24 October 2024
Remuneration refers to all compensation given to an individual for their work, services, or contributions. This includes base salaries or wages, allowances, bonuses, superannuation, and other benefits. To remain competitive, attract and retain top talent, it is integral for businesses to use diversified remuneration structures as well as benchmark their remuneration.
REMUNERATION COMPONENTS
Fixed Pay
Fixed pay (base pay, fixed allowances, and superannuation) rewards employees based on their role and value relative to the labour market, providing compensation for consistent performance over time. This component must remain competitive with industry standards to attract and retain high-quality employees. Occasionally, offering a premium for specific skills and competencies is necessary.
Variable Pay
Variable pay encompasses both short-term incentives (e.g. annual bonuses) and long-term incentives (e.g. deferred bonuses) that recognise achievement of company performance objectives. By aligning rewards with performance outcomes, variable pay helps attract, retain, and motivate a high-quality workforce, encouraging exceptional performance and discretionary effort from employees.
Recognition
Acknowledging and celebrating employee’s behaviours and achievements shows appreciation for their accomplishments and motivates continual high performance and commitment to the company. This is beneficial for maintaining job satisfaction as well as employee retention. Such recognition may include being voted Employee of the Month, Week or Year; receiving a simple “thank you,” or contributing ideas to a suggestion program etc.
Benefits
Other benefits (such as Employee Assistance Programs, additional or “bonus” leave provisions, flexible working arrangements, healthcare discounts and gym subsidies) recognise the diverse needs and preferences of the workforce which in turn may enhance job satisfaction and attract top talent.
REMUNERATION STRATEGY
A remuneration strategy is a defined method of paying employees that can be adopted across an organisation to help support its goals and objectives around employee attraction and retention, while ensuring the company financials stay on track. A remuneration strategy may be underpinned by a remuneration framework that can be used as a reference guide to benchmark an employees’ remuneration package across an organisation.
Step 1: Define Remuneration Objectives
To develop a remuneration strategy and structure you must first establish clear remuneration objectives that align with your overall business goals (e.g. attracting talent, retaining employees, motivating performance).
Step 2: Assess Award/Agreement Coverage
Modern Awards and enterprise agreements cover a range of key employment terms and conditions including minimum wage rates. Modern Awards, determined by Fair Work, are industry-specific or occupation-based. Enterprise agreements are similar to awards but are tailored to specific businesses rather than industries or occupations. If a Modern Award or enterprise agreement is applicable to your organisation, it is very important to consider the conditions contained within them prior to setting your remuneration strategy or framework.
If an employee is not covered by a Modern Award or enterprise agreement, their terms and conditions of employment will be governed by the National Minimum Wage, National Employment Standards, and other relevant legislation. These legislative standards must also be considered for staff covered by a Modern Award or enterprise agreement.
Step 3: Evaluate Roles and Classifications
When developing your remuneration framework, you should list all current and potential roles within your business and review each role to assign the appropriate classification level. Classifications are based on criteria such as role responsibilities, qualifications, experience, skills, and job knowledge. For employees covered by a Modern Award or Agreement, the classification determines minimum rate of pay, so accurate classification is crucial.
Step 4: Analyse Competition and Conduct Market Studies
Once each role’s classification is established, you need to look at the market and gain an understanding of what competitors pay for similar positions to make sure you are meeting the market standards. The process of gathering data from salary surveys, industry reports and compensation databases to compare total remuneration (base salaries, bonuses, allowances, and benefits) of specific roles against those of similar positions in the same industry is known as remuneration benchmarking. This helps ensure that pay is fair and competitive, reducing the risk of pay disparities, whilst attracting and retaining top talent and improving employee satisfaction.
It also supports strategic decision making by providing insights into compensation trends and helping organisations adjust their remuneration packages to reflect current market conditions and organisational goals.
Step 5: Develop Your Remuneration Framework
After conducting market analysis, you can establish a salary range for each role that aligns with your company’s remuneration objectives and strategies. This range will set the minimum and maximum salary applicable to each role and will allow remuneration packages to be determined for individual employees by taking into consideration several factors such as competency, experience, knowledge, market conditions, performance, and growth potential. This should also incorporate any relevant allowances for expenses or role-specific conditions (e.g. laundry, meals, first aid, and industry-specific allowances) that may be set out in Modern Awards and Agreements.
Step 6: Establish a Remuneration Review Process
Finally, you should create a formal process for regularly reviewing the remuneration structures across your organisation, as well as strategies to assess and adjust remuneration packages to ensure they remain competitive and aligned with market conditions, employee performance, employee feedback and business objectives.
Tips for Implementing a Remuneration Strategy:
- Involve key stakeholders in discussions to ensure buy-in and alignment with business objectives.
- Develop clear remuneration policies that outline the structure and applicable processes.
- Provide training for managers on how to apply the remuneration framework effectively and equitably.
- Create a timeline for rolling out a new remuneration strategy, including key milestones and communication plans.
- Regularly evaluate the effectiveness of the remuneration strategy and report findings to leadership for continuous improvement.
Korn Ferry
Korn Ferry is a global consulting firm which provides valuable insights into compensation, performance, and organisational structure. HumanKapital is Korn Ferry certified, demonstrating proficiency in Korn Ferry’s methodologies, tools, and best practice. We provide assistance to clients in regard to role grading and classification, remuneration benchmarking, and optimising talent and performance strategies.
For more information on how to effectively remunerate your organisation, please contact us via the link below.
