HR Professional â€“ Section Contents
Section 1 – Remuneration Policy
1.1 – The Labour Market in SA
Remuneration policies are developed by organizations within the legislative framework and the socio-economic conditions of the country in which they are based. They must be attuned to the local labour market and labour movements in order to successfully attract, motivate and retain employees of the calibre needed at every level.
Appendix I: Wage gap analysis
Appendix II: Pay trends
Appendix III: International pay comparisons
1.2 – Remuneration Strategy
Organizations need to be able to appoint the right people in the right positions if they are to succeed. How they get into a position to do this requires some preparation. The strategy that is adopted depends on the nature of the challenge, on the risks of the venture and on the criticality of the outcome. An aggressive approach may or may not pay off.
Appendix I: Example remuneration policy statement
1.3 – Organization Development
A primary responsibility of the HR executive is to plan ahead for organizational growth or contraction. A full understanding of what is entailed is obviously essential before this role can be discharged properly.
1.4 – Organization Structure
In this chapter we review the phenomenon of organizational growth, explaining how accountability is controlled whilst employees are divided into teams at the operational level. The HR executive can and should play an important role in this area as well.
1.5 – Managing Human Capital
Organizations rely on a human resources department to manage remuneration policies and the resourcing and development of their human capital requirements. For this purpose, special policies have to be developed and
implemented by each organization, securing that it is fully empowered and functions effectively.
Appendix I: Example position profile
Appendix II: Example competency profile
1.6 – The Role of the HR Executive Today
There are greater pressures than ever on organizations to put the right people into the right positions. A highly experienced HR professional is needed by most organizations – merely in order to survive. We examine the role of the HR executive relative to organization development.
Section 2 – Guaranteed Pay
2.1 – Job Evaluation and Grading Systems
Job evaluation and grading is undertaken by organizations in order to (a) benchmark their pay scales more accurately against the market and (b) rationalize pay internally in an equitable way. Different grading systems suit different organizations.
Appendix 1: Paterson Grading Principles
2.2 Benchmarking Remuneration
Remuneration levels within an organization should be benchmarked periodically against the open labour market. Sound approaches and methodologies should be used in order to be able to draw valid conclusions.
Appendix 1: General Staff Benchmarking
Appendix II: Example: Senior Executive Benchmarking
2.3 Closing the Wage Gap
The top management teams of SA organizations are confronted by a particular challenge in 2015 – to consider (and justify) the wage gap that has developed in their organizations. This should in the first place be measured correctly; then, national and international comparisons duly made. Finally, steps to be taken to narrow the gap should be reviewed and implemented where necessary.
2.4 Competency-Based Pay
The recognition of the competencies of employees may be formal or informal. Arguments are put forward in this chapter for the formal or systematic recognition of competency in the development of a merit increment reward policy, giving all employees a career path, whilst more efficiently managing the talent that lies untapped within the human resources of the organization.
2.5 Skills Development
The Skills Development Act of 1998 provides employers with a framework that can be used to enhance the education and skills of employees, including so-called previously disadvantaged employees. This legislation can and should clearly then play a role within the context of the broader organization development plan.
2.6 Employment Benefits
The granting of core retirement, catastrophe and healthcare benefits to employees has been a common employment practice in SA for a number of decades. However, radical changes in practices have been precipitated at different times by legislation, and, more recently, practices have become more structured by virtue of the widespread adoption of the so-called â€˜cost to company package approachâ€™.
Section 3 – Variable Pay
3.1 Performance-Based Pay
As a matter of fair-play, one cannot today ask any employee to try harder or make any sort of commitment to excellence without indicating what is in it for him or her by way of reward; and so, as a result of this, we observe
the widespread adoption of performance-based incentives as a strategy by which organizations tackle and overcome
productivity issues at every level.
3.2 Focus on Team
The scope for team-based incentives should be explored early during the scheme selection process â€“ in order to take advantage of what such incentives can achieve. A study of this will inevitably involve issues of focus and scale, and
so-called â€˜value-added theoryâ€™, which are the topics for discussion in this chapter.
3.3 Focus on the Individual
The objective of individual-based incentives is not to simply retain key people and star performers. It is to induce the
star performers to work with other employees, to show them what to do and to lead them by example. Alternative reward and recognition approaches which achieve this are reviewed here.
3.4 The Production Bonus
A production bonus scheme can be introduced to reward an individual or a team for exceeding an agreed through put or output target. Outsourcing to small business enterprises can also be considered.
Different gainsharing formula can be used in different circumstances to reward productivity enhancement and the
more efficient resourcing of the organization. Case studies demonstrate to us where gainsharing may be expected to influence behaviour.
Appendix: Gainsharing within insurance company
Appendix: Gainsharing within Manufacturing Plant
Appendix: Gainsharing within Distribution Centre
Broadly-based profit-sharing works well in certain situations- particularly where the financial performance of small
independent teams of employees (for example, branches) can be measured accurately by the accounting system. â€˜Super-profit-sharingâ€™ is a sound alternative approach that can be considered in order to fund bonus pools that are to be shared by teams.
Appendix: Profit sharing within consultancy
3.7 The Performance Bonus
The proliferation of multifactor scorecarding is largely attributable to the facility that this opens up to introduce non-financial performance criteria into team-based incentive schemes. Managers are able in this way to introduce
realistic targets and direct rewards for their teams. Some central planning is however essential if these systems are to retain equivalence of stretch and goal-orientation across the whole organization.
3.8 Award Schemes
Achievement and suggestion award schemes succeed in some circumstances and not in others. One needs to be sensitive to the culture of the organization and the aspirations of the people in the organization, and one needs
to understand when schemes of this kind may be expected to make a real difference.
Appendix: Example of suggestion scheme
Appendix: Examples of award schemes
Section 4 – Performance Management
4.1 The Contractual Framework
We trace the causes for the widespread adoption of more formal performance management systems withinÂ organizations today. The case in favour of a more formal and systematic approach is examined and reviewed.
4.2 The Strategic Development Programme
The top management team is responsible both for the delivery by the organization of what it is obligated to deliver to stakeholders and also for the implementation of the strategic objectives prioritized by the Board during the year. The individual roles of each senior executive are accurately defined on a functional basis, paving the way for cross-functional evaluations of the performance of each.
4.3 Key Result Areas
The senior line managers in an organization have to interpret and implement the decisions of the executive committee. They are in charge of the engine room of the organization, and must remain single-mindedly focused on results. Their performance scorecards should reflect this.
4.4 Support Structures
The performance of the workers and support staff of an organization may be assessed on the basis of the performance of the department. Individual performance appraisals may be effective in many situations supplementing the process, whilst giving line managers a tool with which to influence behaviours positively.
Appendix: Using Cross-Functional Committees
Appendix: Performance Review Documentation
4.5 Managing an Effect
Section 5 – Sales Incentives
5.1: Selling Strategy
The selling strategy is part of the tactical plan by which the marketing strategy will be achieved. It covers the resourcing of the sales team and also the form of the remuneration that is to be offered to the members of the team.
5.2 – The Scale of the Commission
It is important to get the â€˜commission rateâ€™ correct, and the rewards meaningful, on a scale which influences the behaviour of sales representatives positively on the one hand, whilst shareholders get a fair return on the other. If
these criteria are met, it will be a win-win arrangement and viable in the long-term.
5.3 – Share-Based Incentive Schemes
The most common motivation and retention strategy found within commercial concerns in SA today for senior executives involves the granting of share options or the equivalent in share-based rights to them, aligning their interests with those of shareholders and providing them with an opportunity to earn substantial rewards if shareholder value is created.
5.4 – Influencing Behaviour
It is vitally important to all employees and stakeholders in an organization that the sales incentives are successful in
influencing the behaviour of the sales force. We examine then the typical characteristics of successful incentives in
5.5 – Individual or Team Focus
The merits of team-based incentives are reviewed in this chapter in the context of the worldwide movement towards
team-based participation. The difficulties of recognizing and fairly rewarding the individual star performer in this
situation are reviewed. We show how.
Appendix I: Team-Based Selling Incentives at Work
Appendix II: Commission Pool Sharing Example
Appendix III: Competency-Based Pay Example
5.6 – Performance Based Bonuses
Traditional sales incentive measures can be incorporated with other performance measures in a general scorecard
which is then used as a basis for a performance bonus. This may broaden the outlook of sales representatives, and allows for quality control criteria to be introduced into the equation.
5.7 – Achievement Awards
Financial rewards, although themselves a form of recognition, often do not cover all situations in which recognition and reward is warranted. Organizations may therefore need to supplement their formal financial reward systems with defined special awards and prizes.
5.8 – The Remuneration Package
To attract and retain a sales representative in the 21st Century, selling organizations need to be able to offer a well-balanced package which satisfies both the short- and long-term aspirations of the employee. Sales representatives need to adapt as well, responding to changing conditions and in particular to the IT and communications revolutions.
Appendix I: Example Package
Appendix II: Example Allowance Adjustment
Section 6 – Senior Executive Remuneration
6.1 – The Framework of Executive Remuneration
The financial reward system needs to be developed in relation to the management team of the organization on the
sound foundations of a shareholder compact, an effective strategy to tap into the labour market and a performance
management system that secures proper accountability.
Appendix I: Remuneration Policy Statement
6.2 – Package Structure
Senior executives receive their remuneration in different forms – guaranteed, performance-related and long-term. When benchmarking senior executive remuneration it is essential to take all forms of remuneration into account. Beyond this an appropriate balance between the different forms should be maintained.
6.3 – Short-Term Incentives
The variable pay dispensation of the top management team of an organization is determined based on fundamentally
different principles as compared to other employees. Accountability and corporate governance issues need to be at the core of the agreement. The focus on functional effectiveness is critical. Risk and reward needs to be balanced in an appropriate way.
Appendix I: Performance Bonus Scheme
Appendix II: The Basis of Profit-Sharing
Appendix III: The Rate of Profit-Sharing
Appendix IV: Calculating Super Profits
Appendix V: Bonus Scale
Appendix VI: Total Shareholder Return
Appendix VII: Earnings per Share
6.4 – Long-Term Incentives
It has become a convention in SA and worldwide in terms of sound principles of corporate governance to offer senior
executives both a short-term incentive and also a longer term incentive. We review the form and scale of the so-called â€˜long-term incentivesâ€™ in this chapter.
Appendix I: The Scale of Long-Term Incentives
6.5 – Succession and Retention Strategy
The HR executive should assist the CEO to appoint the right people into the key senior executive roles – then to get
the maximum contribution by them towards organizational development. A range of policies may need to be developed under this heading to ensure that there is a continuous input of management talent at the top.
Appendix I: Computing Restraint Compensation
Appendix II: Checklist of Retrenchment Procedures
Appendix III: Retrenchment Policy
Appendix IV: Calculating Term Remuneration