BUSINESS: The Ultimate Resource November 2006 Upgrade 50

GOOD SMALL BUSINESS ACTIONLIST

Changing Your Remuneration Policy
Getting Started
Remuneration is related to wages like weather is to rain. One is a system, the other is but one of its components. Remuneration includes salary, benefits, and bonusesbut more. Like meteorology, a remuneration program requires considerable study in order to understand its complexities. The reasons to review and upgrade the details of your remuneration system regularly are few, but nevertheless key to the success of your organization. A well-managed compensation program will attract, reward, and retain the best performing individuals and promote continued excellence, while at the same time maintaining the efficient use of financial resources. Failing to systemize your companys approach to compensation, on the other hand, will ultimately result in dreary relations with employees and a stormy voyage for the company.

FAQs
Our company has grown rapidly and we find ourselves playing catch up with our remuneration policy. Is there a simple fix? Simple? Yes. Immediate? No. The first step is recognizing you have a problem. The second is committing to fix it, which takes resolve and resources. The third is to follow through. While you may not create a masterpiece the first time round, committing to an annual review of your remuneration policy and program will eventually bear fruit. People applying to work here have great experience but demand larger and larger compensation packages. We cant really afford their demands, but cant really afford not to have this caliber of employee either. What should we do? There is something to be said for building competency from within, which calls for a rigorous and well-funded training program. But you must stillif only occasionallyreplace key people who help the organization evolve and grow. While smaller companies can sometimes attract bright and capable people with secondary considerationsa more casual work atmosphere, rural lifestyle, good schools, and so onit is difficult to ignore the money and primary benefits issue altogether. Perhaps considering a performance-based compensation program would give your company better justification for the necessary increases.

A & C Black Publishers Ltd 2006

BUSINESS: The Ultimate Resource November 2006 Upgrade 50

We are currently downsizing. Is this a good time to change the way, and even the amount, we pay people? Having a job is better, in most instances, than having no job. If your employees understand that your companys survival means belt tightening, they may be willing to make sacrifices. But be careful how you go about it. Engage the staff in discussion about the situation. Ask their input about solutions. Present budget information and options for meeting the crisis with the fewest employee layoffs. Give them a plan for how you will stabilize and sustain the companywhich may include temporary or permanent changes in remuneration. Then give them a timeline for revisiting the issue of compensation as economic conditions improve. If they have confidence in your word, they may actually increase their productivity in the short term.

Making It Happen
Designate a Compensation Review Committee One of the most important elements in any change is employee acceptance. Without buy-in, both from management and non-management staff, the outlook for positive change is bleak. Part of the buy-in is an understanding that an overhaul of your remuneration program will take a year or more. Management must support the effort with resources that include funding and, more importantly, paid staff time to implement the process. Part of the committees job will relate to status quo: where is the company today with its compensation program? What company problemshigh staff turnover or absenteeism, for exampleare attributable, at least in part, to substandard remuneration? Another part of the committees task is industry research. What are the standards elsewhere for compensation, for companies in your industry sector and of similar size? While this is happening, instigating proper communication is equally important. The committeehopefully a mirror of staff demographics as a wholeshould develop links with each department, report progress, build support, and, vitally, solicit input about compensation issues and desires. Draft Remuneration Policies and Plans Any policies and plans for changes in remuneration should take into consideration current laws and regulations about compensation. Likewise, the plan should include goals and objectives designed to foster organizational health: reducing turnover, for example, attracting quality employees, and consistently recognizing and rewarding excellence. In addition, the plan should address the following topics: description of the remuneration system: job classifications, salary schedules, benefits, premiums, bonuses, and other related things like medical leave and long-term disability; a review of various types of employee: full time, part time, temporary, and so on;

A & C Black Publishers Ltd 2006

BUSINESS: The Ultimate Resource November 2006 Upgrade 50

commitment to an annual remuneration survey, to include job category and job description reviews; listing the elements of an incentives system, for rewarding quality and productivity and reduction of errors and costs.

Analyze Each Job in the Organization The core of any organization is its people; the core of a remuneration program, therefore, is an analysis of what each person does for the organization. Job analysis forms the basis by which an organization develops job descriptions, selects applicants, develops training, and promotes (or fires) them. It can also be of significant value in strategic planning. Without thorough job analysis, it is unlikely that an organization would have an equitable or adequate compensation system. Take these basic steps: review any previous job analyses; look at what advertising or recruitment information your company has used to attract current employees; recognize the relationship of each job to others and the chain of command, or authority structure (an organization chart can help here) ; understand why each job exists (ask all supervisors in the chain of command above each job to contributeyou may ferret out positions with little support or purpose) ; interview the current job holder. Compare their assessment of the jobs components with that of his or her supervisor, as well as with what is in the current job description; ask the incumbent in each job to rank their most important duties in order of priority; ask them to list the five duties they spend the most time on.

Out of this activity should come a concrete list of tasks and responsibilities for each job. The data should also help differentiate between high performing versus satisfactory and poor. From this, you should be able to modify job descriptions if necessary, and build a more accurate list of qualifications to do each job. Likewise, the information will assist in revising recruitment materials, selection of employees, developing training, and determining the appropriate remuneration (including grades) for each job. Job Evaluation and Pricing After analysis, the next task is to assign relative worth to each job, based on criteria like difficulty, risk, supervisory duties, and so forth. Many organizations assign points to job elements according to the inherent elements; the greater the points, the higher value to the organization.

A & C Black Publishers Ltd 2006

BUSINESS: The Ultimate Resource November 2006 Upgrade 50

Each job will have a range in skillsfrom entry level to expert. As responsibility and experience accumulate, the employee gets promoted through the levels; each level has increased remuneration. Each job title and the levels within it will have corresponding value in other organizations. Its wise to stay informed about the current standards for all jobs, so that your recruitment efforts will be met with enthusiasm. Performance-based Remuneration Once the tasks of job analysis and evaluation have been completed, an organization that continues to track that information is in a good position to differentiate average from superior performanceand reward it accordingly. Thus, part of a remuneration program can include a variety of performance-based bonuses. Here are some pointers about this kind of program: the program must make sense to the department and individual. In other words, the targets and goals set must be understandable, relevant, and achievable; the bonuses available must be of significant value (10% to 20% of salary, for example) in the eyes of employees; the timeframe for generating the desired goal must be realisticyou wouldnt expect an executive to turn around a company in a matter of months, for example. Thus, bonuses can be given over a period of years, tied to continuous performance improvement. Many companies offer these bonuses in the form of stock options; performance-based plans must be inclusive. While it may be more difficult to reward clerical staff in cost centers versus salespeople in profit centers, it is important to the overall workings that bonuses are given for high performers in all sectors.

Two other forms of bonuses include gain-sharing and profit-sharing awards. The first is typically given to groups or individuals whose work is shown to result in a percentage of increased productivity or a reduction in cost. The bonus is usually a percentage of that gain. Profit-sharing, on the other hand, is based on company-wide profit and distributed to all employees, regardless of individual achievement.

Common Mistakes
Failure to Develop a Remuneration Program Organizations of all types and sizes may feel pinched about committing the time and resources to develop a first-rate remuneration policy and plan. Regardless of the resources available, however, it is worth every bit of time your organization can spare towards quantifying and qualifying job data, and recognizing individual and group efforts when they make a positive impact.

A & C Black Publishers Ltd 2006

BUSINESS: The Ultimate Resource November 2006 Upgrade 50

Not Committing the Resources to Follow Through If employees commit to performance improvements based on promises of increased pay and bonuses and the organization then doesnt follow though, you will see productivity fall again quickly and may even experience increased turnover in workforce, as dispirited employees seek a better deal with your competitor. Being Exclusive in Handing Out Bonuses Exclusivity in remuneration program, including bonuses, will quickly divide the haves from the have nots. Understand that rewarding only those working in profit centers (like sales) without also rewarding those in support roles (clerks, typists, receptionists, assistants, etc.) will surely backfire.

For More Information

Books: Brown, Duncan, and Michael Armstrong. Paying for Contribution: Real Performance-Related Pay Strategies. Milford, CT: Kogan Page, 1998. Martocchio, Joseph J. Strategic Compensation: A Human Resource Management Approach. Upper Saddle River, NJ: Prentice Hall, 2000. Web Sites: About.comHuman Resources: www.about.com HRnext.com: www.hrnext.com

A & C Black Publishers Ltd 2006