Part 2

Employment and onboarding

 Chapter 7:
Remuneration and reward
 Learning objectives
At the end of this chapter, you should be able to:
• Debate the complexity of compensation from various
perspectives
• Outline the role of HR in compensation management
• Explain the objectives of a compensation system
• Design a compensation system
• Describe the elements of total compensation and describe
the rationale behind value-chain compensation
• Discuss conventional job evaluation methods
 Learning objectives cont.
At the end of this chapter, you should be able to:
• Use the steps of the theoretical model to design and plan for the
implementation of a new compensation system
• Debate pay-for-knowledge and skills, pay-for-competencies, pay-for-
performance, and incentive compensation plans
• Distinguish between the three types of individual-level incentive plans
• Explain the circumstances in which mandatory and voluntary benefits are
used
• Critically reflect on the various compensation-related ethical dilemmas
facing South African organisations today
• Explain the calculation of the costs of employee benefits.
 Introduction
• The impact of technology on the workplace today is great.
• Human resources (HR) is a strategic partner in the organisation.
• HR professionals are expected to design, implement and evaluate
programmes that meet organisations’ needs and goals.
• Critically, HR professionals need to monitor the external
environment and how it may impact on the organisation and
employees, for example, the Covid-19 pandemic.
 New challenges facing HR
• Compensation and reward systems previously focused on
financial rewards.
• The new generation and the challenges of the 4th Industrial
Revolution (4IR) will move the focus to the holistic attractiveness
of the organisation and workspace.
• It will become increasingly difficult to:
• Formulate reward and compensation systems
• Attract talent
• Retain talent.
• The subject of pay has become increasingly complex.
A compensation system is a reward
mechanism based on the allocation,
conversion and transfer of a portion of the
revenue of an organisation to its workers
and staff for their monetary and in-kind
claims on goods and services.
 Wages and salaries in
Monetary the form of money
Compensation
system Claims on goods and
services paid
In-kind totally/partially by the
employer
The objectives of a compensation
system
• Motivation can be improved by rewarding good performance and
offering incentives.
• If rewards must stimulate desired behaviours, they must meet the
demands of the relevant employees.
• A good compensation system will attract and retain talent and the
organisation will be the winner.
• Employees are encouraged to behave ethically or unethically in
organisations when they are incentivised to do so.
• It is important that organisations examine their reward systems to
ensure that the preferred behaviour is reinforced.
 Value-added compensation
Value-added remuneration systems focus on how elements of the
remuneration system create value for both the organisation and its
employees.

A remuneration system becomes value adding when the system

designers take employees’ priorities into account.

Rewards are ranked differently at different times; for example, actual

pay/cash ranks highly as a reward during an employee’s early career
stage.
Total compensation
 Profit sharing

Gain sharing
Variable pay: based on
performance
Goal sharing

Combination
plans
 Why is total compensation
important?
• To attract potential job applicants.
• To motivate employees.
• To retain good employees.
• To administer pay within legal constraints.
A new compensation model
Analyse present
compensation
structure

Educate and Formulate salary

monitor policies

Develop Select
implementation compensation
plan system
 Job-based compensation plan
route

Analyse Formulate Select Develop

present Evaluate and
salary compensation implementation
compensation
plan monitor
structure policies system
Conduct job analysis
Produces job descriptions and job specifications for the
specific jobs of the organisation

Job analysis and compensation are linked

Job evaluation process determines the value of jobs

Identify compensable factors
Identify factors that are necessary for job
performance, for example, the ability to make sound
decisions

Job evaluation is the basis of a job hierarchy and pay

ranges

Job evaluation determines the worth of the job to the

organisation
Develop a job hierarchy and
construct job grades
What is a compensation survey?
• A survey to determine data for creating, adjusting or
updating an organisation’s pay system/compensation.
• Can be purchased, outsourced or conducted by the
organisation itself.
• Generally yield ranges of data for different salary grades.
• Assesses the value of the job to the organisation, not to the
value of the person doing the job.
• Needs to be accurate.
Some websites to look at:
• Go to https://www.robertwalters.co.za/salarysurvey.html
to see an introductory paragraph on the outlook for South
Africa for 2021
• https://www.willistowerswatson.com/en-ZA/News/2021/1
0/south-african-businesses-plan-five-point-five-percent-pay
-rises-for-2022-as-pay-freezes-fall

• https://www.axiomatic.co.za/projected-salary-increases-20
22/
Establish final pay policy
The organisation’s pay policy is determined by how it
positions itself in the pay market

Factors of affordability and the quality of worker the

organisation wishes to attract are considered
Employee benefits are items in the total
package offered to employees over and
above salary that increase their wealth or
well-being at some cost to the employer.
 Unemployment
insurance
Mandatory benefits – benefits that
must be provided by law
Compensation for
injury and disease
 Holiday leave

Paid public holidays

Time for personal matters

Sick leave
Voluntary benefits – voluntary
benefits (do have a certain Maternity leave
legislated minimum)
Health and life insurance

Medical aid schemes

Pension funds

Employee services
A framework for benefit planning and
implementation
1. Determine the organisation’s philosophy in terms of people matters, in alignment with
business and finance strategy. This philosophy is adopted and owned by senior
management.
2. Monitor the market in terms of benefits.
3. Use HR metrics to develop a clear understanding of the workforce, including their
biographical data and needs.
4. Determine programmes that fit the organisation’s strategy, the nature of the workforce
and budget.
5. Develop a competitive benefit plan, aligned with the overall rewards package and
organisational brand, and including options, cost, administration and management
arrangements.
6. Make provision for manoeuvrability or flexibility within the benefits structure to cater
for employee individual needs, lifestyle choices and life stages.
7. Develop a comprehensive communication strategy.
Calculating the costs

Costs of benefits
per employee
The total annual
per annum (total
costs of benefits
costs divided by
for all employees
number of
employees)

Costs per
Percentage of employee per
the payroll (total hour (costs per
costs of benefits employee per
divided by annum divided
annual wages) by number of
hours worked)
 King IV Report on Corporate
Governance for South Africa 2016
The remuneration policy should be designed to do the
following:
• Attract, motivate, reward and retain human capital.
• Promote the achievement of strategic objectives within the
organisation’s risk appetite.
• Promote positive outcomes.
• Promote an ethical culture and responsible corporate
citizenship.
The King IV Report on Corporate Governance for South
Africa 2016 is online and available at:
https://www.iodsa.co.za/page/king_iv_report

Scroll down and download the web version

 What are the employer compensation
issues in South Africa?
• Organisations must incorporate aspects that promote and encourage
ethical behaviour in their reward strategies.
• To what extent can organisations motivate and compensate professionals
in terms of job satisfaction?
• There is a challenge for management to overcome problems, such as
opposition to performance management/appraisals.
• Compensation management systems will continue to be impacted by the
formidable role unions play in the development of economic and
industrial policy.
• Restrictive legislative framework.
• Perceptions of CEO pay.