Remuneration & Reward
Remuneration Design
Circumstances and applications:
- Recruitment – managers can grade the job and offer a salary in the pay range (according to the remuneration policy),
- Performance – employees who demonstrate sustained superior performance could move through the pay scales more quickly,
- Competence and skill demonstration – this allows individuals who apply relevant competence and skill to move up the pay scales quicker,
- Contribution – paying for contribution should be reflected in remuneration policy,
- Business needs or scarcity of skill – the business imperative is particularly applicable in South Africa during transformation. This, together with scarcity of some skills sometimes leads to anomalies in the pay structure, but these are defensible.
Related Training Courses
How can we help you?
We can assist you with:
- A wage gap audit that will assess:
- salary structure architecture,
- mid-point differentials,
- pay range, overlap and slope,
- remuneration structures,
- pay progression policy,
- movement through pay scale based on performance, scarcity of skill, market movement.
- the design of a remuneration structure that:
- supports both the company’s business strategy and HR strategy,
- supports the application of the remuneration philosophy,
- has appropriate stakeholder buy-in,
- is legally defensible,
- upholds the principles of internal and external equity,
- is compatible with the total compensation design strategy – including base, incentive and indirect compensation.
Payscale Design
21st Century can assist you with your payscale strategy by designing a customised pay scale that aligns with your organisation strategy.
A pay scale is a guideline for all remuneration decision-making, and ensures internal equity and consistency when making decisions.
Related Training Course
How can we help you?
- With the design of a customised payscale that includes guidelines for progression of pay in your organisation and takes into account:
- Your current pay practice,
- External market pay information,
- Your relativity to the external market,
- Your unique environment,
- The unique market you wish to compare against,
- Your unique remuneration strategy in terms of the market match you are aiming for,
- Specific factors that you would like to recognise in your pay model – whether it be recognition of performance, tenure, competency or other factors,
- Your affordability.
- With the design of a pay progression model to determine where to pay employees on the pay scale, taking into account elements that would be linked to existing policies and strategy.
Short Term Incentive (STI) Scheme Design
Our STI models are based on best practice Remuneration principles and benchmarks. Models are stress tested by clients against their income statement and balance sheet to drive the company’s strategy.
Short Term incentive schemes measure performance for up to one year.
STI schemes are generally used in order to:
- Attract and retain skills,
- Align employee behavior with shareholder expectations,
- Change employee focus from process to outputs,
- Drive company strategy.
Short Term Incentives typically include:
- Profit share
- Gainshare
- Commission
- Bonus schemes
Related Training Courses
How can we help you?
- By reviewing/auditing your existing incentive schemes to ensure to ensure alignment with the business’ objectives and best practice,
- With the design and implementation of the various types of incentive schemes,
- By benchmarking your incentive schemes against the market,
- By providing training on all aspects of incentive schemes to ensure the skills are retained in your organisation.
Long Term Incentive (LTI) Scheme Design
Our LTI models are based on best practice Remuneration principles and benchmarks, and are stress tested by clients against their income statement and balance sheet to drive the company’s strategy.
Long Term Incentive schemes measure performance for over a year.
Long Term Incentive schemes are used to:
- Differentiate and reward top performers,
- Align employee behavior with shareholder expectations,
- Encourage executives to maximise long-term shareholder value,
- Provide necessary market-related remuneration, particularly at executive level.
Long Term Incentives include:
- Share schemes (of various types)
- EVA
- Rolling cash-based schemes
Related Training Course
How can we help you?
- By reviewing/auditing your existing incentive schemes to ensure to ensure alignment with the business’ objectives and best practice,
- With the design and implementation of the various types of incentive schemes,
- By benchmarking your incentive schemes against the market,
- By providing training on all aspects of incentive schemes to ensure the skills are retained in your organisation.
LTI Valuator
LTIs are a company’s most effective retention and performance tool … but only if their expected value is KNOWN.
Although the present value of Executive LTIs is usually know, it is difficult to calculate the realisable value of an executive’s LTI at any given time.
The Black Scholes valuation model makes the following assumptions:
- The rate of return on the stock follows a lognormal distribution. This means that the logarithm of 1 plus the rate of return follows the normal, or bell-shaped, curve. (The assumption ensures continuous trading – the stock rate of return distribution is continuous),
- The risk-free rate and variance of the return on the stock are constant throughout the share allocation’s life. (The two variables are non-stochastic),
- There are no taxes or transaction costs,
- Dividend flows are factored into the value. (This assumption ensures no jumps in the stock price. It is well known that the stock price falls by approximately the amount of the dividend on the ex-dividend date),
- The calls are European. (This does not allow for early exercise).
How can we help you?
We can:
- calculate the realisable value of an executive’s Long Term Incentives – that is, the value of the unvested Long Term Incentives that they would forfeit should they leave the organisation (Value at risk),
- compare the value to a peer group of listed companies of your choice.
(click on the image below for a closer view)
ESG and Sustainability Metrics
(Non-Financial Measures)
Focus is shifting from shareholders (shareholderism) to stakeholders (stakeholderism), and there is pressure on companies to include Environmental, Societal and Governance (ESG) metrics in their business strategy.
Each company is unique in its adoption of ESG strategies, based on its company purpose and the inclusion of its stakeholders like:
- employees,
- suppliers,
- society,
- communities,
- investors,
- customers, etc.
Useful ESG links
ESG Trends
- Non-financial metrics are being incorporated in Executive scorecards, as well as the usual financial metrics in both the STI and LTI designs.
- There is an increase in the use of quantitative ESG measures, rather than qualitative measures.
- The setting of quantifiable targets/goals around ESG measures that are specific, clearly articulated and rigorous.
- Investors are insisting on the inclusion of ESG performance metrics in remuneration policies that foster the sustainable achievement of both financial and nonfinancial results and are consistent with the company’s strategy.
- Societal metrics and diversity issues currently dominate ESG measures, with particular focus on Diversity, Equity and Inclusion (DEI).
2023 GECN REPORT
Global Trends in ESG Incentives
Longer-term trends are becoming evident as companies continue their environmental, social, and governance (ESG) journeys. The report explores how companies around the world seek to incorporate ESG measures into their executive compensation plans.
ESG services
- Development of ESG Policy:
- Identify ESG goals (KPIs) in line with developed ESG Policy;
- Alignment of non-financial incentives to ESG goals:
- Design exec incentives to align non-financial incentives with ESG goals to ensure sustainability and value creation (financial);
- Human Capital:
- Updating Workforce diversity policy;
- Updating Supplier diversity policy;
- Employee diversity and harassment training ;
- Environment:
- Developing internal environmental sustainability policy;
- Working on estimating client GHG emissions;
- Working on gathering and tracking clients’ GHG emissions data;
- Community:
- Sponsoring 21st Century Foundation (tutoring of learners in disadvantaged schools);
- Governance / other:
- Code of Conduct for employees that includes policies around:
- insider trading,
- confidentiality,
- conflicts of interest,
- whistleblower protections;
- Developing AI policy;
- Internal Communication:
- Existing policies contained within Employee Guidebook;
- Developing ESG Strategy document that will contain all ESG-related policies and internal statistics (e.g., diversity stats);
- External Communication / Marketing:
- Updates to client website to include ESG Philosophy and more communication around ESG goals (beyond just ESG incentives).
Performance-Based Pay
A well designed performance-related pay plan has a huge impact on an organisation as it directs and motivates performance more than any other existing factor.
In order to be truly effective, a performance related pay plan should be designed designed to fully capitalise on the potential of employees.
Related Training Courses
How can we help you?
We can assist with:
- Determining pay targets by using a good grading system,
- Setting the Total Reward mix or proportion,
- Determining incentive Total Reward ranges,
- Determining the point of entry,
- Setting performance metrics,
- Setting performance criteria,
- Linking performance to Total Reward,
- Ensuring that all involved parties are in agreement,
- Measuring the success of the Total Reward plan.
Expatriate Pay Design
Determining expatriate pay levels, and international salary levels in different countries, necessitates complex calculations that involve comparing the relative costs of living in both the host country and the expat’s home country.