Reviewing Your Remuneration Program

Last Updated May 2, 2007 7:18 PM EDT

Are you paying your employees fairly? Are your benefits package and bonuses on par with those at competing companies? Regularly reviewing and upgrading the details of your program is key to your organization's success. A well-managed remuneration program will attract, reward, and retain the best performing employees and promote continued excellence, while maintaining the efficient use of your organization's financial resources. Failing to perform a regular review and upgrade will result in poor employee relations, a reduction in productivity, and, very likely, the loss of competitive advantage as key employees leave to join the competition.

What You Need to KnowOur company has grown rapidly. How can we bring our remuneration policy up to date?

You have made the first step, which is recognizing you have a problem. The second is committing to fix it, which takes resolve and resources. The third is following through. Your first effort may not solve every problem, but if you follow through with annual reviews, you will soon see that your effort has paid off.

What can we do about applicants with great credentials who are asking for increasingly large compensation packages?

There is something to be said for building competency within your organization, but this calls for a rigorous and well-funded training program. You may still on occasion have to replace key people in order for your organization to evolve and grow. While smaller companies can sometimes attract bright and capable people with secondary considerations—a more casual work atmosphere, rural lifestyle, good schools—you cannot ignore the compensation and primary benefits issue. A performance-based compensation program might give your company better justification for the necessary increases.

Is a period of downsizing a good time to change the way, and the amount, we pay people?

Being employed is better, in most instances, than being unemployed. If your employees understand that your company's survival depends on cutting costs across the board, they may be willing to make sacrifices. But go about it carefully. Get the staff together to discuss the situation. Ask them for possible solutions. Present budget information and options for meeting the crisis with the fewest employee layoffs. Lay out a plan for stabilizing and sustaining the company—which may include changes in remuneration (whether temporary or permanent). Then commit to revisiting the topic of compensation at a fixed point in the future—maybe in 6 months' or a year's time. If they have confidence in your word, they may actually increase their productivity in the short term.

What to DoAppoint a Compensation Review Committee

One of the most important elements of any change is acceptance, on the part of both management and non-management staff. It's important that everyone be aware that the process of overhauling your remuneration program will take at least a year. Management must support the effort with resources that include funding and, more importantly, paid staff time to implement the new program.

Begin by putting together a committee whose members represent the company's entire staff demographically. One of the committee's first jobs will be to determine where the company is today with its compensation program and what company problems—high staff turnover or absenteeism, for example—are attributable, at least in part, to substandard remuneration. Another of the committee's early tasks will be to conduct industry research. What standards for compensation exist in other companies in your industry that are similar in size to yours?

Communication throughout the process is critical to its success. The committee will need to develop links with each department, report progress, build support, and, most importantly, solicit input about compensation issues and desires.

Draft Overall Policies and Plans

Before making any changes, become familiar with current laws and regulations governing compensation to ensure that your new policies and plans comply. Then begin the plan by setting forth objectives designed to foster organizational health, for example reducing turnover, attracting quality personnel, and recognizing and rewarding excellence.

In addition, the plan should include the following:

  • a description of the remuneration system: job classifications, salary schedules, benefits, premiums, bonuses, and related things such as medical leave and long-term disability;
  • a review of various types of employee: full time, part time, temporary, flextime, and so on;
  • the company's commitment to an annual remuneration survey, to include job category and job description reviews;
  • a description of an incentive system for rewarding quality and productivity and for reducing errors and costs.
Conduct a Job Analysis

The core of any organization is its people; the core of a remuneration program, therefore, is an analysis of each person's role in the organization. Job analysis forms the basis by which an organization develops job descriptions, selects applicants, develops training, and promotes (or fires) people. An equitable and adequate compensation system is dependent on a thorough job analysis.

Begin the analysis by taking these basic steps:

  • Review any previous job analyses.
  • Look at the advertising or recruitment information your company has used to attract current employees;
  • Chart the relationship of each job to others in the chain of command or authority structure.
  • Learn why each job exists. First, ask each supervisor in sequence within the chain of command to contribute; second, interview the current jobholder; then by comparing the jobholder's assessment of the job's components with that of his or her supervisor's, as well as with the current job description, you may discover positions with little support or purpose.
  • Have employees rank their duties in order of priority, and ask them to list the five tasks they spend the most time on.

The above activity should provide you with a list of tasks and responsibilities for each job that will enable you to modify job descriptions if necessary, and build a more accurate list of the qualifications needed for each job. Likewise, the information will assist in revising recruitment materials, selecting employees, developing training, and in determining the appropriate remuneration (including grades) for each job.

The next task is to assign relative worth to each job, based on such criteria as difficulty, risk, supervisory duties, and so forth. Many organizations assign points to each component of a job; the greater the points, the higher the job's value to the organization.

Jobs range in skills from entry level to expert. As an employee assumes more responsibility and gains experience he or she will be promoted and receive increased remuneration.

Each job and job title in your organization corresponds to a job or job title in other organizations, so it is wise to inform yourself of the current standards for remuneration in all jobs, so that your recruitment efforts will be met with enthusiasm.

Consider Performance-based Remuneration

Once your organization has completed the tasks of job analysis and evaluation it has the data it needs to differentiate between "average" and "superior" performance and to reward it accordingly.

Thus, a remuneration program can include a variety of performance-based bonuses. Here are some pointers about this kind of program:

  • The program must make sense to the department and individual employee. In other words, the targets and goals set must be understandable, relevant, and achievable.
  • Bonuses must be of significant value (10% to 20% of salary, for example) in the eyes of employees.
  • The timeframe for achieving a goal must be realistic. No one would expect an executive to turn around a company in a matter of months, for example. Thus, bonuses can be given over a period of years, tied to continuous performance improvement. Many companies offer these bonuses in the form of stock options.
  • Performance-based plans must be inclusive. It may be more difficult to reward clerical staff in cost centers than it is salespeople in profit centers, but it is important to overall morale that bonuses be given for high performers throughout the company.

"Gain-sharing" and "profit-sharing" are two other forms of bonuses. The first is typically given to groups or individuals whose work results in a percentage of increased productivity or a reduction in cost. The bonus is usually a percentage of the gain realized by the productivity increase or cost reduction. Profit-sharing, on the other hand, is based on company-wide profit and is distributed to all employees, regardless of individual achievement.

What to AvoidYou Underestimate the Importance of a Formal Remuneration Program

You may feel that your organization has neither the time nor the resources to commit to developing a first-rate remuneration policy and plan. Regardless of the resources available, however, it is worth every bit of time your organization can spare towards quantifying and qualifying job data, and recognizing individual and group efforts when they make a positive contribution.

You Do Not Commit Enough Resources to Follow Through

If employees commit to performance improvements based on promises of increased pay and bonuses and your organization fails to follow though, you will quickly see decreased productivity and will likely experience increased turnover in your workforce, as dispirited employees seek a better deal with your competitor.

You Are Inconsistent

Inconsistency in a remuneration program will quickly divide the haves from the have-nots. Rewarding only those working in profit centers (like sales) without also rewarding those in support roles (clerks, typists, receptionists, assistants, etc.) will surely backfire.

Where to Learn MoreBooks:

Brown, Duncan, and Michael Armstrong. Paying for Contribution: Real Performance-Related Pay Strategies. Milford, CT: Kogan Page, 1998.

Martocchio, Joseph J. Strategic Compensation: A Human Resource Management Approach. Upper Saddle River, NJ: Prentice Hall, 2000.

Web Sites:

About.com: www.about.com

HRnext.com: www.hrnext.com