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Developing Transparent Remuneration Systems

Editorial Team
26/07/2019 10:39 AM

The issue of remuneration is an emotive one that
both sides in an employment relationship need to handle with due care. Because
of its significance in the lives of employees remuneration plays a key role in driving
the performance of any business. A transparent remuneration system which can be
defended should questions arise is a strategic component of sustainable
business performance.

What is happening in many organisations in
relation to remuneration leaves a lot to be desired. In too many cases the
remuneration systems is in shambles and is shrouded in secrecy. If your
remuneration policy and structures are a secret how do you expect employees to
contribute when they do not know the rules of the game. Your salary structures
should not be secret documents. These should be communicated to employees to
enable them to see the earning potential available should they decide to
perform. Because organisations hide salary structures away from employees, they
will always assume there is something being hidden. Communicating the salary
structure to employees is not the same as disclosing an individual salary.
Individual salaries are confidential but salary structures are not. A salary
structure is a tool that every senior manager should have to enable them to
reward employees based on contribution within the organisation’s remuneration
policy framework.

If you find yourselves in a situation where you
cannot defend your salary structures, you might need to review it as a matter
of urgency. A transparent remuneration system should be defensible and should
be subject to scrutiny. Developing a transparent remuneration system gives your
employees an opportunity to determine their earnings by exceeding performance
targets they are given.

The first step in coming up with a transparent
remuneration system is to agree the basis for your remuneration policy. This is
not an easy task since most organisations have deeply rooted entitlement
mindset. The entitlement mindset started with organisations that demonstrated
to their employees that there is no relationship between what they earn and the
performance of the business. As a result employees will always think that what
they get paid has no relationship to the performance of the company. Those
organisations that find themselves in this predicament would need a total
overhaul of their remuneration system.

If your organisation decides to revisit the
remuneration policy, the policy should clearly state that the company will pay
employees based on company performance. A statement of intent like the one
above will not make much difference to the attitudes of employees if it is not
matched by action on the ground. Top executives in the organisation should walk
the talk when it comes to critical issues like this. They need to be paid
themselves based on performance in order for the system to have any impact. The
policy should also clearly state that a basic salary an employee gets is paid
with the hope that the employee performs to the required standard. In many
cases employees demand extra payment for doing exactly what they were employed
to do. Extra payment should only come when an employee has significantly
performed above expectations and these expectations should be clear to all concerned.

The policy should also have specific guidelines
that managers can use to decide what to pay new employees. When deciding pay
for these, it is critical to proceed with caution as there is a likelihood of
overpaying an employee who might fail to perform. Start a new employee on a
reasonably low salary, and assure them that their salary will be reviewed
within a certain period based on their performance. This will however depend on
the demand of the skills that the employee possesses. In some cases employees
who come demanding a premium without proving their worth to the organisation,
can prove a waste of money when they fail to deliver. Unfortunately contractual
obligations will oblige you to pay the agreed high basic salary irrespective of

Avoid ambushing employees on remuneration related
developments by ensuring constant communication on any changes to remuneration.
This also includes making sure employees have clear goals and targets for any
given performance review period. 

Organisations need to know that juggling with
different forms of job evaluation systems will not improve internal and
external equity as long as the bases for paying remuneration are fundamentally
flawed. Some organisations are continuously haemorrhaging financially, simply because they have decided to
use market comparisons alone as a basis for remunerating employees.

Many organisations will need to start afresh in
order to free themselves from remuneration systems that are not based on
business performance. You need to continuously check how much you are spending
on staff costs to generate a dollar of revenue. If you find this figure going
up without a corresponding increase in business performance you might be
heading for trouble. It is also important to note that those that quickly
resort to retrenchment in hard times without addressing the basis of your
remuneration will only experience short term reprieve.

For remuneration systems to work, the fortunes of
the company and the employee need to be tied together. If the company performs,
employees will gain. All the frameworks of the remuneration system should be
communicated to all staff and managers need to use remuneration as a tool to
drive the performance of their subordinates.

Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant - Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. https://www.linkedin.com/in/memorynguwi/  Phone 481946-48/481950/2900276/2900966 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com

Editorial Team

This article was written by one of the consultants at IPC

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