Why firms need remuneration strategy'


A REMENERATION strategy is a plan that outlines how a company will reward its employees for their work. It includes salary, bonuses, benefits, incentives, and recognition.

A remuneration strategy is important for attracting and retaining talent and aligning the employees' goals and values with those of the company.

A remuneration strategy can have a significant impact on the performance and success of a company. According to a WorldatWork Association study, companies with a formal remuneration strategy are more likely to have higher employee engagement, lower turnover, and better financial results than those without. The study also found that companies that communicate their remuneration strategy effectively to their employees have higher levels of trust and satisfaction.

A remuneration strategy can also help a company achieve its strategic objectives and foster a culture of excellence. By rewarding employees for their contributions, achievements, and behaviours that support the company's vision and mission, a remuneration strategy can motivate employees to perform at their best and encourage them to pursue continuous improvement and innovation.

A remuneration strategy can reinforce the company's values and principles, such as integrity, collaboration, diversity, and social responsibility. A remuneration strategy is not a one-size-fits-all solution. It should be tailored to each company's specific needs and characteristics, considering factors such as its size, industry, market position, competitive landscape, and organisational culture.

The strategy should also be flexible and adaptable to changing circumstances and expectations, such as economic fluctuations, regulatory changes, customer demands, and employee feedback.

A remuneration strategy is not a static document. It should be reviewed and updated regularly to ensure its relevance and effectiveness. The strategy should also be monitored and evaluated to measure its impact on the company's performance and outcomes.

IT should also be aligned with other human resources policies and practices, such as recruitment, training, development, performance management, and succession planning.

 Impact of a remuneration strategy

A study published in the Journal of Management found that companies with a well-designed remuneration strategy had higher levels of employee satisfaction, leading to higher levels of customer satisfaction and financial performance (Gerhart et al.,2009).

Another study published in the Journal of Business Research found that companies with a strong focus on employee compensation and benefits had lower employee turnover and higher job satisfaction levels, leading to improved organisational performance (Huang et al., 2018). An article in in the Journal of Applied Psychology found that pay-for-performance systems, often a key component of remuneration strategies, were positively related to job performance and organisational effectiveness (Sturman et al., 2011).

 Steps to develop the strategy

You need to follow these steps when developing a remuneration strategy, which can be summarised as follows:

  • Define the objectives and scope of the remuneration strategy. This involves identifying the purpose, vision, and principles of the strategy, the target group of employees, and the available budget.
  • Conduct a market analysis and benchmarking. This involves collecting and analysing data on the current and expected pay levels and practices of competitors and other relevant organsations in the industry or sector. This can help to determine the market position and competitiveness of the organisation's remuneration.
  • Design the remuneration structure and components. This involves deciding on the types and levels of employee pay and benefits, such as base salary, variable pay, allowances, bonuses, commissions, equity, pensions, health insurance, etc. The remuneration structure should reflect the organisation's pay philosophy and strategy and the relative value and contribution of different jobs and roles.
  • Implement and communicate the remuneration strategy. This involves applying the remuneration structure and components to individuals or groups of employees based on their performance, skills, experience, qualifications, etc. It also involves communicating the remuneration strategy's rationale, objectives, and benefits to employees and stakeholders, such as managers, unions, shareholders, etc.
  • Monitor and evaluate the remuneration strategy. This involves measuring and reviewing the effectiveness and impact of the remuneration strategy on employee and organisational outcomes, such as satisfaction, engagement, retention, productivity, profitability, etc. It also involves adjusting and improving the remuneration strategy based on feedback, changes in market conditions, organisational goals, etc.

 These are some of the main steps involved in developing a remuneration strategy. However, each organisation may have specific needs and preferences when designing and implementing its remuneration strategy. Therefore, consulting with experts and stakeholders throughout the process is advisable to ensure that the remuneration strategy is suitable and sustainable for the organisation.

  • Nguwi is an occupational psychologist, data scientist, speaker and managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and HR consulting firm. https://www.linkedin.com/in/memorynguwi/ Phone +263 24 248 1 946-48/ 2290 0276, cell number +263 772 356 361 or e-mail: [email protected] or visit ipcconsultants.com.

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