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Summary HRM3705 - Compensation Management (2024 Notes)

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Comprehensive notes on HRM3705 Compensation Management. Based on the textbook, these notes focus on the systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfa...

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  • February 28, 2022
  • 172
  • 2023/2024
  • Summary

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Table of Contents PG. NR.

TOPIC 1: STRATEGIC REMUNERATION ........................................................................................................................................ 3
WORKBOOK 1: STRATEGIC REMUNERATION ..................................................................................................................................... 3
INTRODUCTION ...................................................................................................................................................................................... 3
DEFINING REMUNERATION ............................................................................................................................................................... 3
REMUNERATION COMPONENTS ........................................................................................................................................................ 4
Direct Remuneration ................................................................................................................................................................................. 5
Indirect Remuneration ............................................................................................................................................................................. 5
Government Initiatives .......................................................................................................................................................................... 13
Controlling Pay Increase Costs ............................................................................................................................................................. 13
Union Demands ......................................................................................................................................................................................... 14
Cost Effectiveness Of Employee Benefits ........................................................................................................................................ 14
Labour Market Conditions ..................................................................................................................................................................... 14
Changing Employee Needs...................................................................................................................................................................... 14
Aims Of Strategic Remuneration ........................................................................................................................................................20
The Building Blocks Of A Remuneration Strategy ...........................................................................................................................24
Remuneration Strategy Guiding Principles .........................................................................................................................................25
Analyse The Current Situation .............................................................................................................................................................28
Review Remuneration Policies And Objectives..................................................................................................................................29
Determine Gaps And Develop Strategies ...........................................................................................................................................30
Implement And Review The Remuneration Strategy .......................................................................................................................30
Communicate The Remuneration Strategy .........................................................................................................................................30
CHAPTER 1: REMUNERATION MANAGEMENT. CHAPTER 9: GOVERNMENT AND TRADE UNION INVOLVEMENT &
RELEVANT SECTIONS IN WORKBOOK 02 .........................................................................................................................................33
FACTORS INFLUENCING REMUNERATION..................................................................................................................................33
Market Pay Rates ....................................................................................................................................................................................33
The Economy .............................................................................................................................................................................................34
Labour Market..........................................................................................................................................................................................34
Government Legislation ..........................................................................................................................................................................34
Trade Unions ............................................................................................................................................................................................34
Organisation Culture And Values .........................................................................................................................................................34
Organisation’s Business/Sector ...........................................................................................................................................................35
Organisation Strategy ............................................................................................................................................................................35
People .........................................................................................................................................................................................................35
Work Environment ...................................................................................................................................................................................35
Ability Of On Organisation To Pay ......................................................................................................................................................35
Arguments for minimum wages .............................................................................................................................................................38
Arguments against minimum wages ......................................................................................................................................................39
Economic Factors Impacting On Remuneration ................................................................................................................................40
Inflation ....................................................................................................................................................................................................40
Minimum Wages .......................................................................................................................................................................................40
Pay Differentials .....................................................................................................................................................................................40
Trade Unions ............................................................................................................................................................................................40
TOPIC 2: DESIGNING REMUNERATION SYSTEMS ............................................................................................................... 47
WORKBOOK 3: INTERNAL ALIGNMENT .............................................................................................................................................47
INTRODUCTION ....................................................................................................................................................................................48
INTERNAL ALIGNMENT ......................................................................................................................................................................48
JOB AND EMPLOYEE BASED STRUCTRES .....................................................................................................................................50
JOB BASED STRUCTURES .................................................................................................................................................................. 51
Legal Considerations For Job Analysis ...............................................................................................................................................52

, Job Description .......................................................................................................................................................................................53
Job Specification ....................................................................................................................................................................................53
Purpose Of Job Evaluation ....................................................................................................................................................................54
Analytical Methods Of Job Evaluation ...............................................................................................................................................55
Non-Analytical Methods Of Job Evaluation ......................................................................................................................................55
CHAPTER 4: EXTERNAL COMPETITIVENESS ....................................................................................................................................59
EXTERNAL COMPETITIVENESS .......................................................................................................................................................59
THE MAKE-UP OF EXTERNAL COMPETITIVENESS .................................................................................................................... 61
Industry And Technology ......................................................................................................................................................................62
Employer Size ...........................................................................................................................................................................................62
Organisation Strategy ............................................................................................................................................................................62
Published Remuneration Surveys .........................................................................................................................................................63
Customised Remuneration Surveys ......................................................................................................................................................64
Bespoke Remuneration Surveys ............................................................................................................................................................64
PORTIONS OF CHAPTER 1: REMUNERATION MANAGEMENT .....................................................................................................84
TOTAL REWARDS ..................................................................................................................................................................................84
HISTORICAL SNAPSHOT ...................................................................................................................................................................85
TOTAL REWARDS DEFINED...............................................................................................................................................................86
CREATING A TOTAL REWARDS STRATEGY ..................................................................................................................................88
Business strategy and competitive dynamics – understand the business ................................................................................... 91
HR strategy .............................................................................................................................................................................................. 91
Culture/values .......................................................................................................................................................................................... 91
Social and political context ................................................................................................................................................................... 91
Employee needs ........................................................................................................................................................................................ 91
Union needs ...............................................................................................................................................................................................92
TOPIC 3: COMPONENTS OF REMUNERATION ......................................................................................................................... 94
CHAPTER 5: EMPLOYEE CONTRIBUTIONS & PORTIONS OF CHAPTER 6: EMPLOYEE BENEFITS ....................................94
EXPLORING PAY-FOR-PERFORMANCE ............................................................................................................................................94
CLARIFYING THE CONCEPT OF PAY-FOR-PERFORMANCE .......................................................................................................97
CRITERIA FOR PAY-FOR-PERFORMANCE PLANS AS MOTIVATOR .......................................................................................99
OBJECTIVES FOR IMPLEMENTING PAY-FOR-PERFORMANCE PLANS ............................................................................... 100
TYPES OF PAY-FOR PERFORMANCE PLAN ................................................................................................................................... 100
Merit Pay ................................................................................................................................................................................................. 102
Piece Rate Plans ..................................................................................................................................................................................... 103
Commission Schemes............................................................................................................................................................................. 104
Management Incentive Plan ................................................................................................................................................................. 104
Behavioural Encouragement Plan ........................................................................................................................................................ 104
Employee Referral Plans....................................................................................................................................................................... 104
Team-based pay-for-performance (work/process teams, parallel teams, project teams) Gain sharing plans (the scanion
plan, the rucker plan, improshare) .......................................................................................................................................................... 105
Profit Sharing Employee Stock Option Plan ....................................................................................................................................... 109
PORTIONS OF CHAPTER 6: EMPLOYEE BENEFITS & WORKBOOK 7 ........................................................................................ 122
INTRODUCTION .................................................................................................................................................................................. 122
TYPES OF EMPLOYEE BENEFITS .................................................................................................................................................... 125
Protection programmes (Category 1) ................................................................................................................................................. 126
Reasons For Offering Flexible Benefits .......................................................................................................................................... 134
Advantages And Disadvantages Of Flexible Employee Benefits ................................................................................................ 135
Employer Factors ................................................................................................................................................................................... 137
Probation periods ................................................................................................................................................................................... 140
Benefit Limitations ............................................................................................................................................................................... 141
Party Contributions ............................................................................................................................................................................... 141
PORTIONS CHAPTER 8: EXECUTIVE PAY AND SPECIAL GROUPS AND RELEVANT SECTIONS IN WORKBOOK 08142
....................................................................................................................................................................................................................... 143
INTRODUCTION .................................................................................................................................................................................. 143

, REMUNERATION CONCEPTS ........................................................................................................................................................... 143
EXECUTIVE PAY ................................................................................................................................................................................... 143
Guaranteed Package .............................................................................................................................................................................. 145
Termination And Post-Employment Payments ...................................................................................................................................... 148
The Key Players In Setting Executive Pay ........................................................................................................................................... 149
Theoretical Explanations For Setting Executive Pay ......................................................................................................................... 150
WORKBOOK 9: REMUNERATING THE FLEXIBLE WORKFORCE ................................................................................................158

INTRODUCTION ....................................................................................................................................................................................... 158
KEY CONCEPTS .......................................................................................................................................................................................... 158
THE CONTINGENT WORKFORCE......................................................................................................................................................... 158
Non-Executive Directors .......................................................................................................................................................................... 159
ANNEXURE A .......................................................................................................................................................................................169

, TOPIC 1: STRATEGIC REMUNERATION
WORKBOOK 1: STRATEGIC REMUNERATION

CHAPTER 1: REMUNERATION MANAGEMENT; CHAPTER 2: REMUNERATION FRAMEWORK

AND CHAPTER 7: STRATEGIC REMUNERATION AND RELEVANT SECTIONS OF

WORKBOOK 1



INTRODUCTION
Remuneration is probably one of the most important human resource management functions as it forms the basis
of the employment relationship. Early remuneration and HR functions emphasized the control of labor costs and
management control over labor. The employment relationship is very complex since both parties to the
relationship - the organization and employee - have certain expectations and needs. The organization hires
employees to achieve organizational goals and remunerates employees for the achievement thereof. Employees
provide their effort and resources to achieve organizational goals and expect to be remunerated to be able to
maintain a standard of living (Swanepoel, Erasmus & Schenk, 2008). Remuneration is however far from simple
and the importance of managing remuneration should not be underestimated.
Employees come to work and they expect to be remunerated for performing their jobs. Remuneration is however
not just about a pays lip; it is a holistic and integrated approach that consists of various elements such as
motivation, recognition, rewards and taking care of employees as human beings. Employees have different needs
and they are not only motivated to perform their jobs and stay in their jobs for just a pay. Employees are now
more than ever looking for a stimulating work environment, flexibility, work-life balance and being paid for their
performance. The business environment, remuneration landscape and nature of the workforce have changed,
necessitating a different approach to the management of remuneration. Furthermore, globalization has now
forced organizations to apply an international approach to remuneration in a local context.
Traditionally, employees were expected to work hard and obey orders, and in return they were provided with
job security, salary increments and annual promotions. The world of work has changed, however. Today,
organizations are striving to compete in both a global and a local context, there has been an increase in the use
of technology and the workforce is now more diversified. Families consist of dual career couples, there is a
greater focus on work-life balance and the workforce consists of both younger and older employees. These and
other factors have required organizations to change their view on remuneration and what they offer to their
employees. As a result of this mind shift, organizations now realize how important it is to use remuneration
strategically.
Organizations are now aligning remuneration practices strategically with organizational goals and objectives, as
well as with employee values. I will first start by introducing you to the basic concepts of remuneration.


DEFINING REMUNERATION
Remuneration is used interchangeably with terms such as 'pay', 'compensation', compensation management',
'reward' and 'reward management'. The term remuneration is mostly used in the South African context. When
one thinks of remuneration, aspects such as basic pay, benefits, incentives, bonuses, various allowances,
commission, and overtime payments come to mind. Remuneration however does not only include monetary rewards.
Non-monetary forms of payment such as recognition and work-life balance also form part of remuneration.
Remuneration can be defined as "the financial and non-financial extrinsic rewards provided by an employer
for the time, skills and effort mode available by the employee in fulfilling job requirements aimed at
achieving organizational objectives" (Swanepoel et al,2008:476). Remuneration includes both intrinsic and
extrinsic rewards which employees receive for performing their jobs and both these elements encompass an
organizations’ total remuneration system (Martocchio, 2011).

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