What are the Challenges of Remuneration ?

Challenges of Remuneration: People who administer wage and salary face challenges which often necessitate adjustments to a remuneration plan. The more important of the challenges are skill-based pay, salary reviews, pay secrecy, comparable worth, employee participation, elitilism or egalitarianism, below market or above market rates, and marketing versus non-marketing rewards.

Skill-Based Pay : In the skill based system, workers are paid on the basis of number of jobs they are capable of doing, or on depth of their knowledge. The purpose of this system is to motivate employees to acquire additional skills so that they become more useful to the organization.

Skill based pay systems worth work well when the following conditions exits:

  • A supportive HRM philosophy underpins all employment activities. Such a philosophy is characterized by mutual trust and the conviction that employees have the ability and motivation to perform well.
  • Other programs such as profit sharing, participative management, empowerment, and job enrichment complement the skill-based pay system.
  • Technology and organizational structure change frequently.
  • There are to learn new skills
  • Employee turnover is relatively high.
  • Workers value teamwork and opportunity to participate.

Pay Reviews : Pay, once determined, should not remain constant. It must be reviewed and challenged often, but how often becomes a relevant question. Pay reviews may be made on predetermined dates, anniversary dates or there could be flexible reviews. In the fixed-date reviews, wages and salaries of all employees are reviewed and raised on a specified date each year. In the anniversary-date review, salaries may be reviewed at twelve-month intervals from the date of the employee’s anniversary date of hire. Using variable timing ensures flexibility. In addition, high-performing employees, who are low on their salary ranges, can be rewarded more frequently.

In organized industrial establishments, pay review take place once in three years. Managements enter wage and salary agreements with labour unions and the agreements will be valid for three years. Pay negotiations will take place on the expiry of the three-year period and new records are signed after conclusion of the talks.

In Government departments, pay revisions take place once in ten or fifteen years. Revisions will depend on the recommendation of the pay commission.

Pay Secrecy : The process by which a remuneration plan is designed and administered is critical for any organization. One challenge facing HRM concerns the availability of information about remuneration to employees. The tendency among most firms is to maintain pay secrecy as this would help avoid pay comparisons likely to be made by employees.

Just how much and what types of information about pay should be provided to employees is a question that troubles HR managers. This is  a difficult question to answer. Much has been written about the effects of pay secrecy on employee behaviors and attitudes.

Firms in the organized sector and public sector enterprises disclose full information about wages and salaries. Similarly most union contracts spell out wages and grades of pay. As stated earlier, most firms, particularly family-controlled organizations tilt towards maintaining pay secrecy.

The goals of achieving equity and employee satisfaction would seem to call for telling employees about pay policies and levels. For merit pay systems to have a motivating effect, an employee needs to know how efforts translate into rewards. Information about maximum and the average raises should be made available each year. Each employee should be told what the mid point is for his her job, as well as the pay range. In addition, the organization should explain how it arrived at the pay structure. Allowing employees to see where their jobs are located in the wage structure should not create significant problems for an employer that has a well-designed job evaluation plan.

Comparable Worth : One of the popular principles in employee remuneration is equal pay for work. Infact, this principle has been the inspiration behind the enactment  the Equal Remuneration Act. Under the act, male and female nurses are to be paid the same if their merit and seniority match, but a female and a male electrician could be paid different rates.

Beyond the concept of equal wages for equal work, is the idea of comparable worth which implies that if both a nurse and an electrician receive the same number of points under a point-ranking method of job evaluation, they have to be paid the same, subject, of course, to seniority and merit differences.

Any bias in the job-evaluation process is sure to render comparable worth unworkable. Bias is bound to occur in job evaluation because of the tendency to assign higher number of points for jobs traditionally held by women.

Employee Participation : When employees are involved in designing a remuneration plan, they exhibit little resistance in accepting it. Such a plan is much more likely to be a successful motivator than the one imposed by the management.

It is appropriate to involve employees in many phases of a reward system. For example, a wide variety of employees should serve in job evaluation committees. If a point- ranking method is a adopted, it is reason able to involve employees in identifying the compensable factors to be used and the weight to be assigned to each factor. Employees are also likely to have a good insight in identifying competitor firms that should in included in a wage survey.

There are several mechanisms for employee involvement. At the broadest level the employees can be surveyed to learn about their preferences. Employee task forces can help integrate these preferences into system. Such groups are usually an excellent way to involve employees in any decisions associated with a reward system.

The decision to involve employees in designing or asministering a remuneration plan should not be made in haste. Employee participation is unlikely to work well unless the organization has already established an overall philosophy of participative management, as well as  a reasonable climate of organizational trust. Participation tasks considerable time- if time and trust as limited , a more traditional, top-down approach might be more appropriate.

Eliticism Versus Egalitarianism : Firms become  egalitarian when they place most of their employees under the same remuneration plan. The plan becomes elitist when the organizations establish different remuneration schemes. In some firms only the CEO is eligible for stock options. In order, even the lowest paid workers are offered stock options. In some other companies only one category of employees is offered incentive schemes but in others all employees are covered by pay-for-performance schemes.

Egalitarianisms gives organizations more flexibility to deploy employees in different areas without having to change their pay levels. It can also reduce barriers between people who need to work together. Egalitarian remuneration systems are found mainly in highly competitive environments where companies frequently take business risks and try to expand their market share by continually investing in new technologies, ventures and products.

Below Market Vs. Above Market Remuneration : Remuneration involving decisions relating to below market or above market pay structure has two implications. First a firm’s ability to attract talent from others depends on employee’s pay relative to attractive employment opportunities. Second, the choice has an important cost component.  Decisions to above going rate obviously adds to the cost. However in general above market pay policies are prevalent among larger companies in less competitive industries, such as utilities and among companies that have been performance well and have the ability to pay more. In additional, companies desirous of growing fast in a tight labour market need to pay above ,market rates. Unionized firms also need to pay higher rates.

Monetary Vs. Non-monetary Rewards : The issue relating to monetary and non-monetary rewards has primarily tax implications. Many non-monetary rewards such as medical benefits and housing are fully or partially exempted from taxes. Employees and even employees prefer non-monetary benefits than monetary rewards.

HR-Professionals 12 Compensation 12


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