HR Insights  /  Remuneration Insights

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What is Total Rewards? 

​By Mansour Bakr, PHRi, SHRM-CP
Posted 27 January 2019

In an extremely competitive market place for talent, most companies are focusing on incentives and intrinsic elements to motivate and improve retention. Any arrangement must be looked at within the context of the company philosophy on ‘Total Reward’.
 
Exhibit 1: Common Examples of Reward Elements 

Why is reward a strategic issue?

• Represents an investment in the most valuable asset in the organization: Human Resources
• Is often the biggest recurring annual cost
• Provides an excellent mechanism for aligning organizational goals with employee goals
• Provides major communication to employees about what the organizational values are and their progress in the organization
• Major leverage on employee behavior

How is pay changing?

1. Business orientated “New Pay” is a way of aligning & optimizing performance. 
2. Administration orientated “Traditional Pay” is a way of controlling employment costs.

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Exhibit 2: How is pay changing

Objectives of Reward Strategy
To enable the organization to recruit, retain and motivate the caliber of employee necessary to support the achievement of organization goals without incurring unnecessary or excessive costs.

Common Reward Life-Cycle Stages:

Stage 1 - Start-Up

• Pay is managed by the Finance Director
• Pay is perceived as an overhead cost to be controlled
• No Pay Scales; There are simply ‘spot’ pay levels for everyone
• No formal job evaluation
• Performance rewards are discretionary
• Links between skill and competency acquisition and reward are unexplored

Stage 2 - Maturity

• Remuneration levels are set based on systematic monitoring of market data
• Competitive benefits of which the core is harmonized among employees
• Job evaluation are managed by use of formal approach
• Performance rewards are underpinned by formal approach
• Flexible approaches to Reward Management to support organization’s strategic objectives
• Good communication on reward issues with the employees
• A sensible balance is struck between central and devolved control over pay decisions; emphasizing line management involvement in and ownership of remuneration policy

Stage 3 - Old Age

• Rigid pay structures are typically based on length of service
• Rigidity and over emphasis on status and hierarchy in benefits and entitlement
• Long-established, bureaucratic and often outdated approaches to job evaluation reflect old organizational values in design, application and hierarchies requiring an army of specialists to maintain
• Performance Management are regarded as dishonest annual rituals
• Market monitoring is over-systematized and often very costly
• Policy development is over centralized

Stage 3 - Renewal

• Policy is decentralized and devoted down to individual business units
• Old pay structures, incentive schemes and progression systems are abandoned as too costly and too complex to administer
• Broad banded pay structure is introduced to match a delayered organization
• Benefit policy is revised, eliminating all superfluous items and allowances in favor of ‘clean cash’ and move towards flexible benefits
• Competence-based or Team-based pay is introduced, and performance awards are paid only for demonstrable added value

Reward strategy can be achieved through:

• Strong internal equity based on effective job evaluation;
• Proper market alignment through effective comparison and positioning against reliable external market data on pay and benefits;
• Structuring the “package” to get the right balance between, basic salary, bonus, allowances and benefits;
• Developing an effective link between remuneration and job performance.

Policy setting and costing ‘Best Practice’ approach:

• Determine the relevant markets for comparison
• Establish the desired ‘market position’
• Compare your data to the market
• Calculate and test alternatives
• Select the ‘best’ alternative

Positioning against the market depends on:

• Competitive practice
• Affordability
• Business economics
• Culture

Reward Audit
Answer and score the questions for your organization.

Score:      A=12     B=8     C=4     D=0

Exhibit 3: Reward Audit

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