Standing Out as an Employer

How you can manage talent from different segment groups Remuneration specialist Dianne Auld talks to Isabella Chan how to approach the area of compensation for talent from particular segment groups, who to look to when benchmarking pay rates and key compensation trends to look out for this year.

By Dianne Auld

One of my clients, the RCS Group, implemented an excellent recognition programme this year. Every month they solicit nominations for awards in each department, and once a month they have a recognition road show, where they do a noisy and fun tour round the offices, most of which are open plan.

They take round with them a treasure chest on wheels, full of presents and citations for each winner. In each department, the tour group parks the treasure chest, they ring a bell, everyone gathers round, the manager of the winner reads the citation, and the award winner can choose a gift from the lovely array of items in the chest and pin the citation on their office wall. For more significant awards, the employee can choose any gift to a certain amount, and this will be purchased for them. There are also other types of awards – the overall winner of the month gets a designated parking spot right near the entrance, and a meal named after them for the month.

I love the creativity of this programme, and it has greatly increased employee motivation and engagement in a largely administrative and call centre environment. I had the pleasure of joining in a recognition road show last month, and could see firsthand the positive impact on employees.

Dealing with talent from particular segment groups
Generally organisations use one of three models in terms of their compensation base pay structures. All of these can be effective, and their use is dependent on the type and location of the organisation. The three models are:

a) Using one overall pay structure for all jobs in the organisation – this works well if the organisation is based in one geographical area, and there aren’t large functional differences in pay;

b) Separate pay structures for different geographical areas – this is necessary if the areas in which the organisation operates differ significantly in terms of pay, and is often appropriate in large countries, such as the United States and China, where pay differs greatly between the major cities and other areas. If an organisation operates across different countries, it is essential that they use at least one pay structure per country, as pay differs significantly from one country to another; and

c) Separate functional pay structures – this works well if there are major differences in pay between different functions in the organisation, e.g. administrative and technical.

In addition to the above, organisations may also use separate pay scales for hourly paid and salaried staff, or unionised and non unionised jobs, or executives and other staff. Whichever structure is used, the organisation would also need to examine whether there are certain positions, e.g. Engineers or IT Specialists, who need to be paid above the normal pay scales because of scarcity of skills. The organisation can do this in several ways.

Firstly, they could develop separate pay scales for these positions. Secondly, they could pay a percentage premium on top of the normal pay scale for these positions. Thirdly, they could pay these positions an allowance or provide additional benefits to ensure that their total reward package is higher. Or they could pay attraction or retention bonuses to these positions. All four of these options are used, but the first two are the most common approaches.

I would also recommend managing Sales staff separately from the normal pay scales, as they need to have a lower base pay and a higher variably pay component to their salaries. Sales staff are often paid a fixed amount of base pay and then given commission based on sales. So it is a good idea to have a separate pay structure for sales positions.

When benchmarking pay rates, look to…
The large number of salary survey providers, who provide market data in almost all countries of the world. Some of the large global salary survey providers are Hay, Mercer, Towers Watson, Deloitte and Global Remuneration Solutions. I always prefer to use established salary surveys with large samples for benchmarking pay rates, as the data from these surveys is generally more reliable, stable and representative of the market.

When choosing a salary survey, I would use the following criteria:

a) Ensure that the survey is representative of your target market. Your target market is where you draw employees from or lose them to. This could differ by level and function, and could be a specific industry or geographic location.

b) Ensure that the sample size is large enough, that the companies in the survey are companies you wish to compare to, and that the survey can break data down by industry, area, job, grade or however you require the data.

c) Ensure that the survey company is reputable, and that they are using a sound methodology to collect information, validate data and value compensation packages. If benefits are an important part of the reward offering in your country, ensure that benefit information is collected, and that benefits are valued as part of the package.

d) Ensure that the data is uploaded electronically, and can be downloaded electronically into Excel spreadsheets. Manual data and pdf files are a nightmare to work with, as they have to be manually re-captured for analysis.

e) Ensure that the survey is run on a regular basis, at least once a year, so that the data is reasonably current. Ensure that the survey provides pay increase projections so that the salary data can be aged to the required date.

Three key compensation trends to be on the lookout for 2011
Trend 1 – a continuing move from share option schemes to share grant schemes due to the need to expense share options, their unfavourable tax treatment in some countries, and a view that share grant schemes are less of a lottery, result in less share dilution, and tend to be retained by employees, resulting in more of a sense of ownership.

Trend 2 – driving variable pay schemes to lower levels in the business and substituting merit increases, which are ineffective at differentiation in low inflation environments (you can’t vary increases much with a 3% merit budget), with individual performance linked variable pay plans.

Trend 3 – offering more flexibility in terms of pay, benefits and working hours – for example, allowing employees to choose where they want to allocate their compensation package to, allowing choice of retirement fund vehicles or health fund coverage, allowing employees to work compressed work weeks, work from home or work flexible hours.

When monitoring pay for effectiveness and efficiency, keep in mind that …
You need to ensure that the pay structure is promoting both internal and external equity. So it must differentiate fairly internally between different levels and types of employees, and enable the company to pay close to its target market. You can determine whether it is achieving this by looking at the number of pay grades, the pay scale ranges, overlap and pay slope, the position of employees within the pay scales, and by comparing internal salaries and pay scale midpoints to market rates as determined through salary surveys. You can also monitor labour turnover rates, and examine exit interviews to determine whether employees are leaving for pay reasons.

Finally, you must also focus on the total reward offering and ensure that you are getting the whole reward offering right in terms of pay, benefits, performance and recognition, work life balance and career and development opportunities, as different aspects of the reward offering will appeal more to different employees.

A pay for performance system is the best system to employ
Yes, I believe that both base pay and variable pay should be linked to performance. Base pay should be based on the type of job the person is performing, what the market is paying for that job, and individual ongoing performance. Variable pay should be based ideally on a combination of individual, team, business unit and/or organisational performance, but the exact structure of variable pay will depend on the organisation and the type of plan. It is important to link pay to performance, as this sends a powerful message to employees that performance is measured and rewarded.

Fundamentals to adhere to, when designing variable pay and the structure of the plan
A very complex question to answer in any depth but a few key points…..Variable pay plans must be designed to achieve a business objective. Rewards must be of sufficient size to be motivational to the employee, but they must also be affordable for the organisation. Variable pay plans should differentiate significantly between those who do and do not achieve results. Targets must be seen as achievable. The plan must be understandable and well communicated to be effective. Managers who understand the business must be involved in the design of variable pay plans affecting their area. 

Dianne Auld was born and educated in Zimbabwe, where she obtained a BSc Psychology Honours degree. She spent a year in Malawi, teaching English and Maths before moving to South Africa. Dianne has held a number of remuneration positions, with Richards Bay Minerals, Unilever and Old Mutual and currently works part time for Pick n Pay, where she advises on remuneration policies and practices. In 1999 Dianne started up her own remuneration consulting practice, Auld Compensation Consulting, operating out of Cape Town. She consults in all areas of compensation to a wide range of organizations across Africa and the Middle East, runs a number of her own training courses, and trains the Worldatwork Global Remuneration Professional courses both locally and on line.

Since November 2008 Dianne has been writing a weekly column for the Worldatwork Compensation Newsletter on Excel Tips for Compensation Practitioners. In October this year Dianne received an honorary life membership of the South African Reward Association for her outstanding contribution in fostering the aims of the association.

Article Source: http://www.hr-matters.info/feat2011/2011.jan.StandingOutAsAnEmployer.htm