Shares: do they fit your remuneration strategy?

30 Nov

I was reading an a opinion piece today about shares and the adventures of Facebook and other companies who have provided shares as part of theRe remuneration strategy.  It got me thinking about my experience with issues shares with a company I was with, I forget the specifics however like most employee share schemes these shares where held on behalf of employees and were transferred to the employees after a specific time period had lapsed.

Each year I dreaded the share issue coming around, it was simply a waste of time for all involved.  The shares didn’t motivate any positive behaviour such as increasing tenure (the organisation was a well respected employer, so didn’t have an issue with high turnover), it wasn’t performance based (shares allotment was determined by the individuals base remuneration the higher your salary the higher the number of shares issued), it didn’t promote any feelings of shared ownership.  Simply put, whatever the shares where originally meant to reward had since become a non issue.

Share schemes certainly have a place in remuneration strategies, however I believe that there usage should be carefully considered before any such scheme becomes part of an organisations remuneration strategy.  For start-up companies they certainly have the potential to assist in attracting high performing employees, who otherwise may be beyond the capital capability of a fledgling company.  In the early stages of a start-up they may provide a shared sense of ownership which is useful to leverage addition hours from employees.

However outside of very specific instances, for very specific employee behavioural outcomes, I fail to see a place for share offerings in the majority of remuneration strategies within the Australasian context.  For the most part employees can be rewarded through short term incentive which are closely matched to performance outcomes (weighted across individual performance, team or division performance, and organisational performance for example).

As with all aspects of the reward focus within remuneration strategies, we must always question exactly what are we rewarding and is this the best way to promote or encourage that behaviour?

Beyond Salary Packaging: Remuneration in Review

30 Nov

Salary packaging within the Australia context is a much discussed topic within the wider field of remuneration, however often this subtopic can overcome its parent field of remuneration – potentially due to the number of companies offering to provide your employees with salary packaging. Like all financial transactions in business, the remuneration strategies you implement, either knowingly or unknowingly, will impact your bottom line. This article will explore some of the concepts of remuneration strategy, with a focus on ensuring wide applicability. (Given that this particular article does not address salary packaging, the contents are also applicable for the New Zealand market)

Understand your competition

Who is your competition? Is your competition for employees geographically based in your industry, is it industry based, or is it primarily geographically based? Let’s take a takeaway store, within your local area you would most likely be competing against other hospitality providers within your market segment. But while the fine dining restaurant is in your geographical area, it’s unlikely a take away business will be competing for staff with the fine dining restaurant.

However you will also need to be aware of competition outside of your industry, particularly where either you are primarily employing low or semi-skilled employees, or at the other end of skill range where you are employing in demand highly skilled employees (i.e. finance, IT, or engineering). Using the example of the takeaway store, you may also be competing with the local service station, picture theatre and a variety of industries which employ low or semi-skilled employees.

Setting your remuneration line

Having determined who your competition is, taking into account factors such as:

Competition for employees (i.e. skill shortages, employee shortages etc)
Remuneration levels currently offered in your segment of the employment market
Level of employment within your geographical area

You can now look to decide where you will set your remuneration line; this line dictates where in the market you pay. Do you for example pay above the market average (leading the market), do you meet the market and pay the market average (meeting the market), or do you pay below the market average (trailing the market).

The reasons are many and varied why a business would select one market line over and above the other two.

Leading the market

Paying above the market is often used to attract employees in a tight labor market, or where labor is scare. High performing employees may also be more likely to seek companies out which pay above the market line, for the additional salary available – potentially reducing recruitment costs.

Meeting the market

By definition most employers meet the market in their remuneration strategies, relying on other aspects of their employee value proposition (EVP) to attract employees, or may see no need to lead the market due to availability of employees in the market place.

Trailing the market

Trailing the market is in many markets rarer than leading the market, employers are well aware that they need to be competitive to attract the best talent within their industry and geographical area. Employers who make the decision to offer lower remuneration than their competition will have strategies to compensate employees in non-financial ways. For example employers who offer increased benefits such as flexible working options (part time work, working from home arrangements), increased opportunities (travel, experience, promotions), may elect to trail the market as they offer intangibles over and above their competition which compensates employees fairly.

Selecting multiple pay lines

Organisations both large and small often have multiple pay lines based on the roles they employ. This is very common in large organisations, for example at the time of writing there is a talent shortage of employees with expertise in accounting (i.e. Chartered Professional Accountants and Certified Practicing Accountants), so the organisation may elect to lead the market to attract the caliber of accounting professionals they need, while meeting the market for general administration staff. The same situation can easily occur within a small restaurant, waiting staff are typically plentiful while experienced chiefs are not. In this example the owner may select to meet the market with their waiting staff, but lead the market with in remunerating the chefs.

The above should be taken as an introduction to some of the fundamental topics relating to setting your organisations pay line. Remuneration is a multifaceted specialist area of Human Resources, organisations are encouraged to seek advice when reviewing or setting their remuneration strategy.

From the bloggers perspective

29 Nov

I really enjoy remuneration, I like the strategy of it, the challenges of delivering meaning remuneration packages in tight fiscal times, and the opportunities it presents to impact on such areas as employee motivation and engagement.  In this blog I will share some of my experiences, my understandings and my passion for this often overlooked and undervalued discipline within human resources.