While we may like to believe that employees work for the love of it, the reality is that unless you have a lotto winner on staff, most of your employees will need to receive payment for their work.
The first step in any remuneration review is establishing a fair day’s pay for a fair day’s work. The next step involves developing a structure that promotes and rewards achievement that exceeds expectations. The final step is to communicate your strategy to your team so they know what they are working towards and how their performance and contribution will be measured.
Remuneration reviews should take into account four key factors:
• Organisational goals
• Individual goals
• External environment
• Internal relativities
Your organisational goals, vision and values will influence your remuneration strategy and where you position your business in the remuneration market – consider the different employee value propositions of Air New Zealand and Jetstar.
Performance based pay is a popular remuneration strategy that promotes the delivery of organisational goals which is why many businesses link their performance management system with their remuneration review. One proviso is the need to clearly define what constitutes good performance and to set targets so that employees know what is expected of them to achieve the desired results for the business and themselves.
Any remuneration strategy has to serve double duty – rewarding performance retrospectively while at the same time acting as a motivator for future performance. As your employees’ individual needs and goals will invariably differ, your remuneration strategy will need to take into account what motivates your employees and the simplest way to uncover this information is to ask them!
By reviewing your remuneration structure regularly and proactively benchmarking against external market trends you insulate your business from nasty surprises when it comes time to recruit replacements in your team and allows you to have better control over your wage and salary costs. Your employees will also be aware that you take an active interest in market conditions and appreciate that their remuneration package remains competitive – a simple way to attract and retain good employees and reduce staff turnover.
Remuneration trends are closely linked to general economic trends therefore, regular external benchmarking also keeps you well informed and prepared for any labour market changes and allows you to adapt and update your workforce plan accordingly.
Your remuneration review will also include an inward focus and examination of internal relativities among employees to ensure that your pay rates are fair for all roles across your business.
An annual review cycle is common and if timed just after your financial performance reports are completed (April or June depending on your financial year-end cycle) you will also have access to company performance data which is critical to pay for performance strategies.