At time being, Human Resources Department (HRD) is no longer seen as supporting role in an organization. The conventional role as back office has become more strategic. The term Human Resources Business Partner (HRBP) emerges the concept of HRD asa bridging role between Management and other roles in department or division within the organization. That term is not overrrated, considering HR has become more critical than recruitment or training only.
Align with that strategic role, for this session, we will discuss aboutRemuneration Program as one of strategic tool to meetthe needs of company and the needs of employees. In more broaden scope, “Reward management” concerns with the formulation and implementation of strategies and policies thatare aimed to reward people fairly, equitably and consistently in accordance with their value to the organization. In accordance to that definition, Reward management is not only something that generated on paper in the form of policy or action plan but also what organization has to implement in paying their employee with more fairness and good competitioncompare to market.
As I mention earlier, paying employee leads you to two perspectives, the company and the employee. First, what are the needs of company? The answer for that is implicated through Return of Investment (ROI). Does that number talk? The measurable impact of how much that company already given in this case, how much company had already paid to their employee and how much is in return in term of productivity and profitability. It also should go hand in hand with company values and strategies. If company plans to grow their business, recruiting high potential candidates brings them to high offer in salary. Employment cost will rise but that scenario needs to be chosenin order to achieve the goal. But in reverse, if company plans to do cost efficiency, defining their talent from star to poor is another path to choose, so they can manage their employment cost. Second,what arethe needs of employee? For example, company pays their employee medical benefit as many as 1 million Rupiah each month. For employee aged between 35-50 years old that amount has higher value, because the perceived value of it. They could value the 1 million Rupiah as 1, 5 million since it covers them not only from the medical aspect if they were sick but also the security that assure them if they get sick. But for Gen Y, that amount means less, if nothing is too harsh to say. Because the idea of benefit that they can’t grant it directly is not important to their monthly basis money. They even assume that they rarely got sick. Why does company give them 1 million in benefit instead of in cash? By the time the issue arises, whether company realized it or not, its reward management has implemented ineffectively.
The key to successful rewards management isn’t so much about sophisticated or elegant design as it is about making sure that it fits the organization’s business strategy and work culture/value and that people believethat it makes sense to them. The effective reward management is the one that doesn’t fit at all size. It should be customized to organization’s value and culture. And it would be remotely effective if you resemble your reward management to other organization evenif it is in similar industry to yours. The business processes could be the same but the demography of employees, the work culture and of course the value of organization is nothing similar. On top of that, entire employees are well informed regarding the program. Transparency could be the issue and it takes organization’s maturity to answer it but at least the perceived value between organization and employee are on the same page. For instance, employees who notices that their organization paid their taxes therefore what they earn each month is in net basis will be the added value to organization because its employees are well noted towards their program. They will consider more if there is other offers from outside that probably in gross basis since taxes reduce your salary quite significant.
The objective of implementing the effective reward management isto Pay the Right People, with the Right Amounts, for the Right Reasons. The first Right, right people means you pay people based on their competencies and performance. Higher contribution to the organization means higher pay. The second Right, right Amounts means you pay them fairly compared to their peer that have same weight and you pay them competitively compared to the market. Market benchmarking is becoming more important today because you will know where your position in the marketis and what market position to be targeted. Simple example, a well-developed company is in median market compared to total participant of 100 companies in similar industries. Since the company is planning to grow their business, they need top talents to attract. Attracting top talents means you have to offer candidate an attractive salary package. So your current position in media market has to be shifted to 25% top payers or even to 10% of top payers. It indicates, knowing your position in the market helps you to aim your next move to reach your next position. The last Right, Right Reasons means you pay your employee knowing that they will give their best for organization. In other words, if your employees are highly motivated they will accomplish their work with some extra mile efforts. Managing your reward effectively will not only manage your cost but also manage your people to be more valuable to company in terms of performance, productivity and profitability.
Sector Leader for Compensation and Benefit Area Korn Ferry Hay Group Indonesia-Business Management and Human Resources Consultant.