Remuneration Strategy at STAR Industries - Case Study Example

Running Header: Report on Remuneration Strategy at STAR Industries Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Remuneration Strategy at STAR Industries Introduction Increased competition among organizations today has made organizations to make effort to attract high skilled employees, as well as retain those that the organizations believe add quality to the organization. Human resource has been found to be a unique resource due to its flexibility to the needs of the organization, and its ability to be trained and developed. Remuneration strategy involves the policy approaches that an organization embraces with regard to how it compensates its employees with the aim of retaining them and making the organization to attract quality staff. The objectives of the remuneration strategy includes improving the capacity of the organization in attracting right people, and motivating the absorbed staff to be retained and focused towards attaining the business objectives of the organization. To achieve this organizations design their remuneration strategy in a way that it is integrated with its business and human resource strategies. Aims of a remuneration strategy Remuneration strategy is embraced in various organizations with the aim of broadening the performance ranges, increasing the organizations market focus, and increasing the variable ‘at risk’ as a way to promote efficiency of employees input and output. In essence, remuneration strategy aims includes attracting, retaining and motivating the best staff of a given organization, supporting the human resources strategy, containing the existent fixed remuneration costs, ensuring that incentives are provided for performance improvement, basis for reward management, it provides for flexibility and responsiveness in handling remuneration issues, and finally it aims towards provision of the best output on expenditure incurred (Brown 2001, pp. 35). To achieve these aims the organizations often would establish remuneration policy through their respective board of management. This is with regard to establishing the appropriate remuneration package that would retain best staff. In addition the remuneration policy would also make advancements in improving the working conditions so that the organization becomes competitive and an organization of choice to its employees. Further alignment of remuneration strategy to CSR strategy, the interest of the external and internal stakeholders is among the key factors that are looked into when designing the remuneration strategy. External factors you need to consider when developing a remuneration strategy When developing a remuneration strategy it is important to consider both external and internal factors in the organization so as to come up with an unbiased strategy which would be effective in dealing with the remuneration aspects within the organization. The external factors to be considered when developing a remuneration strategy includes the strategic thrust, surveys/benchmarking, legislation, change in culture, strategy used by competitors, work patterns among competitor organizations, Advanced technological developments, input from external advisers, influence of trade unions, Governance and policy of rule, Influence of strategy on its publicity, the contributions from external independent Investment / stock exchange analysts and the extent of turbulence in business environment where the organization is placed. Internal factors you need to consider when developing a remuneration strategy. In addition to the external factors mentioned, the internal factors that are important to be considered in developing a remuneration strategy includes the corporate failures with regard to remuneration strategy used in the past, the capacity of the strategy to retain key staff, how the strategy impacts of financial results, the contributions from internal advisers, affordability scale of the organization, productivity of the strategy both in the short and long term basis, concerns of the Board of directors, how the strategy impacts on career progression, internal economic restructuring, the different work patterns within the organization, recommendations of the remuneration oversight Committee, how the strategy addresses shareholder expectations, and the nature of staff loyalty Job evaluation Job evaluation may be looked at as a set of methods that are embraced with regard to comparing jobs systematically with the aim to assess their respective values. It entails the provision of a rank of jobs after putting into consideration a number of rational and well stated objectives of the analysts. It makes effort to answer questions such as which job responsibility is more demanding over the other, should a given job be more specialized of generalized. The purpose of job evaluation is to provide the ranks which acts as a basis for rational allocation of pay structures of the jobs evaluated. Job evaluation methods that could be used at STAR Industries At STAR Industries, there are various methods that would be used in job evaluation. The effectiveness of the respective methods depends on many other internal and external conditions. The three methods of job evaluations that would be used at Star industries include the ranking, factors comparison, and classification methods. The ranking method may be said to be the simplest method because it involves jobs being arranged from the highest to lowest, after considering their values and merits into STAR Industries. In addition, the jobs may also be ranked after considering the difficulty that the workers face relative to other jobs in the industries. Secondly, there is the classification method which involves the predetermination of job classes by which the jobs are assigned. The method places many jobs into classes or job grades. However, separate classes may include personal, office, managerial, clerical, etc. Thirdly, there is the factor comparison method. This method disregards ranking complete jobs instead each job is ranked with respect to a series of factors considered. These factors may include but are not limited to skill needed, mental effort used, physical effort embraced, the scope of supervisory responsibility, the nature of working conditions and other relevant factors including problem solving abilities etc. Pay is assigned to the jobs according to the respective weights that the jobs have after putting consideration to the factors. The concept of Internal, External and Interpersonal relativity/Equity a) Internal relativity/equity Internal relativity/ Equity concept may be explained as a method that undertakes a given job position according to the existent organizational hierarchy. Essentially, this process is carried out with the aim of ensuring that there is a balance in compensation given to a job profile through comparing their compensation with that of the junior and senior job levels in the job hierarchy existent in the organization. Often, the fairness of the process is ensured through embracing job raking, level of management, status, and factor comparison methods. b) External relativity/equity External relativity/Equity is a method by which the job positions and pays is factored in through carrying out the market pricing analysis. Essentially, the organizations formulate their respective compensation strategies through assessing the industry standards, as well as the standards of their competitors. The compensation packages that the organization embraces are made to be in line with that which is prevailing in the given market. This is to enhance fair treatment towards employees, however given room some organizations offer relatively higher compensation packages in a bid to attract and retain best employees from the market. c) Interpersonal relativity/equity This entails organizations giving priority to the employee’s traits and ability when it comes to setting up their pay structures. The interpersonal abilities and skills are given priority with regard to setting up of the compensation packages. The method is difficult to embrace particularly in large organizations where collection and analysis of data from the employees would be cumbersome to management (Kumar 2010, pp. 37). Salary Survey Methods There are various salary survey methods that would be embraced by organizations such as STAR Industries. The methods are broadly spit into the traditional approaches and the contemporary approaches of salary survey methods. The three salary survey methods considered here are the web based data survey method, conducting surveys by use of the filling form method where human resource professionals fill the survey forms, and finally conducting survey through collecting data from recruiters and individuals. The web based data collection survey method is where data posted in the websites are collected and reported by trained professionals in compensation matters. Here, there are alternative sources which give the method an upper hand with regard to validity, quality and relevance of the data from the survey. This method can be used any time due to its relative advantage of easy data collection. The second survey method involves collecting pay data information from human resource professionals through sending forms to them so that they can fill. It has the advantage of the professional reporting from HR experts who have vast experience and understanding of the salary survey process. The method is often used once a year, so that the data collected can be analyzed professionally, and reporting done at the end of the year. The third method of salary survey involves collection of compensation data from recruiters and individuals. However, this method is minimally embraced because of the risk of collecting perpetually biased data. This method takes the longest time due to the time that will be used to collect data, therefore its only used when necessary, and for collection and analysis of specific data needed for the survey (Armstrong & Murlis 2007, pp. 43). Salary Surveys & the determination of Market Positions Salary surveys provide vital information about market rates. The possible market positions an organization could take and why they may take this position. The organizations would use information from the salary survey initiatives to take market positions. The first positions they would take is with regard to the markets they will hire employees from. The second market position they will take relates to using the information in determination of the markets by which they lose employees to, and how they can control the loss of employee turnover and final market position they would take is to decide the markets they would like to compete. This is dependent on the data from the survey for organizations can compete well in markets where they get maximum returns without straining their affordability levels to retain their staff. Salary Packaging It has been agreed on that salary packaging is a feature of most remuneration strategies. This method should be used because it attracts employees into the organization due for it can be studied by employees of competing organizations. Secondly, it should be used for it is an extrinsic motivation to the existing staff thus promotes high retention of employees. Incentives that may be used to make up a salary package include employer provision of social security contributions, and bonus pay. The benefits to employees may include longetivity pay and accumulation of employer social security benefits that goes to employees. How an organization positions itself as an Employer of Choice There are various suggestions that have been fronted by human resource professionals on how an organization can position itself to be an employer of choice. It is further noted that being an employer of choice to employees has more to do with their ‘satisfaction’ at their place of work as opposed to the ‘rewards’ that are offered to them. Therefore for an organization to be an employer of choice, it needs to come up with remuneration strategy that reflects the market conditions, for most people are said to perceive what the market pays as a fair wage. Aligning the remuneration structure design to favor the employer and employees is a plus to the organization. Designing and embracing variable reward systems and fair job sizing mechanisms would also make an organization be an employer of choice to employees (Kumar 2010, pp. 30). Report on the need to Change STAR’s Remuneration Strategy The current state of STAR’s remuneration strategy Introduction An organizations remuneration strategy plays a big role with regard to attracting new employees, as well as in the retention of best employees. STARS remuneration strategy may be described to be an ineffective remuneration strategy because of its outcomes. This is evidenced through the data I was able to collect through exit interviews which revealed the following. The current state of STAR’s remuneration strategy: (i) The employees of STAR Industries are dissatisfaction with wages. As much as STAR industries have made efforts to deal with the wage issue, this has not been captured in its remuneration strategies. Most of the workers who were leaving complained about the disparities among the workers of different groups where they complained that some job groups were favored. As much as I didn’t go further in my research to find out the method of preference that the organization embraced in job evaluation and pay, I find it necessary for a review of the remuneration strategy so as it can capture the employees particularly those of the lower job groups. The range of pay between the upper job groups and the lower is big, and this may point out the need to review some changes in the organizations remuneration strategy that addresses pay. (ii) Another group of exit employees were dissatisfied with working conditions. This was another observation that characterized the current state of STAR’s remuneration strategy. Remuneration strategy of STAR industry has had bias in rewards with little pay for work done. The workers complained of low pay, though at times they get rewards. Most of the employees complained of poor working conditions. This particularly affected the areas of working hours, and the work load per head. Little pay accompanied by high working loads depicted a deficiency in the remuneration strategy. Many employees felt they were exploited through high input accompanied by poor working conditions. (iii) The third percentage of employees I interviewed complained about the inadequate benefits that they are subjected into. The remuneration strategy in STAR was characterized by ‘rewards’ which were periodically awarded, however there were little effort being made to give benefits such as insurance, house allowance and retirement benefits to employees. This affected the lower job groups, however even the top managers complained of receiving less benefits as compared to other organizations in the market. The gap between the current External practices and the Internal practices at STAR Industries There was a big gap between the external and internal remuneration practices at STAR Industries, and this was among the issues that led to crisis between the employees and STAR Industry. First, STAR had engaged their remuneration strategy to capture corporate social Responsibility (CSR) initiatives, as an external practice without adequately attending to the internal issue of complaints in pay, working conditions and inadequate benefits. The Company used CSR to give back to the society which created a good external image to the company, however the internal issues remained, and most employees felt they were taken for granted thus opting to go to competitor companies. A recommendation for a new remuneration strategy for 2 positions in STAR There is need management of STAR Industries to come up with new remuneration strategy for various employees in the various positions. The following are my recommendations for the new remuneration strategy that if applied in the two positions, it would add value towards retaining the employees. (a) Shift Supervisor For the shift Supervisor, I would recommend that their remuneration should comprise of night shift allowances for those who work at night. Insurance cover for risks may also be necessary. I would also recommend pay based on the hours worked as opposed to the days the shift manager has worked. This would improve their salary package. (b) A member of the assembly team. To a member or members of the assembly team, I would suggest an increased pay on their basis salary through setting up an independent committee that would assess the performance of each member. A competitive salary package can be enhanced to these employees through special benefits on holidays when they do not work, alongside increased flexibility of the team members with regard to time of work. Bottom of Form The implications of FBT on this proposal FBT (Fringe benefit Tax) being the taxation of most benefits, excluding most fringe benefits that comprises of the non-cash employee benefits, means that my proposal of increasing more benefits of allowances and other non-cash benefits would attract equitable tax being levied on the benefits of the workers who receive benefits (Baker & McKenzie 2010, pp. 44). This implies that it will reduce income disparities due to excess benefits to one job group over the other. The employees of STAR will be better positioned for benefits won’t make other employees better than others. How FBT supports the organization’s performance management system and strategic objectives In STAR Industries, information I received from the exit interviews comprised of complaints of poor pay, and benefits among workers particularly those of lower job groups. Fringe Benefits Tax mechanism would support performance management because introduction of other benefits to employees as I recommended would be accompanied by equitable taxing, meaning they will enjoy the benefits thou taxes with regard to their individual percentage of the non-cash benefits they receive. This will boost the strategic objective of remunerating the employees well without having disparities on the benefits that employees in different job groups receive. It would further boost the strategic objective in terms of the use of taxes to drive retention. Describe the mechanisms you will put into place to regularly monitor and review; a) The legislations applicable: To regularly monitor and review the legislation applicable I would set up a legislation task force that comprises of representatives from the board of directors, the company lawyer, and two representatives of employees either by vote or through their trade union. This task force would on ad-hoc basis call meetings to ensure the legislation reached at by the company is followed. They would also meet on quarterly basis to review the legislation if need arises. b) Stakeholder satisfaction: I would task the operational managers with the responsibility of carrying out quarterly reviews on stakeholder’s satisfaction through contrasting the stakeholder’s objectives with the real work performed by employees. c) Required level of competitiveness: On annual basis, there is need for a task force that would scout information on how competitor organizations are fairing on with regard to their compensation packages, verses work output. d) Compliance with organizational policies: This may effectively be done through increasing ownership of employees into the activities of STAR Industries. Publicizing of organizational policies through departmental heads should also be done. Conclusion All in all, it is important for STAR Industries to do a complete overhaul of their remuneration strategy though this should be done gradually to minimize the risks involved. It is important for the managers to avoid detaching the high volumes of exits of employees with the company’s remuneration strategy; instead they should embrace newer approaches of remunerating employees. In my view, increasing more benefits to the workers particularly of the lower job groups who receive relatively lower pay as compared to top managers would make STAR Industry be able to retain its employees. References Armstrong, M & Murlis, H 2007, Reward management: a handbook of remuneration strategy and practice, Kogan Page Publishers, London. Brown, D 2001, Reward strategies: from intent to impact, CIPD Publishing, New York. Baker, B & McKenzie, M 2010, Australian master human resources guide 2010, CCH Australia Limited, Sydney. Kumar, R 2010, Human Resource Management: Strategic Analysis Text and Cases, I. K. International Pvt Ltd, New York. Read More