MCQ
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Week7.Examrecap_and_expatriate_reward.pptxPay may be divided into two categories: base (or fixed) pay – guaranteed cash wage or salary paid to employees for doing their work for a contracted period of time total earnings – base pay plus additional variable earnings such as bonus payments or overtime earnings.
CIPD 2019 reward and pay factsheet
Equal pay audit
Compares the pay of men and women doing equal work in your organisation to:
investigate the causes of any differences in pay between men and women doing equal work.
eliminate instances of unequal pay that cannot be justified.
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United Arab Emirates
Federal Decree by Law No. 6 of 2020 (the Decree) (effective as of 25 September 2020) has amended Federal Law No. 8 of 1980 (the UAE Labour Law)
Equal pay for female employees performing work of the same or equal value as that performed by their male counterparts
Standards soon to come: for evaluating ‘work of equal value’
Paid paternity leave: 5 working days (taken within the first 6 months of the child’s birth).
protection for pregnant employees against dismissal.
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https://u.ae/en/information-and-services/social-affairs/gender-equality
Equal pay audit
Compares the pay of men and women doing equal work in your organisation to:
investigate the causes of any differences in pay between men and women doing equal work.
eliminate instances of unequal pay that cannot be justified.
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Equal pay audit (UK process) to use as best practice/best fit
Once you have the involvement of managers and workforce representatives you can follow five simple steps.
deciding the scope (staged approach (risk assessment), specialist or HR/Finance, trade union, what data?
determining where men and women are doing equal work (look at gender, grade, part/full-time.
collecting pay data [see analysing pay next slide]
causes of gender pay differences (expect some pay differences)
developing an action plan (pay rise for some?, communication)
Equal pay audit for larger organisations | Equality and Human Rights Commission (equalityhumanrights.com)
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Equal pay audit for larger organisations | Equality and Human Rights Commission (equalityhumanrights.com)
(Revise previous slides) Biased/discriminatory job evaluation The Equality and Human Rights Commission and [EOC/EHRC] have given an example of discriminatory and non-discriminatory job evaluation factors
What could possible discrimination in this case look like?
How could it be addressed in a fair manner?
When looking at benefits to retain nurses at hospitals nurses chose subsidized childcare (extra note)
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| Maintenance Fitter |
| Company Nurse |
What do you think?
An equal pay audit is an example of one of the following reward terms. Which one is it?
a) a business strategy
b) a reward policy or process
c) a reward strategy
d) an HR strategy
e) an employee benefit
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HR Discussion
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Recap: Market Pricing/Analysis [Week 3 Slides] Where would you gather data from to understand how to pay your employees?
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Market pay rates gather data through market pay studies
Use multiple sources/relies on accuracy of market data
Surveys
Benchmarking
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Exit/Leaver interviews
Has anyone done an exit interview?
What can you tell us about exit interviews?
Is the information learned from the leaving employee a reliable source of market data information?
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British Telecom (BT) in 2005
Wanted to break away from company wide grading and pay scales
Employ a wide range of technical staff
Introduced job families and career paths
Introduced market pricing for every job
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Recap: Merit pay and Variable pay
Merit pay refers to a performance-related pay:
provides bonuses; or base pay increases for employees who hit the target (or perform their jobs effectively, according to measurable criteria over a predetermined period of time).
Variable pay is provided as a type of bonus, incentive pay, or commission.
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Job Evaluation: Ranking, Classification, Point & Factor Comparison
All companies use different job evaluation schemes to suit their organizational requirements. One size does not fit all.
Popular Trend.
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Hay Guide Chart (see our previous class slides 3)
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Recap: Organisations Centralised/ Decentralised pay systems
In a leading private sector organisation
Would pay be centralised or decentralised?
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Pay structures (PS) The following PS slides are just for students as a reminder to study.
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Revise pay structure slides
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JE points, grades and pay structures
Red-Circling is when an employee's pay rate is approved to be above the established salary maximum for that position. Hence, the employee is usually not eligible for further base pay increases until the range maximum surpasses the employee's pay rate.
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JE POINTS, GRADES & PAY SCALES
GROSS 250-299 300-349 350-399 400-449 450-499 500-549 13.5 17.5 22.5 27.5 33 40 NET adjusted for COLA 250-299 300-349 350-399 400-449 450-499 500-549 9 10 10.5 12 15 18
£ 000 p.a.
Narrow-graded pay structures
often found in the public sector
typically comprise ten or more grades
with jobs of broadly equivalent worth in each grade
Progression is by service increments
due to narrow grades employees can reach the top of the pay range relatively quickly
potentially leading to ‘grade drift’ and jobs ranked more highly than justified
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Narrow banded/graded pay structure
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Narrow banded pay scales in NHS
(Pay Scales In GB Pounds [£])
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Narrow banded/graded pay structure
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| Narrow banded pay structure | |
| Arguments for | Arguments against |
| Easy to explain and administer | Inflexible |
| Grading maintains *relativities | Good performers quickly hit their pay ceiling |
| Control over new starter pay | |
| Frequent grade increases popular with staff |
Narrow graded pay scales: A manager has limited freedom to decide a person’s pay
*’relativities’ how things only have importance in relation to other things
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Broad-Banded/Graded pay scales
Job evaluation no longer drive grading
Pay Policy is Market Driven
Greater Flexibility in pay determined by management
Focus on rewarding employees for lateral development (i.e. creativeness, innovative ideas)
Delayed organisation
Good for controlling pay costs
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Broad-Banded/Graded pay scales
broad-banding involves the use of an even smaller number of pay bands (four or five).
Designed to:
allow for greater pay flexibility
typical broad-banding would place no limits on pay progression within each band
although some employers have introduced a greater degree of structure
each job can have its pay range within a band
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Broad banded/graded pay structure
Grade maximum
Grade minimum
Grade midpoint
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Broad banded/graded pay structure
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| Broad banded pay structure | |
| Arguments for | Arguments against |
| More flexibility in individual pay | Raises expectations |
| Managers have more freedom | Can lead to cost escalation |
| Makes job moves without promotion easier | Perceived equity |
| Good for mergers | Market comparisons more difficult |
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Broad Band Pay Structure
Pay spines and increments
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| Pay spine pay structure | |
| Arguments for | Arguments against |
| Fixed points published and transparent | Costly if all staff progress to the top of their band |
| Progression less dependent on management judgement | Discourage local decision making |
| Often linked to steady progression based on competence and length of service |
Mainly in public sector or organisations who recruit from the public sector
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POINTS
1A
1B
1C
2A
2B
2C
3A
3B
3C
Progress from points 1 to 4 with increased length of service
Promotion from band 1 to 2
Move from
A to B to C with increased
competency
£
1 = 14,517
2 = 14,922
3 = 15,269
4 = 15,617
23 = 24,103
26 = 27,191
25 = 26,123
24 = 25,054
Pay spine
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The Scottish Negotiating Committee for Teachers (SNCT) determines the pay of teachers and associated professionals.
Pay spines and increments
Pay spines and increments:
Each grade has a pay scale attached to the spine
An employee’s salary progresses by increments and has to be on a spine point, e.g. £24,103 or £25,054 etc.
Contrast with narrow graded pay scales:
Only the scale minimum and maximum are fixed
An employee’s salary can be anywhere between the minimum and the maximum. The manager decides, e.g. Mr A earns £24,500 and Mrs B earns £24,505
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Job family (not based on job evaluation)
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| Job family pay structure: Separate structures for each function or family | |
| Arguments for | Arguments against |
| Can match external market salaries or that job family, e.g. lawyers not constrained by company-wide graded salary scales | Difficult to maintain equity between families which can result in: Possible equal pay challenges Difficulty in moving staff across families |
| Often linked to staff development within that family |
Mainly used in large Private Sector organisations with separate structures for each function or family, particularly useful for specialist staff who are in short supply
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Job Family Structure
£10,000
£20,000
£30,000
£40,000
£50,000
LEGAL
MARKETING
IT
FINANCE
£60,000
PAY
ADMIN
SUPERVISORY
PROFESSIONAL
MANAGERS
ADMIN
SUPERVISORY
PROFESSIONAL
MANAGERS
ADMIN
SUPERVISORY
PROFESSIONAL
MANAGERS
SUPERVISORY
ADMIN
PROFESSIONAL
MANAGERS
£70,000
A job family is defined as a series of related job titles with progressively higher levels of impact, knowledge, skills, abilities (competencies), and other factors, providing for promotional opportunities over time.
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Job family structures
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Recap:
a spot rate
a rate for the job
Skilled base pay
a pay spine
a job family structure
a narrow graded pay structure
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What will you pay this road cleaner in London?
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AED100,554 (AED8,379 approx. per month)
What will you pay this local council workers who digs up roads in London?
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Recap: Banks and the mis-selling of financial products
negligent sale of financial products or services
unsuitable for the customer’s needs (i.e. mortgages, loan repayments, pension schemes)
misrepresented or too complex to understand
rebuild customer confidence.
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Banks and the mis-selling of financial products
The payment protection insurance (PPI) scandal (UK) is perhaps the best known example of mis-selling in recent years, with 13m complaints being made since 2007 – 70% of which have been upheld. But while PPI dominates attention, mis-selling continues to affect products such as mortgages and pensions that most of us have a stake in.
Some financial services organisations now no longer pay a sales commission to incentivize the employees to produce more sales.
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Regulations in banking
Banking regulators:
Prudential regulation authority (PRA)
Financial conduct authority (FCA)
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Prudential Regulation Authority (PRA)
The Bank of England regulates and supervises financial services firms through the Prudential Regulation Authority (PRA).
PRA is responsible for the regulation and supervision of banks, building societies, credit unions, insurers and major investment firms
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PRA: The Prudential Regulation Authority (PRA) was created as a part of the Bank of England by the Financial Services Act (2012) and is responsible for the prudential regulation and supervision of around 1,500 banks, building societies, credit unions, insurers and major investment firms.
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The Financial Conduct Authority (FCA)
The FCA is responsible for the regulation of those financial services firms not supervised by the PRA such as asset managers and independent financial advisers.
Company remuneration report:
Gives greater transparency
Shareholders have a binding vote
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FCA: The Financial Conduct Authority is the conduct regulator for 56,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms.
To secure an appropriate degree of protection for consumers.
To protect and enhance the integrity of the UK financial system.
To promote effective competition in the interests of consumers.
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Employee benefits
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Items offered in addition to pay and bonus
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Total Compensation or Total Remuneration
What is it? An example of total compensation/total remuneration through AON’s reward survey
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https://www.aonhewitt.ae/home/for-employers/compensation-benefits/compensation-benchmarking
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Main types of benefits
Pensions and protection
Example: Retirement pay, life insurance, disability pension
Health and personal security
Example: Health screening, occupational sick pay, private medical insurance, redundancy pay.
Financial assistance
Example: Season ticket/transport loans, relocation expenses, discounts, shopping vouchers
Personal and lifestyle needs
Example: Annual leave, childcare vouchers, subsidised canteen, gym membership, counselling service
When looking at benefits to retain nurses at hospitals nurses chose subsidized childcare
Cars
Example: Cars, car and fuel allowances, parking
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Benefits policy
Organisations need to consider:
What to do about pensions
Why are they giving benefits
The range and scale of benefits
What the market is doing
Tax and National Insurance (NI) concessions
The degree of employee choice
Cost and perceived value
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Recap: Share schemes - video
Have a look at John Lewis Share Option Scheme
https://www.youtube.com/watch?v=XCx82lOfg2E
https://www.johnlewispartnership.co.uk/financials.html
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Types:
Profit-related money given as a bonus, e.g. John Lewis
https://www.youtube.com/watch?v=XCx82lOfg2E
https://www.youtube.com/watch?v=-SPSOda58yE
Share schemes
Share ownership scheme – where an employee can buy discounted shares in the company (from pre-taxed pay).
Share gifting scheme (or a free shares scheme) – where the company gives shares to the employees free of charge. These shares normally have to be held in a trust structure for a period of time.
Share options – the option to buy shares at a future date at the share price on the date of issue (i.e. if you buy shares within a 3 year period at today’s share price).
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Drake (2020)
Profit sharing and share schemes
Annualised Hours Scheme in the UK
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An annualised hours contract is an employment contract where the employee's working hours:
are calculated on an hourly basis (not daily/weekly/monthly)
those hours are at times stipulated by the employer during the year during busy times of production
(i.e. BMW 2014 Pay Agreement).
BMW car plant at Oxford
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BMW 2-year pay agreement 2014 - 2016
1st January 2014: a 3.5% pay increase.
1st January 2015: pay increase equaled Retail Price Index in November 2014 [we will talk about in expat reward].
A team bonus and company bonus based on team, factory and company performance.
Flexible working:
When car demand fell, operators worked less hours.
These hours were ‘banked’ and used when car demand was high.
Saved company overtime payments (not to the benefit of employee).
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Royal Bank of Scotland
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Royal Bank of Scotland (RBS)
Introduced RBSelect in 1998 to:
Strengthen employment brand.
Attract and retain staff.
Encourage staff to value benefits.
Give staff flexibility and choice.
Cost saving was not an objective.
Lets take a look:
https://rbs.tbs.aon.com/RBS/media/default/PDFs/Guides/234023888_RBSelect_Guidebook_GB.pdf
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Available at: http://jobs.rbs.com/system/production/assets/91804/original/RBSelect_Guide_to_benefits_2017_NI_version_INTERNAL.pdf
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RBSelect
Money into the scheme can be from:
All basic salary.
Existing benefits funding.
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RBSelect
Scheme money can be used for:
Private medical cover.
Company car scheme.
Extra contributions into pensions.
Childcare vouchers.
Shopping vouchers.
Holiday.
Staff can buy up to 5 days extra leave.
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RBSelect
Operation:
Staff cannot make changes annually for all benefits
Staff can make changes at any time for some benefits e.g. pensions, childcare vouchers.
staff can buy up to 5 days extra leave
all staff receive a total remuneration/reward statement
staff can check on-line the tax implications of their choice of benefits
RBS believe that RB select improves their brand image
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Benefit and Cost (£ p.a.)
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| Benefit | Cost |
| Company pension | £4,500 |
| Leased car | £2,500 |
| Subsidised childcare | £1,200 |
| Medical insurance | £650 |
| Subsidised meal (50%) | £350 |
| 1 day’s leave | £150 |
| Season ticket loan | £100 |
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Mini-case study
Hospital in London
Discussing reward including pay progression for staff/up the salary scale
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Expatriate remuneration
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Multinational reward strategies
Localiser: i.e. MacDonalds (franchise)
Example: 101 countries, over 39k restaurants, 80 reward systems
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Multinational reward strategies
Exporter: i.e. Unilever
One reward system
across the world
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Multinational reward strategies
Globalizer:
Global framework, local decisions
Usually depends on the degree of business convergence (similar practices) or divergence (local practices)
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for example BP who use a tiered approach i.e. top 100 executives plus:
(i) very high potential staff on global system
(ii) local staff on local terms
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Advantages of International Placements
What do you think?
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Advantages of International Placements
personal development, career prospects and development of employees knowledge and expertise.
The employee will understand a different culture of the country they're based in and the differences from their own culture, will improve working relationships and business success.
Brings about the employees self-awareness of their own assumptions and sensitivities to understand how this will impact on their judgements and perceptions of their behaviour of those from different cultural backgrounds.
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Expatriate remuneration
Complex because of:
National attitudes towards reward
Currency, tax and legislation
Pensions and social payments
Cost of living
Loss of partner’s earnings
Equity (fairness) issues
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Expatriate remuneration
Key equity (fairness) issues the expatriate will make comparisons with:
His/her peers at home
The local workforce
Peers in the international workforce at the same location
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Expatriate remuneration
Assignment types:
Traditional often project based, e.g. 2 – 5 year
Developmental
Short term assignments e.g. 6 months
Dual career (both partners have a career)
Localisation following an extended assignment
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Different assignments need different reward
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BP IN ALASKA
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Common attributes in expat reward
A tiered approach to reward is a common strategy for multinational companies
i.e. the top 100 executives in an organisation have different policies from those who report to them
Remember a market supplement can be given to staff who are in short supply.
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Burgernomics
The Big Mac index, also known as Big Mac PPP is a survey set up by The Economist magazine which started in 1986, as a way to compare the wealth across countries relative to the cost of a McDonald’s burger.
The survey results are used to measure the purchasing power parity (PPP) between nations, using the price of a McDonald's Big Mac as the benchmark.
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https://www.economist.com/big-mac-index
Home-based System
Group 1: Work in your groups to discuss [look at the following slides]
Expatriate remuneration Activity Discussion 20 minutes
Group 2: Work in your groups to discuss [look at the following slides]
Host-based systems
Expatriate remuneration
Alternatives:
The home-based approach sets the reward package that the employee received at the home country as the foundation for the reward and then considers cost of living, housing costs, taxation and allowances relevant to the assignment – does this create fairness?
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(1) Home-based systems/balance sheet approach
Determine salary in home country, net income tax/NI contributions
Calculate ‘home country spendable’ or ‘net disposable income’*.
Fair to other employees? Maybe not.
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*Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after income taxes have been accounted for.
Home-based systems
Advantages:
Same system regardless of nationality
Preserves standard of living
Simplifies repatriation
Disadvantages:
Can be very costly
Currency and payroll problems
Local and international peer comparisons at same location
Can be Unfair
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Home-based system calculation
Start with home net disposable income (NDI)
Apply cost of living adjustment (COLA produced in the US for example by the Bureau of Labour Statistics) as % of NDI
Add incentive and hardship premiums as % of gross base salary
Known as ‘balance sheet’ approach
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NDI is the amount of net income a household or individual has available to invest, save, or spend after income taxes
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Home-based system calculation
Apply cost of living adjustment (COLA) as % of NDI
What Is a Cost-of-Living Adjustment?
an increase made to Social Security and Supplemental Security Income to counteract the effects of inflation.
For example, if someone received $10,000 last year in Social Security benefits, and the COLA for this year is 4.1%, his or her benefits for this year would be $10,410.
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NDI is the amount of net income a household or individual has available to invest, save, or spend after income taxes
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Expatriate remuneration
Alternatives:
Host-based systems
The host-based approach uses the market rate of the host country to determine the salary on offer. This could be the salary which local employees receive or, particularly in countries with large expatriate populations, it could be based on the salary received by other expatriates in that country.
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Host-based systems
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Expatriate remuneration – payment and allowances
Housing
School fees
Health insurance
Travel home
Car
Bonus at end of contract
All depending on the assignment
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Host-based systems
Advantages:
Fair to local staff, clear link to local pay
For assignments that become permanent
Often lower cost to organisation
disadvantages:
Only works if moving to a higher paid location
Local rates may be difficult to determine
Repatriation from a high paid country
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(3) A Hybrid System
Divides expat’s salary into
two components:
Local component – same wages for all expats working in jobs at same level. Nothing to do with country of origin.
Calculation of spendable income in the host country to maintain home country living standards.
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Which countries pay most
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Middle Managers in the UAE
Middle managers in the UAE are the best paid when compared to their peers in the Middle East & Africa region, while entry level staff rank second, according to the latest Global 50 Remuneration Planning Report, launched by Willis Towers Watson, the global advisory, broking and solutions company.
In its report, Willis Towers Watson found that the typical middle manager in the UAE earns a gross base salary of US$95,120 a year, and an entry level professional makes US$25,752.
https://www.thehrobserver.com/uae-managers-are-the-best-paid-and-enjoy-a-stronger-buying-power-in-the-mea-region/
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RELATIVE BUYING POWER OF A MIDDLE MANAGER,
Gross Pay USA Switzerland Germany UK France Denmark China Poland India Philppines 83 127 87 68 68 86 60 32 23 24 Relative Buying Power USA Switzerland Germany UK France Denmark China Poland India Philppines 79 72 63 59 52 42 37 30 28 24
Euros p.a.
Example attributes in Denmark v. UK
The gross pay of managers in Denmark is higher than the gross pay of managers in the UK
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How do manual workers compare?
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How would you explain the discrepancies in the chart on the next slide??
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INTERNATIONAL MANUFACTURING
SHOP FLOOR PAY 2010
Denmark Germany US UK france Japan Hungary China 31.8 25.8 23.3 21.2 21.1 18.3 4.7 2
Example attributes in expat reward UK V. Germany
In 2010 UK manufacturing hourly costs (pay) was lower than in Germany
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Common attributes in expat reward
in 2010 China manufacturing hourly costs (pay) was lower than in Western Europe
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