A remuneration policy has several components: a base salary, a bonus, benefits. Each one has a precise role. Most remuneration difficulties come from one and the same mistake: expecting the wrong purpose from a given component.
Base salary and the level
The base salary answers a simple question: what is the amount for this function, and sometimes what is this amount on the market? It is the expression of the level, the reflection of the responsibility, the complexity, and the contribution of the role. It is the outcome of the job evaluation, the subject of another article in this series, “Job evaluation is not only a technical act”.
It is the most stable component, and this is by design. The base salary does not reward a one-off performance, does not celebrate an event. It states the level of the function, and it states it over time, ensuring stability.
Bonus and performance
The bonus, for its part, answers another question: how has the job holder brought their function to life during the year?
It is the variable component, the one that recognises a result, an effort, an achievement. And it takes different forms depending on what it rewards: an individual performance bonus, a team bonus tied to KPIs, a sales bonus with a numerical target.
Some events even call for exceptional bonuses, distinct from the usual cycle: a sign-on bonus at hiring, a retention bonus, a deferred bonus, a bonus for an out-of-the-ordinary achievement. These exceptional bonuses have one merit: they address a specific situation without distorting the base salary. The event is recognised, but it remains an event.
Benefits and culture
Benefits, on the other hand, speak of the culture of the company.
Encouraging public transport, offering a concierge service, providing a more generous life and disability insurance or health cover, supporting sports, opening a cafeteria plan, allowing employees to buy additional leave: each of these choices tells something about the culture of the organisation, about what it values and about how it takes care of its teams. Benefits are the most revealing component of a remuneration policy.
Evolving a remuneration without distorting the structure
There remains the question that keeps coming back: how do you recognise someone who is progressing?
The most common reflex is to aim for the higher level. This is often a mistake. Moving the level up to reward a person means asking the level to serve the purpose of the bonus, and it distorts the job architecture.
The progression of a person within their function first translates into progression within the pay band. An organisation that habitually pays its functions at the median, the 50th percentile of the market, may perfectly well decide to position a remuneration higher, at the 75th percentile for example, provided this can be justified: an expertise that has deepened, a responsibility that has broadened, all the real reasons why a person occupies their function more fully than before.
This progression can, at a certain point, tip into a request to reassess the function itself. A common reference point is that a function whose content has changed by more than 20% justifies being reassessed. This is a subject I have developed in another article in this series, “The life of levels”.
The change of level, on the other hand, only occurs when the function itself changes. Not before.
The essentials
A remuneration policy is not a stack of envelopes. It is a set of components, each with its own purpose: the base salary states the level, the bonus states performance, benefits state culture.
The coherence of a remuneration policy rests on a simple discipline: never ask one component to serve the purpose of another.
This is the coherence that the HDH (HR Decision Hub) platform helps organisations to build and to hold, component by component.