HUMAN RESOURCE MANAGEMENT I
HRM105D
MODULE – LEARNING OUTCOME 7:
LEARNING OUTCOME 7: REMUNERATION AND REWARD
AC1 Define remuneration and reward
AC2 Discuss the objectives of a compensation system.
AC3 Analyse and discuss the design of a compensation system.
AC4 Analyse and discuss the conventional evaluation methods
AC 5 List and discuss the emerging pay systems.
AC6 List and discuss broadbanding
AC7 List and discuss employee benefits
AC8 Discuss benefit planning and flexible benefit plans.
AC9 Discuss the typical employee compensation issues in South Africa.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DEFINE REMUNERATION AND
REWARD
• Tangible and intangible rewards that are received by an
employee in exchange for his or her work. This mostly entails
the payment of money, although so-called fringe benefits (e.g.
additional leave), which may include non-financial payments,
also contribute to motivating employees to achieve the required
outputs at the required performance standards.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
INTRODUCTION
• The impact of technology on the workplace today is great.
• Human resources (HR) is a strategic partner in the organisation.
• HR professionals are expected to design, implement and evaluate programmes that
meet organisations’ needs and goals.
• Critically, HR professionals need to monitor the external environment and how it may
impact on the organisation and employees, for example, the Covid-19 pandemic
• Recruitment and selection processes- the candidates chosen to fill vacant positions
must have values that are the same as those of the organisation.
• Values are the key drivers of human behaviour.
• Compensation management is a critical HRM practice in moral reasoning and ethical
behaviour.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
INTRODUCTION – NEW
CHALLENGES FACING HR:
• Compensation and reward systems previously focused on financial rewards.
• The new generation and the challenges of the 4th Industrial Revolution (4IR) will
move the focus to the holistic attractiveness of the organisation and workspace.
• It will become increasingly difficult to:
• Formulate reward and compensation systems
• Attract talent
• Retain talent.
• The subject of pay has become increasingly complex.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
INTRODUCATION –
COMPENSATION SYSTEM
• A compensation system is a reward mechanism based on the
allocation, conversion and transfer of a portion of the revenue of
an organisation to its workers and staff for their monetary and in-
kind claims on goods and services.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
INTRODUCATION –
COMPENSATION SYSTEM
Faculty of Management Sciences – Department of People
Management and Development (PMD)
INTRODUCTION – TOTAL
COMPENSATION PACKAGE
• The total compensation package can be classified into the
following eight dimensions:
• Pay for work and performance
• Pay for time not worked
• Disability income continuation
• Deferred income
• Loss-of-job income continuation
• Health, accident income continuation
• Spouse (family) income continuation
• Income equivalent payments.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
INTRODUCATION
• An ideal compensation system encourages employees to work
harder and with more determination.
• It also helps an organisation to set standards that are job
related, realistic and measurable.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
THE OBJECTIVES OF A COMPENSATION SYSTEM
• Motivation can be improved by rewarding good performance and offering
incentives.
• If rewards must stimulate desired behaviours, they must meet the
demands of the relevant employees.
• A good compensation system will attract and retain talent and the
organisation will be the winner.
• Individuals are encouraged to behave ethically or unethically in
organisations when they are incentivised to do so.
• It is important that organisations examine their reward systems to ensure
that the preferred behaviour is reinforced.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DESIGN OF A COMPENSATION
SYSTEM Value-added compensation
Value-added remuneration systems focus on how elements of the
remuneration system create value for both the organisation and its
employees.
A remuneration system becomes value adding when the system designers
take into account employees’ priorities as well.
Rewards are ranked differently at different times; for example, actual
pay/cash ranks highly as a reward during an employee’s early career stage.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
VALUE ADDED COMPENSATION
• Value-added remuneration is described as the components of the remuneration
package such as benefits, base pay, incentives etc., which both separately and
in combination create value for the organisation and its employees.
• Employee value proposition:
• Traditionally the psychological contract between the employer and
employee which was based on unwritten and unspoken expectations and
assumptions about the employment relationship, work content, career
opportunities and remuneration
• Today employees want a good experience with an employer - influenced by
the reputation of the organisation.
• Employee on lower levels want and need to be treated with dignity and
humanity – inclusivity, respect and growth.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
VALUE ADDED COMPENSATION
• Employee value proposition can be defined as:
• A unique employer brand statement highlighting the physical, psychosocial and career
programmes offered to employees in exchange for their affective, normative and
continued commitment to the organisation and their intention to serve.
• Remuneration and rewards stretch much further that financial benefit only and involve a
total remuneration strategy that considers employee needs and values on different levels
and includes different elements, within the context of the organisation and the external
environment.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DESIGN OF A COMPENSATION
SYSTEM
TOTAL COMPENSATION
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DESIGN OF A COMPENSATION SYSTEM –
VARIABLE PAY
Profit sharing
Gain sharing
Variable pay: based
on performance
Goal sharing
Combination
plans
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DESIGN OF A COMPENSATION SYSTEM –
VARIABLE PAY
• Variable pay changes are based on performance and it is
often associated with sales - commission based on sales
made.
• Executives may also earn bonus based on profit.
• Variable pay plans are compensation systems that pay cash
bonuses to a defined group of employees base on
predetermined measure of group or organisation
performance.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DESIGN OF A COMPENSATION SYSTEM –
VARIABLE PAY
• Four basic variable pay approaches:
• Profit sharing: The payout is determined by some measure of profits or returns
- organisation’s return on investment (ROI).
• Gain sharing: Share financial gains associated with improvements in measures
of organisational or team performance with employees.
• Goal sharing plans: Predetermined payouts for the
achievement of goals.
• Combination plans: Combination of the above plans.
• Employee benefits: benefits and rewards allocated
to employees for being members of the organisation.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
PURPOSES AND IMPORTANCE OF
TOTAL COMPENSATION
• To attract potential job applicants.
• To motivate employees.
• To retain good employees.
• To administer pay within legal constraints.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
A MODEL FOR DESIGNING AND IMPLEMENTING
A NEW COMPENSATION SYSTEM
Faculty of Management Sciences – Department of People
Management and Development (PMD)
CONVENTIONAL JOB
EVALUATION METHODS
• Job evaluation is defined as “An administrative procedure used
to measure job worth.’
• Job evaluation is a process that involves calculating the
requirements, contribution or worth of a job and then classifying
or ranking them in order of importance.
• Job based compensation system aims to allocate
pay so that the most important jobs are paid the
most.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
CONDUCT JOB ANALYSIS
Faculty of Management Sciences – Department of People
Management and Development (PMD)
IDENTIFY COMPENSABLE
FACTORS
Faculty of Management Sciences – Department of People
Management and Development (PMD)
IDENTIFY COMPENSABLE
FACTORS
• Popular job evaluation methods include job ranking, the
classification method , the factor comparison method and the
point method.
• A trained job evaluation committee carries out the factor
comparison and point methods of job evaluation.
• The committee member should have adequate knowledge of all
work areas in the organisation and should have received basic
training in job evaluation methods.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
DEVELOP A JOB HIERACHY
Faculty of Management Sciences – Department of People
Management and Development (PMD)
CONSTRUCT JOB GRADES
• A job hierarchy allows an organisation to classify the jobs into
grades.
• All jobs in a given grade are judged to be essentially the same
in terms of importance.
• All jobs in a specific grade would be paid relative to one
another, and to other jobs in the organisation.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
CARRY OUT COMPENSATION
SURVEYS
What is a compensation survey?
• A survey to determine data for creating, adjusting or updating an
organisation’s pay system/compensation.
• Can be purchased, outsourced or conducted by the organisation
itself.
• Generally yield ranges of data for different salary grades.
• Assesses the value of the job to the organisation, not to the
value of the person doing the job.
• Needs to be accurate.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
ESTABLISH FINAL PAY POLICY
Faculty of Management Sciences – Department of People
Management and Development (PMD)
EMERGING PAY SYSTEMS
• Pay for knowledge and skills
• Pay for competencies
• Performance-based pay
• Incentive pay systems
Faculty of Management Sciences – Department of People
Management and Development (PMD)
BROADBANDING
• Broadbanding is a method of remuneration administration in
which the number of pay grades with multiple pay points is
reduced into a few broadbands, with a range of paying points
within each band.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
BROADBANDING
ADVANTAGES:
• Supports a culture of values and customer satisfaction
• Broader focus which encourages employees to experiment and apply
themselves here change and innovation are required.
• Employees become more empowered as managers and have
increased spans of control, necessitating employees to self-manage,
work in teams and be accountable.
• Reduces an orientation of climbing the organisational ladder
• Aligned with the concept of boundaryless organisation.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
Faculty of Management Sciences – Department of People
Management and Development (PMD)
TYPES OF BENEFITS
Unemployment
insurance
Mandatory benefits – benefits that
must be provided by law
Compensation for
injury and disease
Faculty of Management Sciences – Department of People Management and
Development (PMD)
Vacation leave
Paid public holidays
Time for personal matters
Sick leave
Voluntary benefits – voluntary
benefits (do have a certain Maternity leave
legislated minimum)
Health and life insurance
Medical aid schemes
Pension funds
Employee services
Faculty of Management Sciences – Department of People
Management and Development (PMD)
BENEFIT PLANNING AND
FLEXIBLE BENEFIT PLANS
Organisations want to:
• Meet the needs of the organisation and its employees through a remuneration and
benefit package.
• Attract talented people that are engaged and then retain them.
• Ensure health and wellness of employees.
• Take the changing environment into account when planning and developing
benefits. For example flexible working arrangements.
• Different generations have different needs
• Purpose of benefit structure – understanding employee needs and that they are
unique.
• Employees must have choices in terms of what is being offered and used.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
A FRAMEWORK FOR BENEFIT
PLANNING AND
IMPLEMENTATION
1. Determine the organisation’s philosophy in terms of people matters, in alignment with business
and finance strategy. This philosophy is adopted and owned by senior management.
2. Monitor the market in terms of benefits.
3. Use HR metrics to develop a clear understanding of the workforce, including their biographical
data and needs.
4. Determine programmes that fit the organisation’s strategy, the nature of the workforce and
budget.
5. Develop a competitive benefit plan, aligned with the overall rewards package and organisational
brand, and including options, cost, administration and management arrangements.
6. Make provision for manoeuvrability or flexibility within the benefits structure to cater for employee
individual needs, lifestyle choices and life stages.
7. Develop a comprehensive communication strategy.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
COMPENSATION RELATED
ETHICAL ISSUES
• An ethical organisation can only be created and sustained by
establishing a reward system for those employees who contribute to
the organisation’s ethical objectives.
Faculty of Management Sciences – Department of People
Management and Development (PMD)
COMPENSATION-RELATED
ETHICAL ISSUES
• Executive compensation – CEO Steinhof example. When the target is
not achieved, the CEO may feel compelled to manipulate the financial
statements or engage in unsustainable practices to reach these
targets.
• Payroll fraud – Example of “ghost employees” with false employee
profiles.
• Employee benefit fraud – Example of UIF fraud
• Compensation for Occupational Injuries and Diseases Act – target of
fraud
• Sick leave abuse
Faculty of Management Sciences – Department of People
Management and Development (PMD)
Thank you
Faculty of Management Sciences – Department of People
Management and Development (PMD)