Towards the end of the financial year and the beginning of the coming year, compensation professionals must obtain two strategic decisions from top management: the company desired market position and the ratio target (Full-Time Equivalent Salaries/Profit). In both ways, HR must meet Government labor department requirements, shareholders anticipated profit, and employees aspired pay. Compensation specialist has to undertake a thorough data analysis starting from the global, to regional, and country situation (such as PESTEL analysis). The study must answer questions such as (not limited to): Does the country follow a particular labor economic system such as capitalism, socialism, or social market…etc? How does it impact companies’ compensation decision? What is the taxation structure in the country? Do you operate in different countries? Do need to have more than one salary structure? Do companies contribute to employees’ social pension scheme? What is the minimum wage? What are the allowances and benefits enforced by the legal system?
Then Compensation specialist then must obtain another critical strategic decision. Management should decide to link pay with employees’ performance or not to do that. These are two different concepts which have their advantages and disadvantages. To link pay to performance, then it has to efficient. If you believe in your system accuracy, then there would be no harm to adopt the “Meritocracy Approach.” The results obtained from fours years of performance management consultation programs done by HR Mark in UAE indicate results inaccuracy. It is a collective culture in government organizations where managers tend to be kind to their followers rather than an individualistic culture providing direct, harsh feedback. Face Value is essential for people how are descending from known families. Documentation for national awards submissions is the key to have such a system compared with the actual need for a mechanism to develop, motivate, and retain talents. In private organizations, very often managers do not have the time to provide constructive feedback. Performance meetings last for less than an hour with no preparation. The system may overuse measurements of employees’ behavior (Competencies) and deliverables (Individual Key Performance) which can be chaotic. Managers are supposed to provide objective rather than performance judgments.
Compensation staff may consider introducing Pay for seniority and/or flat incentive for everyone on top of the meritocracy method To solve the malfunction of pay for performance,
(To be continued….)