Employees’remuneration - How it is determined
There are a lot of factors that affect pay levels within organisations. Within most organisations, there are defined or generally understood pay levels for jobs. They usually take the form of a pay structure which may cover the whole organisation.
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Basically, there are three factors that affect the level of pay of individual employees. They are the value of the job to the organisation, the value of the person to the organisation and the value of the job or the person in the marketplace.
Internal job value
Organisations generally relate pay to the relative contribution or internal value of the job people do. The bigger the job, the more they are paid.
External job value
The rate of pay for jobs and people are influenced by market rates in accordance with the policy of the company on how it wants its own rates to relate to market levels and the degree to which market forces affect the pay required to attract and retain people of the quality the organisation needs.
The value of the person
Individual employees may be paid more because it is perceived they are making a bigger contribution, are performing better, have gained a higher level of skill or competence than other employees or have been in a job longer.
Other important factors that can affect pay levels generally are the employer and the Trade Unions.
The employer
There are three issues which concern employers that may affect pay levels. The first is affordability, which is how much the employer is prepared to pay employees in general and individuals in particular. The second is the policy of the business as to whether it is a higher payer, that is paying above the market rates to get and keep good quality people. A medium-payer employer will be willing to match the market rates possibly relying on other features of the organisation to attract and retain employees. The low-payer employer having to accept probably for financial reasons may pay less than the market rates. The third is the national minimum wages which particularly affect employers in low-wage firms.
Trades unions
Pay levels may be determined through collective bargaining where trade unions will want their members’ pay to keep ahead of inflation to match market rates and to reflect any increases in the prosperity of the business. The amount of pressure they can exert on pay levels depends on the relative bargaining strengths of the employer and the union in pay negotiations.
Pay of executive directors
Normally, decisions on the base salary of directors and senior executives are informed by the market worth of individuals concerned. At the top level, the positions are not evaluated through a formal job evaluation scheme and are often excluded from the pay structure.
Remuneration on joining a company is usually settled by negotiations subject to the approval of the board of directors. Review of base salaries are undertaken with reference to market movements and success as measured by company performance.
Base pay is important because the level agreed is likely to be the basis on which so much else will sit. Bonuses are expressed as a percentage of the base salary, share options may be allocated as a declared multiple of base pay and commonly pension is a proportion of final salary.
In the private sector, directors’ remuneration continues to draw controversy because of its fat nature in relation to pay levels of the employees down the organisational ladder. The arguments often raised in defence of higher executive pay are many, including the fact that top executives have to benefit from the high demand for their expertise and, therefore, there is the need to secure their loyalty against the attractions of competitors. Again, high levels of salaries of directors and senior executives help to improve the performance of the company. To get value for money, in the private sector, executive pay is tied to performance called Performance Related Pay (PRP).
The paradox is that the executives operating the state corporations of our country are politically appointed. Their appointments are not necessarily based on the skills and competences of the appointees concerned. The enterprise culture at our public institutions make greed a respectable culture and, therefore, basic executive pay levels increase much more rapidly than pay generally in addition to uncapped allowances and bonuses at the expense of the taxpayer.
There was huge public outcry when the pay of the former chief executive officer (CEO) of the Ghana Cocoa Board (COCOBOD) and others were made public. This perhaps calls for the government to have a policy to determine salary levels and rules governing incentives, benefits, entitlements and contract provisions for executive directors of state corporations across the board. Arguably, however, executives’ pay wherever will remain controversial.
