Strategic Remuneration – The Basics You Need To Know
By Anita Vermeulen
What is Remuneration?
What do people think when they hear the term remuneration?
We all think that remuneration refers to the basic salary that we receive for hours worked.
However, remuneration also entails the variable pay and benefits that we receive such as commission, allowances, pension, medical aid, funeral cover etc.
Remuneration is one of the most important Human Resource Management functions that forms part of the employment relationship.
It creates the foundation of the relationship as the employee “sells” their services to the employer, and in return, the employer “pays” them for their services/output.
The traditional approach to remuneration was that it was a single function of the Human Resource activity and focus was on paying the employee a fair salary for a reasonable output/production.
However, in the modern workplace, the business environment has changed, and so too has the remuneration landscape and the nature of the workforce.
With changing circumstances such as a diversifying workforce, globalisation, technological advances and changing labour legislation, an organisation is therefore compelled to apply an international approach to remuneration within their local context.
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Remuneration as a total rewards approach
In the current workplace, there has been a shift towards a total rewards approach.
With a diverse workforce such as dual-career couples, ageing employees who are retiring later, and the generation of “millennials” entering the workplace, a more holistic approach to remuneration is needed instead of the usual “one size fits all approach”.
For instance, a dual-career couple with children may be interested in flexible working hours or a work-from-home option, whereas older employees might be more concerned with a good medical aid or pension plan provided by the company that they work for.
And finally, a “millennial” would more likely be interested in “work-life integration”, where their work is structured around their lifestyles, and so they can use the top technology available to work on the go whenever, and wherever.
The focus is thus on structuring the total rewards package to cater to this diverse workforce and their unique requirements.
Strategic remuneration is about implementing a remuneration strategy that will align the internal environment and the processes of organisations with the strategic goals and long-term objectives of the business itself.
It does not help if employees are simply enacting their daily routine at work and have no knowledge the company’s objectives for the future, let alone are not motivated to assist in achieving those objectives.
An organisation’s human capital is their main resource in reaching organisational objectives as well as obtaining a competitive advantage over other businesses, and one of the key motivators to achieving the goals in question is a remuneration strategy.
Also read – Performance Management & Job Grading
Strategic remuneration attempts to establish the following:
- What are the organisation’s business goals?
- What is expected of employees in their assistance to achieve business goals?
- How can remuneration be used to motivate employees to achieve business goals?
What are the main objectives of a Remuneration Strategy?
- To attract top-class talent to the organisation – specifically those “millennials” we were talking about earlier
- Retain employees
- To motivate employees
- To comply with legislation and manage labour costs efficiently
What are the building blocks of Strategic Remuneration?
Internal alignment – internally perceived fair pay
- Job Analysis, job evaluation, and job hierarchy
External competitiveness – what are my competitors paying and what benefits?
- Remuneration surveys – publications, remuneration surveys, and consulting firms
- Benchmarking – ideal market-related pay
Employee contribution – how to motivate and reward employees for performance
- Pay for performance: individual rewards, team incentives, and organisation-wise rewards
- Bonus, merit pay, and stock options profit sharing
Employee benefits – total rewards approach to employee benefits
- Protection programmes – Pension and medical aid
- Paid time off – Study leave
- Services – Employee wellness programmes
- Other benefits – Staff lunches, flexible working hours
The above elements are all crucial in creating a total reward package that a company can then use as part of their Strategic Remuneration plan.
In so doing, a company can achieve a competitive advantage in their industry by using their workforce as the main driving force to reach their short-term and their long-term goals.
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