MGT5ARP: Advanced Remuneration Strategies for O'Meara Electronics

This essay critically analyzes the current remuneration system at O’Meara Electronics, evaluating whether the organization should adopt a position-based or person-based remuneration system, or a combination of both. The analysis considers the drivers of both position-based and person-based remuneration systems, highlighting the advantages and disadvantages of each approach. The essay also assesses the suitability of a person-based remuneration system for O’Meara, considering factors such as training costs and performance evaluation methodologies. Ultimately, the essay concludes that the traditional position-based system is no longer suitable for O’Meara and recommends implementing a performance-effectiveness pay system that combines fixed and variable compensation based on job-performance criteria. The suggested approach involves conducting a job analysis, establishing a base salary, identifying key performance indicators, and developing a formula for incentive pay based on performance results, which aims to motivate employees, improve operational efficiency, and reduce bureaucracy within the organization.

Individual Essay
ADVANCED REMUNERATION AND PERFORMANCE
By (Student Name)
MGT5ARP Assessment 1
Professor:
University:
Date of Submission:

Table of Contents
Introduction......................................................................................................................................3
Analysing the drivers of position-based and person-based remuneration system...........................3
Appropriate person-based remuneration system for the organisation.............................................5
Conclusion and recommendations...................................................................................................6
References........................................................................................................................................8

Advanced remuneration and performance
Introduction
Remuneration and compensation benefits significantly influence the satisfaction and retention of
talented human resource. Employees' motivation, commitment and performance are largely
influenced by the employment relationship which is an exchange of employees’ inputs in terms
of competence in returns of the compensations they obtain from the employer. In employees’
point of view, remuneration has important bearing on their status, standard of living and security.
Whereas employers consider compensation as a key cost of doing business as well as an
investment that is expected to generate suitable returns in terms of enhanced skills of employees,
positive attitude and performance (Phonsanam, 2010). So the term “remuneration” can be
defined as the compensation or payment which employees receive for the service provided under
employment that includes basic salary as well as all other economic benefits.
The basic objectives of remuneration are to attract, motivate and retain skilled human resources
in the organisation. Organisations can choose from various compensation models to motivate
staff and improve performance but all of these methods are derived from basically two types of
pay i.e. either based on job position or person’s performance (Shields, et. al., 2015). A job
position based remuneration system is a salary structure that is determined by the job related
factors like job responsibilities, job descriptions, working conditions etc. Whereas person based
remuneration system compensates the employee based on individual knowledge, skills and
competency. Both approaches have their own advantages and disadvantages, therefore, decisions
regarding whether to pay for the job or pay the person is complex and needs in-depth analysis of
the organisational business practices. The objective of the essay is to critically analyse current
remuneration system of The O’Meara Electronic Company and to assess whether the
organisation should follow position based or person based remuneration or any combination of
the two.
Analysing the drivers of position-based and person-based remuneration system
It can be observed in the case study that the management of O’Meara Electronics is trying to link
pay to performance rather than the traditional method of job-based compensation. Pay for
performance though seems reasonable given the kind of business O’Meara is engaged in, but is

complex to decide what kind of pay should be compensated for which type of performance.
Employees can be remunerated through variable or incentive pay system. The variable incentive
amount is determined by a percentage increment in remuneration which is directly dependent on
the achievement of pre-set goals. Or else they can be compensated though skill-based pay
mechanism. This method involves determining compensation directly proportion to the number
of skills employee possess. Another way can be competency-based remuneration. This is
reformed mechanism of skill-based pay in which remuneration is determined by the competency
of employees to utilize their skills and knowledge in the job (Freund, et. al., 2015). For taking an
effective decision, the critical analysis of current approach should be undertaken.
O’Meara follows traditional model of paying for the job where it has categorised each job-
position in certain grade level hierarchy based on the kind of education or skills the particular job
requires. Pay increments are scheduled as the tenure of an employee with the company increases.
Such systems are designed to establish each job’s relative value in the business; moreover, it is
designed to serve as a cost-control mechanism. Though paying employees for the job seems cost-
effective compensation solution owing to facilitating centralized control and making budgeting
easier due to predictable salary expenditures, it can increase operating cost of remuneration. The
traditional job-based pay system requires conducting periodic compensation audits and survey.
Furthermore, annual revision of pay structure produces large chunk of data and records which
increases administrative overhead because of evaluation of each job with lot of supporting
documentation (Schrand, et. al., 2018).
Job position-based remuneration is objective pay model which put emphasis on seniority and job
specialization. Job specialization is determined by the depth of knowledge, experience and
competence required for performing job-related tasks. So employees are compensated for their
designated tasks according to the seniority level which is determined by the length of service in
an organisation. The basic flaw of this compensation structure is to assume that an employee
becomes more valuable to an organization with time (Gittleman and Pierce, 2012). For the
reason that, it fails to accurately reward the performance of employees as their remuneration is
determined by job rating and seniority level, but not by the individual performance. For example,
if a freshly recruited employee put extra efforts to work well, he will still earn less than one who
has joined two years before and who is putting average efforts. This type of compensation

system negatively affects the motivation of good performers and do not encourage them to stay
loyal to the organisation.
Position based compensation nevertheless is a valuable way to evaluate internal pay equity. The
one compensation system serving all types of jobs can easily be analysed to compare earnings of
employees across the organisation (Brata and Juliana, 2014). Internal equity is important for
O’Meara as commented by a senior executive, so that wages are paid in proportion to the internal
value of each job. Organisation consider job-related factors like required education, required
experience, physical demand, responsibility of machines or equipment, physical demand of the
job, managerial responsibility, working conditions, safety risks, health risks, public contact, and
level of communication. However, it can be observed that these are subjective evaluation which
depends on the individual judgement of management for the accuracy (Joh and Clement, 2018).
Noor and Shakizah (2012) advocates individual equity as against internal equity for modern
organisations. For implementing internal equity, organisations remunerate employees differently
who are doing similar types of jobs based on the difference in individual performance. The pay
for performance mechanism ensures that good performers should receive greater compensation
as compared to average performers doing the same job.
It has been observed that position-based remuneration model is a stable and predictable way of
describing job and pay progressions which is also easy to administer. HR professionals would
establish pay amounts for each job and compensate employees based on their hierarchy by
systematically allocating pay. But the system reinforces hierarchy and bureaucracy in the
organisation and increasing job dissatisfaction among employees. The case study of O’Meara
reflects the same and negative comments from many executives further clarifies that the
traditional job-based compensation mechanism is less compatible with the growing team based
structures and incentive culture of the organisation (Hon, 2012).
Appropriate person-based remuneration system for the organisation
On the other hand, person based pay is aimed at compensating employees according to the value
of their skills in the market. The competency-based pay is the most common approach which is
designed to motivate individuals to develop the competencies for performing specific work. This
approach is most suitable for businesses where high levels of teamwork, collaboration and

adaptability to change are required. The model rewards those employees who always look for
learning and growing their competency; therefore, it is instrumental in reinforcing a culture of
improvement throughout the organisation. Employees engaged in developing new skills are also
beneficial for organisation as it enables people to become more productive and take higher
responsibilities. Another key element of the approach is that staff retention can be improved. As
employees are encouraged to continuously develop skills, they are motivated to remain loyal to
the organisation for seeking new challenges (Cerasoli, Nicklin and Ford, 2014).
However, there are certain drawbacks of using person-based compensation at O’Meara. First of
all, the organisation would be required to invest more for training. Furthermore, as initially most
of the managers and senior employees would be engaged in training peers, it can have negative
effect on productivity. Top management may find it difficult to compare staff remuneration with
that of rivals and other companies as most of the available survey data is based on traditional
position-based remuneration model. However, this particular drawback can be taken care by
comparing within competency rather than carrying out direct job-by-job comparison. Moreover,
as the company don’t have an adequate competency related data and performance evaluation
methodology; it would be difficult to keep track of every individual’s competency assessment.
Ample amount of effort and time would be needed initially to assess competency, prepare
competency mix and design pay structure accordingly (Artz, 2010). The individual competency-
based remuneration system will also require managers to develop skills to measure their staff
competency, commitment to devote efforts for staff training and to create an overall
administrative setup in support of the new system.
Conclusion and recommendations
To conclude, it can be observed that the traditional position-based system is no more suitable for
O’Meara and the organisation needs to change the remuneration system. The person-based
competency remuneration is an alternative but has some drawbacks for implementation.
Competency based payment would typically need to develop specific implementation plans
which would require involvement of all employees, as well as extensive communication and
training efforts. Therefore, it is recommended to employ performance-effectiveness pay in
O’Meara. It is a method of combining fixed and variable compensation which involves typically

setting up a base salary along with formulating variable salary providing bonus payments based
on certain job-performance criteria.
To implement this remuneration system, a job analysis would be conducted to determine the
required knowledge, skills, competency and other personal abilities to perform the particular job.
A job description will be prepared highlighting all the major responsibilities and a base salary
can be established for each job position. Market data from the competitors and industry should
be considered to ensure competitive pay. Next, key performance indicators of job effectiveness
would be identified against each job position which might include job outcomes like market
share and revenue for sales managers and like. The next step will include measuring and
evaluating the performance parameters in each of the identified key indicators. A formula for
determining incentive pay would be developed which should be based on the performance
results. It should be noted that the method is different from another merit-pay structure in which
teams are rewarded rather than individuals (Gielen, 2010).
The method would be beneficial for O’Meara as it would help controlling the overhead costs. In
addition, the salary would be tied with the performance output rather than the person input as in
case of person-based remuneration. Employees would be motivated to put more effort for
improving performance as their right behaviours would be rewarded. It will also help the
employees to self-manage work and to effectively coordinate with other members for making
decisions efficient business decisions (Chomal and Baruah, 2014). Employees will be
encouraged to innovatively finding novel ways to improve operational efficiency and to
overcome overhead. Finally, it will help in reducing bureaucracy in the organisation as each
employee would be targeting the same performance outcomes.

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