7 Remuneration

The term ‘remuneration’ refers to wages, salaries, overtime payments, bonuses, commissions and any other ‘financial rewards’ paid to employees in return for the work they perform for their employers. It is also referred to as ‘pay.’

7.1 Remuneration policy

Top management usually decides remuneration policy in consultation with HR manager, and if necessary, with trade union and staff association. A remuneration policy might also be affected by the following factors:

  • Strength of the trade union or staff association;
  • Economic climate of the country;
  • Availability of labour in a particular area;
  • Government policies, etc.

7.1.1 Implications for HR manager

The remuneration policy laid down by the top management of an organization has the following implications for the HR manager:

  • If the policy is acceptable to the majority of the workforce, his/her work is easy. He/she can devote his time in concentrating on the other aspects of the HR department.
  • If the policy is not acceptable to the workforce, he/she will have to engage in continuous negotiations with representatives of trade union/staff association in order to reach an amicable settlement. This will increase the workload of the HR personnel, and divert their attention from other important areas of their job.
  • HR personnel have to be on constant alert for any sign that existing satisfaction with the current remuneration policy might be interfered with, and so must be ready to report and to make recommendations accordingly to the top management.

7.2 Systems of remuneration

Different employees of the same organization might be remunerated by different systems, according to the type of work they perform. The following are the most common systems of remuneration:

7.2.1 Time rates

Under this system, payment of an agreed amount is made for agreed period of ‘working time.’ Time rates are mainly used when output cannot be directly related to the wage or labour cost, or when the emphasis is on the quality of work to be performed rather than on quantity alone. If the same employee works for additional hours, he/she is likely to be paid extra for the time worked in excess of the agreed number of hours at an ‘overtime rate.’ This overtime rate may vary from organization to organization or from one department to another.

Other employees might be paid monthly. They include managerial and supervisory staff, clerical and secretarial staff, professional and specialist staff etc.

7.2.2 Piece work rates

Under this system, payment is made according to the ‘output,’ that is, the ‘quantity’ of an ‘acceptable quality’ of an item produced.

7.2.3 Bonus

Bonus is a reward for output or achievement above previously agreed levels. Some schemes are based on an individual’s output, while others are based on the output of the group. This is usually paid at the end of the work year.

7.2.4 Incentives

They are usually given to employees for a variety of factors such as good timekeeping, increased productivity, reducing operational costs or wastage, or involving in innovative activities.

7.2.5 Commissions or target bonuses

The system of paying commissions generally applies to sales people, and is based on the values of sales achieved above a certain pre-determined ‘target.’ Some are paid on an individual salesperson’s achievement, while others are based on the performance of a group, and shared out proportionately.

7.2.6 Allowances

Depending on the nature of their work, some employees might be paid allowances, for example:

  • Cost of transport;
  • Cost of expenses incurred on entertaining existing or potential customers or clients;
  • Cost of buying and maintaining clothing and accessories;
  • Travel allowances.

7 .3 Standard employee benefits

In addition to salary, bonus and allowances, employees are normally provided with certain benefits. They could be of different types:

7.3.1 Annual paid holiday

This is the most common benefit applicable to employees who are eligible for a certain number of holidays (or vacation) on an annual basis. During this period their normal salaries are paid to them. In some countries, the duration of this period is laid down by government rules, while in other places different organizations decide this. This paid holiday period is usually not less than 30 days for every year worked. Most organizations pay salaries in lieu of the vacation period if the management and the employee mutually agree to this.

7.3.2 Sickness pay

This is also a common benefit. An employee who falls ill or sustains injury, whether in the workplace or outside, gets a recovery period “off” work during which he/she will continue to receive pay. The minimum period is laid down by law. However, some organizations may allow longer periods.

Generally female employees are allowed a period of ‘maternity’ leave (before and after the birth of a child) as per government rules of the country. In some countries, fathers of newly born babies might also be allowed a period of time “off.”

7.3.3 Additional (or fringe) benefits

Some categories of employees might receive certain additional benefits which are commonly referred to as ‘fringe benefits’ or ‘perks,’ for example:

  • Company-owned motor vehicle for personal use;
  • Rent-free residential accommodation;
  • Shares of the organization;
  • Cost of meals (or on subsidized rates) in the organization’s canteen;
  • Interest-free salary advance;
  • Loans;
  • Pension or superannuation funds;
  • Medical or health insurance;
  • Group life assurance;
  • Flexible working hours;
  • Working from home or other locations.