Reviewing Your Remuneration Program

By BNET Editorial
published on BNET.com 4/23/2007

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

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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

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 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.

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 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

Copyright © 2007 CNET Networks, Inc. All Rights Reserved.

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