Interview with Wies Pairoux and Véronique Deraedt (consultants Compensation & Benefits).
Text: Stef Swinnen (Acerta Chief Editor)

Fair pay seems to be a wonderful principle, but how do you reward high achievers or top performers? When sales representatives earn an excellent score, their efforts are probably easier to reward than those of employees demonstrating a strong commitment or boasting a rare talent. Are you prepared to let talent escape, because of the principle of equality, or do you value performance and achievements higher than personal sensitivities? Whether or not to opt for variable pay is not a decision to be taken lightly. That is why Acerta offers you this special, covering the following topics:

• High basic salary/low bonus, or vice versa?
• The trade unions as genuine social partners?
• Payroll policy = an HR policy?
• Performance and bonus reviews. The only basis for a solid compensation policy?
• What is your position?
• The wave of the future

High basic salary/low bonus, or vice versa?

Frustrating as it may be to many HR professionals, every salary survey confirms that employees are unyielding when it comes to the importance of their basic salary. The reasons are obvious:

• A salary is tangible.
• Maslow’s pyramid is unlikely to change every few decades: financial security will always be one of our basic needs.
• A salary provides a ‘disposable income’: financial means that can be relied upon as basic income, available for covering fixed costs.
• Not everyone knows how to estimate the exact value of additional benefits, while the value of a fixed basic salary is unambiguous.
• Greater transparency regarding pay practices has increased people’s awareness on what they think they should be paid. Young people especially show an increased interest in a considerable basic salary.
• Employees do their own benchmarking, and pay slips provide excellent benchmarking data.

There is no escaping the fact that employees feel they are entitled to a healthy basic salary. And that means HRM should be as competitive as possible in that respect. But should they really?

“In fact, there are as many compensation schemes as there are companies. We have found that in certain industries, a fixed salary in the 75th percentile combined with a bonus is common practice. Yet, there also are companies that pay the median wage, or less, and have no individual bonus system.”, says Wies Pairoux, Senior Consultant Compensation & Benefits at Acerta, “There is no golden rule that helps you satisfy every single employee. Phenomena like the caged bird effect can have a dramatic impact. It is like turning the heating up to 24 degrees at all times. Unfortunately, a warm and pleasant temperature may also be sleep inducing. It is far better to ensure that your organisation pays well, according to the benchmarks, and to leave sufficient opportunities for rewarding individual achievements. Also investigate whether your organisation is mature enough to introduce a specific compensation or bonus policy. ”

Another valid question is whether it is better to level off the heavy labour costs somewhat and to opt for individual bonuses for rewarding (top) achievements. The question remains, however, how to measure those individual achievements. A team bonus might be a healthier alternative. Our advice: link bonuses to actual achievements and ensure that those achievements can be quantified. An individual reward system cuts both ways: employees with an excellent record are rewarded; those who performed poorly are not entitled to any additional rewards.

The trade unions as genuine social partners?

When considering a reward scheme based on individual merits, many companies fear to meet the trade unions’ resistance, as they adhere to the equality principle. The trade unions, in their turn, may fear that compensation based on individual performance will lead to social exclusion. To what extent both prejudices hold true, is debatable. The trade unions do appreciate the values of result- or performance-based compensation policies. At the same time, it is obvious that negotiations between the government, management and trade unions will become more complex if a bonus scheme is introduced while fixed salaries are being cut back. In principle, a bonus system should not be used to change the general compensation policy. As always, an open dialogue will yield the best results. To increase the level of support for a new compensation scheme, ensure that the following are in place:

• an optimal job classification system
• clear collective and individual goals
• well-considered social consultations that succeed in reconciling individual and collective objectives
• a collective labour agreement, with sufficient opportunities for individual measures
• a clear and transparent ‘reusable’ framework that also honours collective achievements
• a compensation policy including a wide array of benefits, e.g. flexible holiday schemes, reliable career advice and guidance and collective advantages, like meal vouchers or other options.

Payroll policy = an HR policy?

Is the compensation policy in your organisation a well-kept secret, securely stored in the HR department’s vaults? Then maybe it is time to end the obscurity and opt for more transparency.
Over the past ten years, employees have become more willing to discuss their salaries. Increased media coverage of wage-related issues, along with employees’ heightened awareness is slowly but surely breaking the last taboo.
Pay calculations used to be the result of a secret formula, stored away in HRM’s magical treasure chamber. Today, an increasing number of people scrutinise their own payslips, as well as their neighbours.
A transparent way of dealing with your organisation’s compensation policy can be an important asset in the current war for talent, and a major part of your employer branding. In Anglo-Saxon countries, mentioning wage scales and gross salary in job postings has been customary for quite some time now. Government officials’ salaries are clearly indicated as well. If you are the first to introduce transparency in this respect, you will be considered as an employer who is courageous enough to be open and honest. A great start for your employer branding initiatives.
Communicating about wages is rewarding, but make sure you do not hold unrealistic expectations:

• Ensure that you are well informed about wage scales and differences and rely on a professional benchmark.
• Take your employee’s career paths and life stages into account. People are only truly interested in bonus schemes or benefits once these benefits become a reality.
• A welcome brochure detailing the compensation policy can be useful, if it is regularly referred to and if you can demonstrate that it is actually used when questions arise.
• Most HRMs have excellent experiences with group sessions and one-to-one interviews about the compensation policy. Ensure that your team leaders are trained in conveying your organisation’s compensation message and regularly organise a ‘tour’ throughout the company.
• Being open can be rewarding, but it is of the utmost importance to respect the organisation’s compensation tradition. Investigate your organisation’s maturity with respect to implementing an open communication policy. In principle, no one will object to open communication about the compensation and bonus policy.
• Involve the trade unions in the communication process.

Finally, the compensation policy is part of your organisation’s overall HR policy.

Performance and bonus reviews. The only basis for a solid compensation policy?

A compensation policy that is geared towards the competences and achievements of your employees implies that your employees’ performance is closely monitored. Even though bonus reviews and performance reviews may be contested now and again, a better alternative has yet to be identified. To execute a healthy and balanced compensation policy, it is important to have a clear insight into your company’s best practices in. Before finalising the bonus policy, a few important questions should be answered, e.g.:

• Which career cycle do you envisage for your employees?
• Which benefits do you plan to offer to high achievers?
• Which practices would you like to reward and put forward?
• Do you have an accurate view on the role that the team leaders will play in executing the compensation policy?
• Are team leaders sufficiently prepared for bonus and performance reviews?
• Would you like to link bonuses to seniority or to specific jobs? Which ages and which jobs are you considering?

What is your position?

A bonus policy will never be unequivocal. Bonuses are part of variable pay schemes, so being variable is one of their major characteristics. There are, however, a few parameters that can be controlled. It is, for example, fairly straightforward to determine the maturity of your company or its life stage. To a large extent, your organisation’s life stage will define the way in which bonuses are deployed.

Organisation life stages 

The overview above shows that it is important to gain an understanding of your organisation’s current situation. Moreover, the overview also indicates under which circumstances a bonus policy is beneficial to the organisation and its employees.

The key message is: commit to initiatives that can be put into practice and develop a bonus policy that builds on the company strategy and vision.

The wave of the future

In the past, companies used to pay their workers in a uniform way, according to the ‘one size fits all’ principle. Over the past few years, new trends have emerged, which seem to convey the message that everything is possible. As always, extremism does not yield the best results. A bonus policy should not be conjured up as a solution to specific problems. It should be the logical outcome of an organisation’s mission and vision. To determine which employees should be rewarded for performing excellently or achieving extraordinary results, a thorough evaluation system is a basic requirement. Which competences will feature in that system will depend on your company’s strategy and values.
At Acerta, we believe in a value-driven HR policy, which will have an impact on every other policy in your organisation. If you want to be considered an environmentally friendly company, this also has to be apparent from your company car policy. If honesty and openness take centre stage in your value charter, your organisation will not reward people who have bent the rules to achieve a high score. Otherwise, you will not be able to talk openly about the applicable variable pay scheme.
Value-driven HRM will also determine who can evaluate your employees’ performance, and how this evaluation will be carried out.