Remuneration is an important aspect of the employee-employer relationship.  It is based on the exchange-relationship between employees and employers, and reflects an economically motivated process where certain inputs from the employee (physical and intellectual behaviour) are exchanged for outputs (money) paid by the employer.

Remuneration paid to employees should be based on a substantive and procedurally fair philosophy & policy. It is one of the most important factors that influences an individual to enter the service of a specific employer.  The other important aspect of work motivation is the nature of the work.  If the employee is unhappy with his/her remuneration, there is a good chance that he/she will not work for the organisation for long.

It is therefore extremely important to compile a remuneration policy for the organisation.  In order to manage remuneration successfully according to scientific policy, the following aspects should be addressed:

• Updated job descriptions
• Job grading (relative weight or value of positions)
• Determining salary trends (market surveys)
• Development of salary scales
• Determining individual salaries

These important steps towards a remuneration strategy & policy are explained below.

JOB DESCRIPTIONS

The first step in creating a remuneration system, is the compilation of job descriptions. A job description is a logical summary of the scope of responsibilities, the nature of duties and the results expected from a particular position. Job descriptions also serve as a record of the psychological contract entered into between the employer and employee via a process of dynamic consultation. Job descriptions provide clarity (and acceptance) of what is expected of an employee.

JOB GRADING

After job descriptions have been created for all job types, they can be graded. Job grading is a systematic process used to determine the relative value of each position in an organisational structure in relation to other positions in the organisational structure.  The goal of this process is to place all of the positions in a logical hierarchical ranking of relative value or importance. By grading positions with reliable and objective instruments, positions in a particular structure can also be compared with similar positions in other organisations.

It is important to note that positions are graded and not employees. Job grading should therefore not be confused with the performance/ merit evaluation of individual employees. Job grading instruments evaluate the degree of complexity of a particular position’s job content as well as the knowledge, skills and other social and physical attributes required to perform the set tasks and deliver the agreed outcomes. This is done without any reference to the characteristics and performance of people currently occupying these positions. The only objective of this process is to establish a logical hierarchy of positions in a given structure.

Job grading provides employers with the opportunity to compare the remuneration that they offer to employees, with the remuneration offered by other employers for similar job grades. Statistics for different positions (professions), industries and regions can be obtained as a basis for comparison. Job gradings and market statistics enable employers to develop unique salary scales and benefit structures with the objective to provide market-related and fair remuneration.

SALARY MARKET TRENDS

Through the job grading process, a basis for internal comparison of positions is created, as well as the foundation on which positions can be compared to similar positions in the market.  After all, organisations function as open systems within the market environment. If a standard job grading instrument is used, salary data can be obtained from the surveys of consultation firms.  This information usually reflects the data of very large samples from the labour market, and is statistically well processed.  Information for a specific region or industry, job type or job level, can usually be derived from it.  Overall trends also provide a valuable framework for decision-making. Own investigations can also be launched, where research can be maintained on an organisational database.  Information obtained from companies in the region, etc. is collected and analysed in order to determine trends.

SALARY SCALE

With a clear picture of the market and the current state of the organisation’s remuneration, a remuneration policy and salary scale can now be designed.  By analysing the company’s performance, the remuneration ability or capacity is determined.  Analysis of the personnel profile, strategic projections, and industry / national / international trends offer a further framework for risk analysis and decision-making.

DETERMINING INDIVIDUAL REMUNERATION

In the modern era, remuneration adjustments have been based mainly on performance (merit).  The broad average group’s remuneration adjustments are primarily linked to the inflation rate (often 1-2% above inflation).  Top performers often receive much higher adjustments than the average.   Above average adjustments, bonuses, profit sharing, promotions and other mechanism rates are used to compensate these people and to secure their services.

Based on our experience over the past 25 years, the majority of performance management systems implemented by employers, unfortunately fail.  Confusion between performance and merit evaluation often occurs, resulting in incorrect application. Merit assessment is an overall assessment of performance (contracted outputs against job description and goals), contribution / functioning within the organisation (interpersonal skills – individual and group) and potential of the individual (strategic contribution and future ability / utilisation). The environment / context in which the organisation and the individual’s function, is also considered.

Merit assessment is a management tool utilised to link the employee’s total contribution towards the organisation to his / her remuneration (both guaranteed and non-guaranteed components). An attempt is made to distinguish between the top performers and the broad group who are compliant, as well as those who are underperforming.

CONCLUSION

Remuneration is of cardinal importance to individuals, since it fulfils important needs.  These needs can range from the most basic, e.g. food and housing, to the more complex needs, e.g. status and power.  Seen from the organisation’s perspective, the management of remuneration is just as important, as it is usually one of the largest cost factors of the organisation, and have a significant impact on the retention of employees.

Contact Joubert & Associates today to assist with the determining of a remuneration strategy and policy for your company.