20-03-09 Good remuneration policy remains a challenge
“It is hardly surprising that the Flemish labourer is only moderately satisfied with the size of his remuneration package. Almost everybody believes they earn too little, even if objectively speaking that isn’t the case. Another thing we’ve noticed is that a consistent remuneration policy is often not a top priority and that if one does exist, it is under constant scrutiny in terms of cost. You can safely say that any reluctance in openly discussing wage packages, increases the tendency amongst employees to speculate on policy. In all professional categories ignorance reigns in all things that relate to one’s own salary especially with regard to systems for determining bonuses and extralegal benefits.” This is Wies Pairoux’s conclusion after reading the recent Vlerick study on Flemish remuneration policy.
The figures presented in Het Grote Beloningsonderzoek (Big Reward Research) carried out by Vlerick Leuven Gent Management School in collaboration with De Standaard and Jobat, were presented to the public two weeks ago. The study is based on a survey done on slightly more than 8 350 Flemish Belgians between the ages of 18 and 65. It shows that general satisfaction concerning pay is 42 percent amongst labourers, 49 percent amongst office worker, 59 percent amongst executives and 67 amongst managers. Wies Pairoux, who through is his position with Acerta Consult, guides organisations in developing and deploying transparent remuneration policy is not surprised by these figures: “the higher one climbs up the hierarchy, the better the view gets on the company’s salary policy. Most of all it is the lack of transparency and coherence in salary increases and bonuses that creates a feeling of injustice. However, in many organisations, pay inequality or injustice is much more a feeling than an objective reality.”
Importance of transparency
Bonuses, according to the survey, appear to be a familiar practice in the private sector where 35 percent of all executives have a right to a bonus. In comparison, this is only 12 percent in the public sector. However, while the practice is quiet commonly applied, not many employees understand how it is used: 47 percent of executives and 38 percent of managers does not know what receiving a bonus depends on. Pairoux: “Good remuneration policy benefits tremendously from clear communication. Thoroughly communicating salary policy, not only significantly increases the potential for creating the desired platform, it also increases the company’s potential to retain it. The opposite is also true: if you clearly communicate there is no policy or very poor policy, employees will not be motivated. Not communicating at all however, results in communication being left over to vicious speculation. How much communication is appropriate depends on the company culture. In the case of a bonus policy, motivation spectacularly increases when the policy is clearly presented and discussed ahead of time. The research explicitly states that if the bonus system remains ‘anonymous’, it won’t have much of a motivational effect at all. It is also much more pleasant to talk about the carrot rather than the stick and if a bonus policy is well structured, the invested carrot is earned back.”
Salary evolution
With regard to the government, pay increase is mostly determined by index and seniority; in the private sector mostly by index, seniority, performance and competences. Performance is rewarded more in organisations with more than 1 000 employees. A remarkable result the research shows is that wherever pay increase is based on performance and /or competences, employees are much more satisfied with the way salary rises are determined.
Wies Pairoux: “To me, this result is the essence of the research. A first point of concern is that salary evolution needs to be founded on the most appropriate parameters for your organisation. Next to using the index, other parameters might be relevant like work experience, performance,… but in other cases another type of parameter might be more useful like internal harmony, critical importance of a position, the link with competences, etc… The research confirms that limiting pay increase to a link with the price index decreases motivation while linking it to performance increases motivation. This strategy is also known as the “link pay to performance” strategy. A second point of concern is that it is not enough to simply have a good pay policy which places salary evolution in a context; it is also necessary to keep an eye on the process surrounding the policy. Here it is extremely important to have line management capable of providing coaching in performance management.”
Retention value
The Vlerick study also takes a look at non-financial compensation. The non-financial components of compensation score much higher than their financial counterparts. Particularly, autonomy and responsibility, colleagues, work schedules and vacation score well. Points that need more attention are leadership and coaching, career possibilities and management communication. A surprising result is that satisfaction with regard to job security also scores very highly.
The research puts remuneration policy forth as a thorn in the side of many unhappy employees. Whenever remuneration policy is poorly structured, this becomes a reason to start looking for other job opportunities. Rather striking is that the research shows that bonuses and extralegal benefits have limited retention value. “That is not entirely illogical,” says Wies Pairoux: “If bonuses or extralegal benefits are handed out arbitrarily, their retention value is practically non-existent. On the other hand, non-financial benefits have a clear effect on retention: providing opportunities to grow as well as responsibility, positive team spirit, concern for strong leadership, offering job security, … they are all things that gain much more than what they cost. Above average wages are thus a very expansive means of retaining employees that provide you with results that can also be achieved through much less costly investments.
Satisfaction with regard to remuneration policy is, in conclusion, thus not something that happens all by itself. It is something to think about and something that constantly needs to be worked on. When looking at the weight of costs in an organisation, it is a real shame not more creativity is invested in salary policy in order to give it a good and effective structure. Wherever that structure lacks, one hears the word remuneration cost rather than remuneration investment which might be worth the price you pay for it.”
