

Skill-based base pay

recogni-on and rewarding of the acquisi-on of technical skills and job
knowledge;

Competency-based base pay.

focuses on the deeply embedded abili-es or competencies, such as self-
condence, achievement orienta-on, interpersonal empathy and so on.

Options for base pay

Job-based base pay

Payment according to the size of the job or position
held

Remains the dominant mode of remuneration in most

developed countries
Traditional job-based pay structures:
pay scales (or spines)
narrow grades.

Valuing jobs

Market surveys
Job evaluation

points factor approach

weaknesses?

Pay equity

Why does the gender pay gap persist, who is responsible for it, and
what (if anything) can be done about it?

Traditional job-based base pay structures

GENDER PAY GAP, AUSTRALIA,

19942012

Person-based pay systems

Skill-based base pay

Broad grades
Broadbanding.

 Skill sets and broad grades

Benefits plans
Mandatory benefits:
provision for employee economic security
superannuation.

Voluntary benefits:
enhance an organisations ability to attract and retain high-value
employees and enable it to oer employees a more appealing value
proposition
includes such benefits as discount company loans, company cars,
gym membership, self-education, computers, mobile phones.

Fixed versus flexible benefits plan

Standard content: the composition being determined
by legal requirement and employer choice.
Flexible content: employees having a degree of choice
How can a multinational business ensure that the rewards it
offers to host-country professionals working beside homecountry expatriates in a low labour cost country, such as India,
best address the need to attract, retain and motivate these
local employees?

Performance-related rewards
Performance-related rewards (or incentives) are
rewards given in recognition of past performance
(individually or collectively) and in order to reinforce and
enhance future performance.
Nankervis et. al. p. 454.

The case for performance

Incentives

The case for

Agency theory, reinforcement theory,

expectancy theory and goal seOng
theory all emphasise the centrality of
employee cogni-ve processes to
understanding and managing the
rela-onship between rewards and
task mo-va-on
Performance-related rewards
opera-onalise the equity norm of
distribu-ve jus-ce.

The case against

Incen-ves undermine intrinsic

interest in the job
Rewards mo-vate people to pursue
one thing above all else
Rewards punish
Rewards rupture coopera-ve work
rela-onships
Rewards ignore underlying reasons
for work problems
Rewards discourage risk-taking.

Types of performance pay

Individual performance-related rewards
Performance-related pay based on the measured
results of large or small work groups
Collective performance-related rewards based on
results achieved by the organisation as a whole.

Individual performance-related
reward plans

Merit pay

Individual recognition awards

discretionary bonus.

Individual results-based incentives.

Collective short-term incentive

plans

Four plan types:

1. Profit-sharing
formal arrangement under which bonus payments are made to
eligible employees on a regular
2. Gain-sharing
3.

4.

form of collec-ve performance-related pay is where management shares with

all employees,

Goal-sharing
sharing is future orientated, whereas gain-sharing focuses on past
behaviour/results.
Team incentives.
Use of team incen-ves depends on how autonomous and self-
managing the team

Organisation-wide long-term
incentive planS
Reward employees for improvements over time in the
employing businesss sharemarket performance
Potential rewards:

share price appreciation

annual dividend earnings
special bonus share issues
special taxation concessions or exemptions.

Organisation-wide long-term
incentive planS (cont.)

Share bonus plans

employees receive a giR of fully paid

Share purchase plans

have the opportunity of purchasing part or all

Share option plans.

to purchase a specied number of shares at a predetermined price at
a specied date.

Executive incentive plans

Increasing linkage of executive pay to performance
Short-term incentives:
generally one year and linked to goals in organisational
financial performance
instrumentality and reinforcement
susceptible to manipulation.

Executive incentive plans (cont.)

Long-term incentives:
generally for three or five years and in the form of company
equity rather than cash
main types are restricted share plans, option plans,
performance shares and share appreciation rights.

Issues of jus-ce and ethics.

If we are happy to see film stars, rock stars and sports stars receive
astronomical incomes, shouldnt we also be willing to see celebrity
CEOs rewarded in a similar way?

Reward system design and

management
Entails three key steps:
1 Preparing a statement of reward
philosophy and strategy
2 Determining total reward mix
3 Targeting pay levels, ensuring strategic fit
or alignment.

Reward communication

Clear communication of reward system philosophy

and details stands to increase employee acceptance
What is the appropriate balance between disclosure
and secrecy?

Which is best from the organisations perspective:

pay openness, or pay secrecy? Why?

Summary
Aim is to maximise contribution of human resources to
organisational eectiveness and success
Importance of total reward approach
Three main elements of total remuneration
Incentives for employees
Incentives for executives
Challenging and complex, but also allows HR to demonstrate
their worth.