1
Jeremiah
Table Of Contents
1.2 What Is Compensation? ............................................................................................................................................................... 8
1.3 The Road Towards Strategic Compensation .......................................................................................................................... 8
1.4 Strategic Activities ......................................................................................................................................................................... 9
1.4.1 COMPETITIVE STRATEGY CHOICES .................................................................................................................................................................................. 9
1.4.2 TACTICAL DECISIONS THAT SUPPORT THE COMPANY’S STRATEGY ............................................................................................................. 10
1.5 Comoensation Professionals’ Goals .......................................................................................................................................10
1.5.1 THE COMPENSATION DEPARTMENT’S MAIN GOALS.............................................................................................................................................. 11
1.5.2 EQUITY/FAIRNESS................................................................................................................................................................................................................. 12
1.5.3 COMPLIANCE WITH LEGAL REQUIREMENTS ............................................................................................................................................................. 13
1.5.4 EFFICIENCY.............................................................................................................................................................................................................................. 13
1.6 Stakeholders Of The Compensation System ........................................................................................................................13
2.2. Meaning Of Strategic Compensation ..................................................................................................................................14
2.2.1. STRATEGIC COMPENSATION MANAGEMENT DEFINED .................................................................................................................................... 14
2.2.2. THE RATIONALE FOR STRATEGIC COMPENSATION.......................................................................................................................................... 14
2.2.3. AIMS OF STRATEGIC COMPENSATION ................................................................................................................................................................... 14
2.2.4. CHARACTERISTICS OF STRATEGIC COMPENSATION ....................................................................................................................................... 15
2.2.5. STRATEGIC COMPENSATION VS. COMPENSATION MANAGEMENT ............................................................................................................. 15
2.2.6. THE PRACTICE OF STRATEGIC COMPENSATION MANAGEMENT ................................................................................................................ 16
2.2.7. COMPENSATION PHILOSOPHY AND GUIDING PRINCIPLES ............................................................................................................................. 16
2.3. Strategic Choces ......................................................................................................................................................................17
2.3.1. SUPPORT BUSINESS STRATEGY ............................................................................................................................................................................... 18
2.4. SUPPORT HR STRATEGYCOMPENSATION STRATEGY: PURPOSE AND CONTENT .................................................................................... 19
2.4.1. WHAT IS COMPENSATION STRATEGY? ...................................................................................................................................19
2.4.2. AIMS OF COMPENSATION STRATEGY .................................................................................................................................................................... 19
2.4.3. STRUCTURE OF COMPENSATION STRATEGY ...................................................................................................................................................... 19
2.4.4. DEVELOPING A COMPENSATION STRATEGY........................................................................................................................................................ 19
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2.4.5 WHEN IS A COMPENSATION STRATEGY A SOURCE OF COMPETITIVE ADVANTAGE? ..............................................................20
3.3. Employment Laws That Influence Compensation Tactics ...............................................................................................21
3.3.1. THE LABOUR RELATIONS ACT 66 OF 1995 (LRA) ....................................................................................................................21
3.3.2. THE EMPLOYMENT EQUITY ACT 55 OF 1998 (EEA) .................................................................................................................22
3.3.3. THE BASIC CONDITIONS OF EMPLOYMENT ACT 75 OF 1997 (BCEA) .....................................................................................22
3.3.4. THE SKILLS DEVELOPMENT ACT 97 OF 1998 (SDA) ................................................................................................................22
3.3.5 THE SKILLS DEVELOPMENT LEVIES ACT 37 OF 2008 (SDL) .....................................................................................................22
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3.3.6. COMPENSATION FOR OCCUPATIONAL INJUROES AND DISEADES ACT 130 OF 1993 (COIDA) ..............................................23
3.3.7. THE INCOME TAX ACT 58 OF 1962, AS AMENDED .............................................................................................................................................. 23
3.3.8. KING REPORT ON CORPORATE GOVERNACE IN SOUTH AFRICA ................................................................................................................... 23
3.4. Labour Unions As Contextual Influences .............................................................................................................................23
3.4.1. LABOUR UNION OVERVIEW ............................................................................................................................................................................................. 23
3.4.2. COMPENSATION ISSUES IN COLLECTIVE BARGAINING........................................................................................................................................ 23
3.4.2.1. UNION INFLUENCE ........................................................................................................................................................................................................... 23
3.5. Influneces On Compensation ...................................................................................................................................................24
3.5.1. MINIMUM WAGES................................................................................................................................................................................................................. 24
3.5.2. PAY GAP AND PAY DISCRIMINATION .......................................................................................................................................................................... 25
3.5.3. COMPARABLE WORTH ...................................................................................................................................................................................................... 25
4.2. Seniority And Longevity Pay ....................................................................................................................................................26
4.3. Merit Paymerit ..............................................................................................................................................................................27
4.3.1. LINKING PAY TO PERFORMANCE ................................................................................................................................................................................. 28
4.3.2. ELEMENTS OF MERIT PAY .............................................................................................................................................................................................. 28
4.3.3. SUCCESSFUL MERIT PROGRAMMES............................................................................................................................................................................ 29
4.4. Performance Appraisal ..............................................................................................................................................................29
4.4.1. TYPES OF PERFORMACE APPRAISAL PLANS ......................................................................................................................................................... 29
4.4.2. EXPLORING THE PERFOMRANCE APPRAISAL PROCESS .................................................................................................................................... 29
4.4.3. SOURCES OF PERFROMANCE APPRAISAL INFORMATION AND ERRORS IN THE PROCESS ................................................................ 30
4.4.4. IMPORTANCE OF PERFORMANCE APPRAISAL AND THE LAW .......................................................................................................................... 30
4.4.5. DETERMINING PAY INCREASES...................................................................................................................................................................................... 30
4.5. Strengthening The Pay-For-Performance Link ....................................................................................................................31
4.6. Possible Limitations Of Merit Pay Programmes .................................................................................................................32
5.1 Introduction ...................................................................................................................................................................................33
5.2 Exploring Incentive Pay ..............................................................................................................................................................33
5.2.1. DIMENSIONS OF INCENTIVES .......................................................................................................................................................................................... 34
5.3. Contrasting Incentive Pay With Traditional Pay..................................................................................................................34
5.4. Individual Incentive Plans .........................................................................................................................................................35
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5.4.1. TYPES OF INDIVIDUAL INCENTIVE PLANS ................................................................................................................................................................. 35
5.5. Group Incentives .........................................................................................................................................................................36
5.5.1. TYPES OF GROUP INCENTIVES...................................................................................................................................................................................... 37
5.5.2. ADVANTAGES AND DISADVANTAGES OF GROUP INCENTIVE PLANS ............................................................................................................ 38
5.5.3. COMPARING GROUP AND INDIVIDUAL INCENTIVE PLANS .................................................................................................................................. 38
5.6. Company-Wide Incentives ........................................................................................................................................................39
5.6.1. PROFIT-SHARING PLANS.................................................................................................................................................................................................. 39
5.6.1.1 TYPES OF PROFIT-SHARING PLANS ......................................................................................................................................................................... 39
5.6.1.2. ADVANTAGES AND DISADVANTAGES OF PROFIT -SHARING PLANS ........................................................................................................... 40
5.6.2. EMPLOYEE STCOK OPTION PLAN ................................................................................................................................................................................ 40
5.6.3. BONUS SCHEMES ................................................................................................................................................................................................................ 40
5.7. Designing Incentive Pay Programmes ..................................................................................................................................40
6.1 Introduction ...................................................................................................................................................................................41
6.2. Defining Different Concepts .....................................................................................................................................................41
6.3. Internal Consistency ..................................................................................................................................................................42
6.4. Job Analysis .................................................................................................................................................................................42
6.4.1. IMPORTANCE OF JOB ANALYSIS .................................................................................................................................................................................. 43
6.4.2. LEGAL CONSIDERATIONS FOR JOB ANALYSIS ....................................................................................................................................................... 43
6.5. Job Evaluation .............................................................................................................................................................................43
6.5.1. PURPOSE OF JOB EVALUATION ................................................................................................................................................................................... 44
6.5.2. COMPENSABLE FACTORS ................................................................................................................................................................................................ 44
6.5.3. JOB EVALUATION PROCESS ........................................................................................................................................................................................... 45
6.5.4. JOB EVALUATION TECHNIQUES/METHODS............................................................................................................................................................... 45
6.5.5. MAIN JOB EVALUATION SUSTEMS IN USE IN SA .................................................................................................................................................. 46
6.5.6. ALTERNATIVE TO JOB EVALUATION ........................................................................................................................................................................... 46
6.6. Internal Consistent Compensation Systems And Competitive Strategy ......................................................................47
7.2 Market-Competitive Pay Systems: The Basic Building Blocks ........................................................................................48
7.2.1 COMPENSATION COMPETITIVENESS.............................................................................................................................................................................. 49
7.2.1.1 LABOUR MARKET .............................................................................................................................................................................................................. 49
7.2.1.2 PRODUCT MARKET ........................................................................................................................................................................................................... 49
7.2.1.3 ORGANISATION................................................................................................................................................................................................................... 49
Jeremiah
Table Of Contents
1.2 What Is Compensation? ............................................................................................................................................................... 8
1.3 The Road Towards Strategic Compensation .......................................................................................................................... 8
1.4 Strategic Activities ......................................................................................................................................................................... 9
1.4.1 COMPETITIVE STRATEGY CHOICES .................................................................................................................................................................................. 9
1.4.2 TACTICAL DECISIONS THAT SUPPORT THE COMPANY’S STRATEGY ............................................................................................................. 10
1.5 Comoensation Professionals’ Goals .......................................................................................................................................10
1.5.1 THE COMPENSATION DEPARTMENT’S MAIN GOALS.............................................................................................................................................. 11
1.5.2 EQUITY/FAIRNESS................................................................................................................................................................................................................. 12
1.5.3 COMPLIANCE WITH LEGAL REQUIREMENTS ............................................................................................................................................................. 13
1.5.4 EFFICIENCY.............................................................................................................................................................................................................................. 13
1.6 Stakeholders Of The Compensation System ........................................................................................................................13
2.2. Meaning Of Strategic Compensation ..................................................................................................................................14
2.2.1. STRATEGIC COMPENSATION MANAGEMENT DEFINED .................................................................................................................................... 14
2.2.2. THE RATIONALE FOR STRATEGIC COMPENSATION.......................................................................................................................................... 14
2.2.3. AIMS OF STRATEGIC COMPENSATION ................................................................................................................................................................... 14
2.2.4. CHARACTERISTICS OF STRATEGIC COMPENSATION ....................................................................................................................................... 15
2.2.5. STRATEGIC COMPENSATION VS. COMPENSATION MANAGEMENT ............................................................................................................. 15
2.2.6. THE PRACTICE OF STRATEGIC COMPENSATION MANAGEMENT ................................................................................................................ 16
2.2.7. COMPENSATION PHILOSOPHY AND GUIDING PRINCIPLES ............................................................................................................................. 16
2.3. Strategic Choces ......................................................................................................................................................................17
2.3.1. SUPPORT BUSINESS STRATEGY ............................................................................................................................................................................... 18
2.4. SUPPORT HR STRATEGYCOMPENSATION STRATEGY: PURPOSE AND CONTENT .................................................................................... 19
2.4.1. WHAT IS COMPENSATION STRATEGY? ...................................................................................................................................19
2.4.2. AIMS OF COMPENSATION STRATEGY .................................................................................................................................................................... 19
2.4.3. STRUCTURE OF COMPENSATION STRATEGY ...................................................................................................................................................... 19
2.4.4. DEVELOPING A COMPENSATION STRATEGY........................................................................................................................................................ 19
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2.4.5 WHEN IS A COMPENSATION STRATEGY A SOURCE OF COMPETITIVE ADVANTAGE? ..............................................................20
3.3. Employment Laws That Influence Compensation Tactics ...............................................................................................21
3.3.1. THE LABOUR RELATIONS ACT 66 OF 1995 (LRA) ....................................................................................................................21
3.3.2. THE EMPLOYMENT EQUITY ACT 55 OF 1998 (EEA) .................................................................................................................22
3.3.3. THE BASIC CONDITIONS OF EMPLOYMENT ACT 75 OF 1997 (BCEA) .....................................................................................22
3.3.4. THE SKILLS DEVELOPMENT ACT 97 OF 1998 (SDA) ................................................................................................................22
3.3.5 THE SKILLS DEVELOPMENT LEVIES ACT 37 OF 2008 (SDL) .....................................................................................................22
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3.3.6. COMPENSATION FOR OCCUPATIONAL INJUROES AND DISEADES ACT 130 OF 1993 (COIDA) ..............................................23
3.3.7. THE INCOME TAX ACT 58 OF 1962, AS AMENDED .............................................................................................................................................. 23
3.3.8. KING REPORT ON CORPORATE GOVERNACE IN SOUTH AFRICA ................................................................................................................... 23
3.4. Labour Unions As Contextual Influences .............................................................................................................................23
3.4.1. LABOUR UNION OVERVIEW ............................................................................................................................................................................................. 23
3.4.2. COMPENSATION ISSUES IN COLLECTIVE BARGAINING........................................................................................................................................ 23
3.4.2.1. UNION INFLUENCE ........................................................................................................................................................................................................... 23
3.5. Influneces On Compensation ...................................................................................................................................................24
3.5.1. MINIMUM WAGES................................................................................................................................................................................................................. 24
3.5.2. PAY GAP AND PAY DISCRIMINATION .......................................................................................................................................................................... 25
3.5.3. COMPARABLE WORTH ...................................................................................................................................................................................................... 25
4.2. Seniority And Longevity Pay ....................................................................................................................................................26
4.3. Merit Paymerit ..............................................................................................................................................................................27
4.3.1. LINKING PAY TO PERFORMANCE ................................................................................................................................................................................. 28
4.3.2. ELEMENTS OF MERIT PAY .............................................................................................................................................................................................. 28
4.3.3. SUCCESSFUL MERIT PROGRAMMES............................................................................................................................................................................ 29
4.4. Performance Appraisal ..............................................................................................................................................................29
4.4.1. TYPES OF PERFORMACE APPRAISAL PLANS ......................................................................................................................................................... 29
4.4.2. EXPLORING THE PERFOMRANCE APPRAISAL PROCESS .................................................................................................................................... 29
4.4.3. SOURCES OF PERFROMANCE APPRAISAL INFORMATION AND ERRORS IN THE PROCESS ................................................................ 30
4.4.4. IMPORTANCE OF PERFORMANCE APPRAISAL AND THE LAW .......................................................................................................................... 30
4.4.5. DETERMINING PAY INCREASES...................................................................................................................................................................................... 30
4.5. Strengthening The Pay-For-Performance Link ....................................................................................................................31
4.6. Possible Limitations Of Merit Pay Programmes .................................................................................................................32
5.1 Introduction ...................................................................................................................................................................................33
5.2 Exploring Incentive Pay ..............................................................................................................................................................33
5.2.1. DIMENSIONS OF INCENTIVES .......................................................................................................................................................................................... 34
5.3. Contrasting Incentive Pay With Traditional Pay..................................................................................................................34
5.4. Individual Incentive Plans .........................................................................................................................................................35
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5.4.1. TYPES OF INDIVIDUAL INCENTIVE PLANS ................................................................................................................................................................. 35
5.5. Group Incentives .........................................................................................................................................................................36
5.5.1. TYPES OF GROUP INCENTIVES...................................................................................................................................................................................... 37
5.5.2. ADVANTAGES AND DISADVANTAGES OF GROUP INCENTIVE PLANS ............................................................................................................ 38
5.5.3. COMPARING GROUP AND INDIVIDUAL INCENTIVE PLANS .................................................................................................................................. 38
5.6. Company-Wide Incentives ........................................................................................................................................................39
5.6.1. PROFIT-SHARING PLANS.................................................................................................................................................................................................. 39
5.6.1.1 TYPES OF PROFIT-SHARING PLANS ......................................................................................................................................................................... 39
5.6.1.2. ADVANTAGES AND DISADVANTAGES OF PROFIT -SHARING PLANS ........................................................................................................... 40
5.6.2. EMPLOYEE STCOK OPTION PLAN ................................................................................................................................................................................ 40
5.6.3. BONUS SCHEMES ................................................................................................................................................................................................................ 40
5.7. Designing Incentive Pay Programmes ..................................................................................................................................40
6.1 Introduction ...................................................................................................................................................................................41
6.2. Defining Different Concepts .....................................................................................................................................................41
6.3. Internal Consistency ..................................................................................................................................................................42
6.4. Job Analysis .................................................................................................................................................................................42
6.4.1. IMPORTANCE OF JOB ANALYSIS .................................................................................................................................................................................. 43
6.4.2. LEGAL CONSIDERATIONS FOR JOB ANALYSIS ....................................................................................................................................................... 43
6.5. Job Evaluation .............................................................................................................................................................................43
6.5.1. PURPOSE OF JOB EVALUATION ................................................................................................................................................................................... 44
6.5.2. COMPENSABLE FACTORS ................................................................................................................................................................................................ 44
6.5.3. JOB EVALUATION PROCESS ........................................................................................................................................................................................... 45
6.5.4. JOB EVALUATION TECHNIQUES/METHODS............................................................................................................................................................... 45
6.5.5. MAIN JOB EVALUATION SUSTEMS IN USE IN SA .................................................................................................................................................. 46
6.5.6. ALTERNATIVE TO JOB EVALUATION ........................................................................................................................................................................... 46
6.6. Internal Consistent Compensation Systems And Competitive Strategy ......................................................................47
7.2 Market-Competitive Pay Systems: The Basic Building Blocks ........................................................................................48
7.2.1 COMPENSATION COMPETITIVENESS.............................................................................................................................................................................. 49
7.2.1.1 LABOUR MARKET .............................................................................................................................................................................................................. 49
7.2.1.2 PRODUCT MARKET ........................................................................................................................................................................................................... 49
7.2.1.3 ORGANISATION................................................................................................................................................................................................................... 49
