by Kim Lombard
This is part two of a three-part series.
If you want to balance your needs with those of your employees, the trick is to engage all your company’s stakeholders in authentic and transparent communication. This so that you can design a robust and well-thought-out philosophy to reward all parties involved fairly and effectively. The organisation needs to be rewarded for its people investment people just like employees need to be rewarded fairly for their value. This is where the ‘total reward approach’, which I discussed in the last instalment, comes into play. I look at examples of core reward principles, which underpin a total reward approach, below.
There are a number of core reward principles that must underpin the organisation’s philosophy. These need to be tailored to each company to balance the wants and needs of the various stakeholders. Most importantly, these principles need to be something that the organisation can commit to and live by.
The core reward principles are permanent and play a crucial role in guiding reward decisions, policies, processes and practices.
Some examples of core reward principles could include:
- Internal equity
What does this mean? Does it mean that you need to pay every person exactly the same salary for the same job? Not necessarily. What it does imply is that the organisation endeavours to reward people fairly according to their role, contribution and worth in line with the stated reward principles the organisation subscribes to.
For instance, this could mean that in an organisation that rewards for performance through their annual increase cycle, an employee who consistently performs above average will receive an increase that allows them to move to the top end of the pay scale. However, an employee who consistently under-performs will be positioned towards the bottom end of the scale.
As long as this position can be defended and managed well, the principle of internal equity can apply and engender trust among employees who can clearly see the evidence of a performance principle being applied.
- External competitiveness
It’s important for organisations to position themselves strategically in relation to the external market so that they can attract and employ the skills necessary for them to achieve their business objectives. Where the organisation attracts their skills from, and where it can potentially lose its skills to, is used as an indication of the labour market against which it benchmarks salaries.
How the organisation chooses to define their position in terms of external competitiveness depends on their reward philosophy. They may choose to pay low, guaranteed packages with a high variable pay component because their external competitiveness is important to attract, retain and motivate the employees within their organisation.
It’s also important in balancing the needs and wants of both the employer and employee. If an employee can tolerate a low, guaranteed package with the upside of a high variable component then that is the type of organisation that would suit the employee and meet their needs. It also allows the organisation to manage its risks as it carries a lower fixed cost and pays out higher variable pay usually depending on meeting specific financial and performance-driven conditions.
- Annual remuneration adjustments
Organisations must state how their annual remuneration adjustments work and on what these are going to be based. For example, the annual adjustment could be standard across all grades/levels and employees, and the differentiation only comes into effect in the variable pay programme. This is an important principle which employees need to understand and buy into to see if this meets their needs.
- Rewarding for performance through variable remuneration
Some organisations try to communicate and translate strategic objectives into earning opportunities for each employee through implementing reward schemes. This results in linking reward to contracted outputs and results in line with business strategy.
The power of this approach is that each individual should understand what they need to do to earn their variable pay component and it also allows the organisation to improve their performance (whatever that may be defined as) through the clear and measurable actions of their employees.
A well-thought-out, clearly defined and measurable performance programme – linked to each employee’s outputs – has a huge impact on balancing the needs and wants of both employers and employees. If this is poorly run and managed, it has the potential to create more harm than if you didn’t have this type of programme in place at all.
- Affordability and open transparent communication
It’s critical for organisations to state what their affordability restrictions are of communicating with employees what is realistic and possible in terms of financial reward and in line with non-financial reward.
If this principle isn’t stated, it allows for the wants and needs to lead to the current situations such as the strikes in the mining sector. One cannot over communicate the importance of clear and transparent messages in line with what is possible and realistic in an organisation in terms of pay and reward.
- Free from discriminatory practices
All reward policies and practices should be free of inequitable distinctions, such as discrimination based on personal relationships, race, gender, age and religion. Equitable distinction based on principles aligned to the reward philosophy – such as performance and contributions – can be applied.
- Sound reward management governance
It’s critical that sound reward management governance is applied to ensure that what is intended is actually carried out. The trust in the stated principles – and what actually happens – is damaged when one or more individuals/managers don’t uphold the principles stated in the organisation’s reward philosophy. This is a sure way to ensure that the balance is disrupted and the employer and employee stake their claim on opposite ends of the spectrum and fight until their needs are met – rather than finding the common ground for the good of all parties.
The above list isn’t meant as an exhaustive list of reward principles but rather as a few suggestions of what could be considered and what should be workshopped with all stakeholders to ensure common ground is found.
This article first appeared on HR Pulse.