How to future proof a reward strategy in light of changing pay regulations
charities, for example, work for much lower salaries than they might achieve if they worked level, the reward scheme must be consistent with the strategy of the organisation. the banks were paid commissions on the date that the loan agreements were signed targets, so some consideration of target setting is required. A strategic performance and reward system is one of the most effective ways to retain to a future date and the employer makes an unsecured promise to pay the Incentive stock option (ISO) plans involve two important considerations: the . Introduces the basics of pay and reward, including staff benefits, and outlines the UK legal position. some UK legal issues such as equal pay, the national minimum wage, . For up-to-date information, see the HMRC website. to pay; and how the annual pay review process can become more strategic.
That saves money in terms of training too. The investment seems to be paying off; the brewery picked up the Time Out award for the best bar in its borough in November One of the key areas on which remuneration committees will need to focus is whether the traditional long-term incentive plan L-tip remains fit for purpose. One of the alternative models raised by the Working Group is the annual grant to executives of restricted share awards.
No performance conditions would apply to such awards with vesting being dependent only on remaining in service. As a corollary, investors would expect awards to be granted at approximately half the level of current L-tip awards in terms of value. It seems inevitable that we will see more restricted share plans put to shareholders this year although it is unlikely that we will see a dramatic shift away from the traditional L-tip.
For many organisations, sticking with their L-tip will still be a valid conclusion to reach after reviewing the alternatives. It will also be interesting to see whether organisations attempt to have a more fluid policy in place so that they move between L-tips and other structures as circumstances change. Finally, organisations putting in restricted share arrangements should also think not only about increasing the number of shares that directors are expected to hold but also imposing an additional holding period following the vesting of awards.
What do you think?
Original Article Two news items caught my eye recently. It's hard to tell how much of the investor-friendlier tone was created by the fact that Blake is earning about 70 percent less in base pay than Nardelli, totally aside from the fact that the latter also took home a nine-figure package in incentives.
Home Depot's stock has had lackluster performance under both CEOs. But there are those who say that Nardelli's task of leading a transition from a highly decentralized, founder-led organization to one more reliant on shared services and central direction was enormous and that he was making good progress.
Rethinking reward for employees of the future | KPMG | AU
How much is that worth? The second item was a report of the decision by Moody's Investors Service to begin taking into account the spread in pay packages between the top two executives in the organizations whose bonds it rates. Presumably, the larger the spread, the lower the bond rating, reflecting the higher implied risk associated with a large spread. As Mark Watson from Moody's put it, "We are rating the company, not the person.
A bus might come by and knock the top person over. First, there are limits within which pay can elicit performance.
Above a certain amount of incentive, does pay provide an incentive for or even influence performance? The Moody's decision might suggest the assumption that pay reflects value to an organization, and possibly also potential performance. In other words, one's pay in relation to the leader reflects one's value or even likelihood of being promoted if the leader were to get hit by a bus today. A third assumption is that good leaders are very hard to find and are worth every penny they are paid, regardless of structural imperfections in the ways that compensation packages are negotiated and determined.
There are a number of reasons why pay may not reflect performance. Please note that some of our resources are for members only.
Strategic Compensation as a Competitive Advantage | CFMA
CIPD viewpoint Employers need to align the rewards their employees want with the needs of the business. There are various elements to reward and it is important to choose the appropriate mix of base to variable pay, fixed to flexible benefits and financial and non-financial rewards. Employers should also be aware of the various ways that individuals respond to pay, and the opportunities and risks involved when making decisions about rewarding and recognising individual and collective contribution.
What are reward and pay? Pay may be divided into two categories: For example, certain location allowances might be seen as part of base pay by some employers, while others may see it as variable pay and exclude it from base pay. Other terminology may also be used.
Managing pay and reward The main reason to offer pay and benefits is to attract, keep and influence staff.
Traditionally, salaries were used to attract people to an organisation, while benefits helped keep them there, and bonus and incentive schemes motivated them in their work. However, thinking about which parts of reward are best suited for recruitment, retention and motivation has changed. Recent research indicates that individuals are attracted, retained and engaged by a whole range of financial and non-financial rewards and that these can change over time depending on personal circumstances. In certain situations, individuals may not consider the financial elements of a package particularly important.
For instance, people at the beginning of their career may be more interested in gaining access to training and career development. Similarly, individuals may be willing to work for lower pay rates or even volunteer if they have a strong attachment to the mission of an organisation, such as a political party or a charity. Employers should find out what attracts, retains and inspires individuals and explore how best they can meet these needs - as well as meeting the requirements of the business within the appropriate legal and regulatory environment.
When creating a reward package, it's also important that organisations integrate the various elements so that they support, rather than contradict, one another. Recently, behavioural science has offered up useful insights about how individuals may respond to various financial and non-financial rewards. Employers should use the lessons from behavioural science when designing, implementing and communicating its reward package. Find out more in our report Show me the money!
The behavioural science of reward.
How Should Pay Be Linked to Performance?
When making decisions on how employers reward and recognise individual and collective contribution it is important to recognise the people risks involved. Organisations should establish a reward strategy that clearly articulates the aims of the various reward elements and how they are integrated.
The strategy should be complemented by appropriate communications to explain to staff what behaviours and performances the organisation is rewarding, how, why and when. Determining base pay and total earnings Pay structures Pay structures provide a framework for valuing jobs and understanding how they relate to one another within the organisation and to the external labour market.