This week examined different types of remuneration structures and rewards systems .
A part of this review was considering these issues from an employee engagement perspective. It is critical for an organisation to be up to date and aware of various types of remuneration and benefits so they can compete for staff in the market place. Such knowledge also contributes to staff engagement which in turn means the organisation will be more productive and successful.
The first requirement of remuneration, at any level, is that it must comply with government legislation. In Australia, this is the Fair Work Act.
Determination of Pay
There are a number of challenges for organisations in dealing with this issue. Not only must remuneration be fair, but organisations also need to package it in a way that is attractive to the employee. This can mean individual tailoring which is considered a positive because people are being treated as individuals. Packages also need to align with the organisation’s goals and objectives. The notes cite Nankervis et al mentioning that some HR scholars call the consideration of all factors “Strategic Reward Management”.
As a result of the online revolution, more people are moving to the gig economy or remote arrangements with flexible working conditions. This evolution has been progressed by Covid 19 which forced people out of offices and to work online. The alignment of expectations by both employers and employees will take some time. It would seem that there is inequity with pay between ordinary workers and senior management which can cause disharmony in an organisation. However, expectations will vary with age groups and what is considered motivating for them to engage and remain with the organisation .
Remuneration and Reward Models
Rewards can be intrinsic or extrinsic. Intrinsic rewards are those that come about from performing the job resulting in intellectual stimulation, motivation, job satisfaction and a sense of achievement. Extrinsic rewards on the other hand a those linked to three types described by Nankervis et al. (2020) as developmental, social and financial. Development rewards revolve around training and development. Social rewards are exemplified by things such as a positive work culture and work life balance. Financial rewards are based around salary levels, bonuses and other financial incentives.
How the employee reward system is based will be the choice of the organisation and will be a combination of intrinsic and extrnisic factors. These will vary depending on the outcomes expected by the organisation for individual employees, departments, areas, divisions etc and the organisation itself. The financial aspects of the reward system can include position based pay, person based pay or performance based pay.
Reward and Remuneration Challenges
Organisations need to ensure that their remuneration packages are well structured so that employees remain motivated (Krajco and Jansky 2015). The difficult part is finding the right combination of pay and benefits when the workforce is diverse and you maintain motivation. Individual packaging can assist here, but it may well be quite onerous on the organisation to go to these extents.
When designing packages, internal and external factors need to be considered. The most important stakeholders internally of course are the employees of the organisation. Therefore it is critical HR understands roles in the organisation in terms of the position description. The example is provided that where a job requires a high degree of creativity then an environment that stimulates that creativity will need to be provided. The AIB study notes suggest that many organisations who have highly complex products and require high levels of creativity will offer their employees stock options.
The remuneration of top executives can be a considerable challenge for large organisations. The disparity between the incomes of top ranking employees such as CEOs and other employees can be considerable. There has been a significant growth in the pay levels of CEOs in the ASX top 100 compared to much lower growth for other employees (Sheehan 2018). He goes on to suggest that this is because of the short term goals for CEOs compared to long term goals for employees. There are moves to have a ratio of the CEO compared to median pay disclosed in accounts. Such disclosure is already mandated in the US and the UK.
Theft of Wages
This has legal, moral and ethical implications for organisations. Underpaying employees is not only criminal from an employee perspective but also short sighted. The organisation can end up with a poor public image when their transgressions come to light. This not only applies to direct wages, but also to superannuation and other benefits. This type of behaviour can mainly affect vulnerable workers who may not understand their rights. In a worse case scenario, practices may be adopted by other organisations in an attempt to remain competitive. Again, this is short lived and will end up in disaster.
How Remuneration Affects Retention and Engagement
It can be challenging to develop remuneration and rewards packages that will retain high performing employees in the organisation. Given that salaries are a major operating expense for many organisations, (Trevor and Brown 2014), linking packages to innovation and development can be worthwhile. Such linking can stimulate innovation and development as a result.
Organisations can often be challenged with balancing the rewards to knowledge workers compared to low skilled workers. The term “knowledge workers” was coined by Peter Drucker in his book The Landmarks of Tomorrow (1959). Drucker suggests people such as accountants, lawyers, engineers and researchers etc fall into this category. The impact of globalisation and the huge advance of technology simply increases demand for such workers who are adaptable, have high levels of technological literacy and can manage other people (Rogers 2020).
Retention of workers however, is achieving the balanced mix of salary and rewards. Packages are not enough though to retain people and orgnisations need to implement training and development programs to foster professional growth of employees (Rogers 2020).
The second Assignment for this unit has proved to be quite challenging. It is a case study based on a company in the United States with a litany of HR issues. On top of this, the report has sat around and none of the issues have been acted on or resolved. The subject co-ordinators held a special webinar about the case study which was most helpful. Many students were confused and concerned about the level of depth they needed to go into, particularly not being familiar with US laws and industrial relations. After the webinar, I was able to get into the assignment in a more confident manner and have completed my first 3,000 word draft.
An interesting week focusing on an exceptionally important area of HR and employee relations. Remuneration and rewards, whilst not necessarily being the primary motivator for many employees, are still critical. Everyone has to eat and you need money to buy food. It is always important, not only from a HR perspective, but also an ethical one, to treat the exchange of labour for money in the fairest possible terms.References
- Module 6: Managing Remuneration, Rewards and Engagement: Executive pay 2022, Aib.edu.au, viewed 12 June 2022, <https://learning.aib.edu.au/mod/book/view.php?id=106379&chapterid=37777>.
- Nankervis, A, Baird, M, Coffey, J & Shields, J 2020, Human Resource Management : strategy and practice, Cengage, South Melbourne, Vic.
- Knight, R 2014, ‘Managing people from 5 generations’, Harvard Business Review, 25 September, viewed 4 April 2022, https://hbr.org/2014/09/managing-people-from-5-generations.
- Nankervis, A, Baird, M, Coffey, J & Shields, J 2020, Human Resource Management : strategy and practice, Cengage, South Melbourne, Vic
- Krajčo, K & Janský, B 2015, ‘Employee remuneration strategies’, Social & Economic Revue, vol. 13, no. 4, pp. 22-27.
- Sheehan, M, Garavan, TN & Carbery, R 2014, ‘Innovation and human resource development (HRD)’, European Journal of Training and Development, vol. 38, no. 1/2, pp. 2-14, DOI:10.1108/EJTD-11-2013-0128
- Trevor, J & Brown, W 2014, ‘The limits on pay as a strategic tool: Obstacles to alignment in non‐union environments’, British Journal of Industrial Relations, vol. 52, no. 3, pp. 553-578, DOI:10.1111/bjir.12004.
- Rogers, M 2020, ‘A better way to develop and retain top talent’, Harvard Business Review, 20 January, viewed 4 April 202, https://hbr.org/2020/01/a-better-way-to-develop-and-retain-top-talent.