THE UNIVERSITY OF ZAMBIA

SCHOOL OF HUMANITIES AND SOCIAL SCIENCES

DEPARTMENT OF GOVERNMENT AND MANAGEMENT

STUDIES

COURSE; HUMAN RESOURCE MANAGEMENT (HRM 2012)

Remuneration and payroll management notes

Simplified notes (LUBUTO EUGENE)

REMUNERATION
Remuneration refers to all forms of compensation (financial and non financial) that is given to
employees in exchange for their labor, effort and the services they render to an organization

Remuneration is the total compensation provided to employees for their work.

PURPOSE OF REMUNERATION

 Attracting talent
 Motivation and Employee retention
 Compensating skills and efforts
 Developing a positive employment relationship
 Showing value and relevance of various jobs
 Promoting organizational goals

TYPES OF REMUNERATION

1) FINANCIAL REWARD (DIRECT COMPENSATION)

2) NON-FINANCIAL REWARD (INDIRECT COMPENSATION)

FINANCIAL REWARDS

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Financial rewards refer to monetary compensation that is directly provided to employees in
exchange for their labor.

Financial rewards are forms of direct monetary compensation designed to meet employee needs
and align individual goals with organizational goals.

Financial rewards include

 Wages

A wage refers to money paid to a worker for their labor on the basis of hours worked or tasks
completed

Wages are payments made based on the number of hours worked or the amount of work
completed

Frequency and applicability

Frequency- Wages are usually daily weekly or bi-weekly

Applicability- They are common in roles where work can be measured for example, farm
laborers, delivery drivers, construction workers etc.

 Salaries

A salary is a fixed amount of money paid regularly to an employee on a monthly or annual basis
irrespective of hours worked or amount of work completed

Salaries are fixed regular payments made to employees regardless of hours worked or work
completed, usually expressed as an annual amount divided into periodic payments e.g monthly,
semi- monthly.

Frequency- monthly or semi monthly

Applicability – common in roles that require employees to perform tasks and meet
responsibilities irrespective of hours worked, also applicable for managerial, professional or
administrative positions examples are doctors, engineers, accountants etc.

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  Bonuses

A bonus is a financial reward given to an employee in addition to their regular salary or wage,
usually on the basis of performance, motivation, recognition of exceptional work or a share of
the company’s profit.

Types of bonuses include

 Performance bonuses
 Signing bonuses
 Holiday bonuses

Purpose of bonuses

 Rewarding exceptional performance

 Profit sharing
 Motivation

 Commissions

A commission is money earned by an employee on the basis of how much they sell or
achieve, it is a way to rewarding employees for helping a business make money.

Commissions refer to payments made to employees based on specific performance metric or

sales often as a percentage of sales made, for example Eugene works in a cellphone store
where a phone is sold at k500 and he earns a 10% commission, Eugene earns a k50 for each
sale made and the more he sales the more he earns.

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 NON FINACIAL REWARDS (INDIRECT COMPENSATION)

Non-financial rewards are noncash rewards that contribute to the overall compensation package.

Non financial rewards refer to benefits or incentives given to employees that are not monetary
but still contribute to their motivation, job satisfaction and wellbeing. These include forms aimed
at recognition, career development opportunities, flexible working arrangements and a positive
work environment.

These include;

 Benefits

Benefits are non-wage forms of compensation given to employees in addition to their regular
salaries or wages examples include

 Health insurance
 Retirement plans
 Employee discounts
 Paid leave

 Allowances

An allowance is a set amount of money given to an employee for a specific purpose, usually in
addition to their regular salary or wage, an allowance is designed to cover work related expenses
or to meet personal needs such as travel, meals or housing examples of allowances include

 Travel allowance
 Food allowance
 Housing allowance

 Perquisites (perks)

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Perquisites are privileges provided to employees as extra rewards or incentives to enhance job
satisfaction, retention, and motivation. Some perks can include;

 Free meals
 Company car
 Housing
 Club membership
 Stock options

FACTORS THAT INFLUENCE REMUNERATION

 Legal requirements
 Economic conditions
 Market rates
 Employee experience
 Job role and responsibilities
 Company size

REMUNERATION STRUCTURE

A remuneration structure is a system a company uses to decide how much to pay employees
and what benefits or rewards they receive.

It shows how an organization organizes and allocates different types of compensation for its
employees

A remuneration structure refers to a system or a framework through which different

components of employee compensation are organized and managed, these structures are
usually designed to ensure fairness, competitiveness and goal alignment.

Key elements of a remuneration structure

 Base salary

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Base salary refers to regular amount paid to employees which forms the core of the overall
compensation package

Bases salary considerations are on the basis on job role, experience and market benchmarks.

 Variable pay

This is compensation that varies on the basis of performance or company profitability.

Variable pay includes bonuses, commissions and profit sharing schemes

The purpose of variable pay is to align employee rewards with their performance outcomes and
organizational success.

 Benefits package

These are noncash compensation elements such as health insurance, retirement plans and paid
leave

The purpose of benefit is to enhance the overall compensation package and support employee
wellbeing.

 Incentives and recognition programs

These are programs aimed at rewarding and recognizing exceptional performance or milestones

These include awards such as employee of the month, project completion etc

 Allowances and perks

Additional payments or benefits provided to cover specific job related expenses and enhancing
employee satisfaction.

DESIGNING A REMUNERATION STRUCTURE

A remuneration structure must be:

1. Aligned with organizational goals

2. Market competitive

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 3. Fair and equal
4. Flexible

DESIGNING A PAY STRUCTURE

There are five steps in designing a pay structure and these are

1) Conducting a salary survey

2) Define compensable factors

3) Create pay grades

4) Assign pay rates to pay grades

5) Create a pay structure

This process establishes a pay structure and it takes considerations about internal and external
and procedural equity. The steps can be examined in detailed as follows

STEP 1: CONDUCTING A SALARY SURVEY

A salary survey is a process of collecting and analyzing data on employee compensation across
various organizations, industries or locations. It helps companies to benchmark their pay
practices against the market to remain competitive, attract talent and ensure fairness.

A salary survey is aimed at determining prevailing specific salary rates for specific jobs

Salary surveys can be done either formally or informal with regards to the client’s needs

Ways of conducting salary surveys

Formal survey

 Highly structured with standardized methods and tools

 Conducted for systematic benchmarking and decision making
 Involves specific group of organization or industries

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  Conducted by consulting firms (eg hay group, aon Hewitt , kon ferry ) which are job
evaluation methods

Informal survey

 Loosely structured and is based on casual data

 Used for quick insights or general trends
 Participants may be friends, colleagues or social media
 Conducted by asking peers, browsing salary websites or using social media polls

*You can research more about the uses of salary survey data*

STEP: 2 DEFINING COMPENSABLE FACTORS

Compensable factors refer to the key attributes or the criteria that is used to evaluate and
compare the relative value of jobs within an organization.

Compensable factors are measurable aspects like skills, effort, responsibility and working
conditions and they contribute to the value and difference in compensation of a specific
job

Fundamental compensable elements of a job can include

 Skill
This element emphasizes on the qualifications, education experience and training
required to perform the job. Jobs requiring higher levels of skill typically
command higher compensation
 Effort
Effort is the mental or physical exertion needed to perform a job effectively. Jobs
that need higher effort whether cognitive or physical may demand higher pays

 Responsibility
This element focuses on the level of accountability decision making authority a
job requires. Jobs that need greater responsibility require higher pays

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  Working conditions
This element is focused on the environment in which a job is performed this
elements also put emphasis on the potential hazards and the physical surroundings

These elements play a pivotal role in in ensuring equality in compensation systems within an
organization and help in job evaluation, if these factors are applied effectively, fairness and
consistency in compensation structures is easy to achieve.

STEP 3: CREATE PAY GRADES

A pay grade is a level in an organizations salary structure that groups jobs with similar
responsibilities, skills and qualifications into a range of pay

In order to ensure pay equity each pay grade has a minimum salary, a midpoint salary and a
maximum salary

An example of a Pay grade

PAYGRADE 1

 Jobs

Lower level positions like Receptionists, clerks, cleanimg staff, cashier, delivery
assitant etc

 Responsibilities

Minimal experience and training needed for basic routine tasks like answering calls and
appointment scheduling

 Salary range

k5,000 to k10,000

PAYGRADE 2

 Jobs

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 mid level positions like sales associate, administrative assistant, marketing assistant,
social media coordinator

 Responsibilities

technical and autonomic knowledge required for tasks that require skills that are
moderate

 Salary range

k15,000 to k25,000

PAYGRADE 3

 Jobs

Advanced roles like skilled technicians, human resource assistants, accountants,

supervisors, etc.

 Responsibilities
Complex duties that require specialized skills or supervisory responsibilities.

 Salary range
k30,000 to k50,000

NOTE THAT; Paygrades differ from organization to organization depending on size of

organization, industry and region. Employees in higher paygrades require more
specialized skills and training compared to those in lower paygrades.

Methods of creating pay grades can include

 Point factor method

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 This methods uses factors like skills, effort, responsibilities and working conditions
as the criteria for job evaluation, jobs with similar points are grouped in to the same
paygrade

 Job ranking method

Job ranking method is the easiest and it is a method where jobs are ranked from the
lowest to the highest on the basis of their importance to the organization. This method
doesn’t use points to evaluate the value of a job but relies on subjective judgement.
This method is not effective for large organizations which have a lot of roles

 Classification method

This method categorizes jobs into classes or levels on the basis of similar
responsibilities, skills etc. examples of categories can be entry level, mid-level and
senior level and to each level has a specific pay range

 Factor comparison method

This method compares jobs individually by comparing their compensable factors
which help to assign the monetary value of jobs.

STEP 4: ASSIGN PAY RATES TO PAY GRADES

A pay rate is the amount of money an employee earns per hour, day, week, month
or project
The rate of pay refers to the amount of money an employee should receive within
a designated time frame such as hourly, weekly, or monthly.

FORMULA
PAYRATE = TOTAL EARNINGS
UNITS OF WORK PERFORMED

 The total earnings refer to the total compensation an employee earns over a given
period
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  The units of work performed can be the hours of work, tasks done or the number of
days worked

After creating pay grade the pay rates are assign to each pay grade.

STEP 5: CREATING THE PAY STRUCTURE BY

GENERATING PAY RANGES
• Pay ranges are series of steps or levels within a pay grade, usually based upon years

of service.

• The salary or wage line or curve usually anchors the pay rate for each pay range.

The organization might then arbitrarily decide on a maximum and minimum rate

for each grade, such as 15% above or below the wage line.

• Most employers do not pay just one rate for all jobs in a particular pay grade. For

Example, Softie won’t want to pay all its accounting clerks, from beginners to long

tenure, at the same rate. Instead, employers develop vertical pay (or “rate”) ranges

for each of the horizontal pay grades (or “classes”).

• These pay ranges often appear as vertical boxes within each grade, showing

minimum, maximum, and mid point

GRADE STRUCTURES AND PAY STRUCTURES

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GRADE STRUCTURES.

Grade structures are hierarchies that group similar jobs, they consist of grades, bands or levels
into which groups of jobs that are broadly comparable in size are placed. A grade structure
shows similar jobs at different levels an example is below

GRADE REQUIREMENTS/SKILLS /EXPERIENCE

A. GRADE 1

Accounting assistant (Entry level with minimal experience)

B. GRADE 2

Junior accountant (Basic accounting knowledge)

C. GRADE 3

Accountant (Professional certification )

D. GRADE 4

Senior accountant (Advanced certifications)

E. GRADE 5

Accounting manager (Leadership role)

F. GRADE 6

Finance director ( Executive level expertise)

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 NOTE; A grade structure groups jobs into job families and the above family is for the
accounting profession, the grade structure has more than one job family it can also include
job families for professions like human resource, sales, information technology, etc
depending on the size of the organization.

Each job family has different levels on the basis of responsibility and level of experience and
complexity of the role.

IMPORTANCE OF A GRADE STRUCTURES/ (USES)

 It is a way of classifying jobs on the basis of compensable factors

 It shows clear career pathways, thereby helping employees understand how they can
grow within an organization
 It ensures that salaries are competitive and aligned to the complexity of the job
 It also helps in meet regulatory and legal requirements that are related to pay equity
 It helps management in budgeting and payroll planning
 It identifies gaps and training requirement within an organization.

NOTE: a grade structures becomes a pay structure when salary ranges are assigned to
each grade in a job family, (the accounting example above is an example of a job family
in a grade structure because it doesn’t have salary ranges for each grade )

KEY DIFFERENCE: Grade structures are focused on job responsibilities and

requirements whereas pay structures are focused on compensation.

PAY STRUCTURE

A pay structure is a systematic framework designed with an aim of defining how salaries and
wages are assigned to different jobs levels within an organization. The goal of pay structures is
ensure fair, consistent and competitive compensation there by enhancing employee motivation,
retention and organizational goal achievement

TYPES OF PAY STRUCTURES

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The two common types of pays structures include

1. Narrow graded pay structure

2. Broad banded pay structure

NARROW GRADED STRUCTURE

A narrow graded structure is a systematic framework where specific grades are created to
classify jobs of similar factors like skills and responsibilities with fixed salary range for each
grade.

Each grade in this structure has a vivid criteria for career progression often on the basis of
performance, complexity of the job and tenure.

NOTE: a narrow graded structure has a large number of grades which can go up to more than ten
and each grade has a fixed salary range in this structure it is easy to move from a lower grade to
a higher by gade upgrading either by completing a certification and gaining a year of experience.
This demotivates staff at the top grade if there is no salary increase for long periods.

Narrow graded structures are commonly used in government institutions and parastatal
organisations like ZRA, ZANACO, ZESCO, and government ministries.

A narrow graded pay structure is called ‘’Narrow” because there is a limited variation in the pay
ranges of all the grades. In other words the pay ranges across grades are narrow.

BROAD GRADED PAY STRUCTURE

A broad graded pay structure is a systematic framework made up of a small number of grades or
pay bands with a broader salary range from one grade to another, unlike the narrow pay structure
this structure is more flexible and career progression is on the basis of performance and skill
rather than upgrading and or certificate completion.

A broad graded structure has fewer grades and broad salary ranges.

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This type of structure is market driven and flexible compensation and is commonly used in
private sector companies (MTN, AIRTEL, etc.), financial institutions (Standard chattered, FNB,
stanbic. ), NGOs(UN).

JOB FAMILIES.

Job families are small groups that consist of jobs in occupation or function and these can be
marketing, hr, finance, operations etc. each family has either grades, levels, zones or bands that
illustrate increasing levels of responsibility, expertise and seniority. An example of a job family
can be like one below.

HUMAN RESOURCE

Leve1

Hr assistant

Level 2
Hr specialist

Level 3

Hr manager

CAREER FAMILIES

Career families are broad groups of related jobs or career that share similar goals or skills.

HOMEwORK

1. Compare and contrast a career family and a job family by giving practical examples

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 2. Discuss financial and nonfinancial forms of compensation
3. Critically discuss the 5 stages In designing a pay structure
4. What is the importance of pay structures and grades structures in an organization
5. Compare and contrast pay structures and grade structures
6. Critically discuss the factors that influence remuneration in organisations

To realize the value of that opportunity, ask someone who doesn’t

have one!!!!!

BY: LUBUTO EUGENE

Always remember that you are also better than others.
BY: LUBUTO EUGENE
Always remember that you are also better than others.
BY: LUBUTO EUGENE
Always remember that you are also better than others.
BY: LUBUTO EUGENE
Always remember that you are also better than others.