Here’s what science says is the best way to decide remuneration


Many organisations fail to apply the fundamentals of good asset management when it comes to their people. One of the biggest culprits? Inadequate remuneration.

Remuneration is one of the most poorly managed components of Australian organisations, and this is most evident when we read reports about salary inequity, especially between male and female employees. There will always be differentials in salary between organisations, but this is also a matter of affordability and competitiveness. We are simply failing to put science behind determining the true value of the work our employees do. Here’s why you should decided on remuneration before you go to market.

How is remuneration decided? Position vs. incumbent valuation

The position base salary is what, under ideal circumstances, this position contributes to the organisation; it represents what is needed. The incumbent base salary is the value of the person appointed against a specific position. If gaps exists, it usually means this person is working at below the position value and there will – or should – be a development plan to bring this person up to the incumbent salary.

The valuation of the position contribution

It’s been more than 20 years since the demise of the ‘point factor‘ and similar job evaluation methodologies. However, this coincided with the emergence of new human capital management (HCM) methodologies that are precise and determine the base salary of all positions before considering applicants or incumbents.

Positions are designed utilising HCM technology to give the precise added value of a position, and when linked to market curves it provides a good picture of that contributing element. These methodologies have been around for a while now, and are driven by tried and tested outcome-based competency models. However, organisations seem reluctant to apply science to people management. Why?

How to stop the pay inequity

This assessment is based on a continuum of ‘demonstrated’ competence – again, with the process being driven from the HCM technology. Where gaps exist, the system will identify the development needs that can be incorporated into the applicant’s letter of offer.

Utilising a quantitative system to determine base salary will avoid, as far as possible, the discrimination that is evident today in salary – especially between men and women. There is no excuse for the inequality in the workplace today if the positions are properly designed and valued before any recruitment or promotion is considered. If the assessment is carried out scientifically, it assigns a ‘person’ value against the position, which is a definitive figure regardless of whether the applicant is a man or woman, or any other area of common discrimination. Base salary plays an important role in total remuneration package.

There are many articles floating around about how men are better negotiators, and therefore getting better pay packages. If the remuneration package includes a proper, quantitative performance management system, then this is where the ability to perform ‘above and beyond’ is rewarded – let the proof be in the pudding. If there is inequity in the base salary, then this will be exacerbated in the total remuneration package.

Salary surveys are a starting point, but not the answer

While salary surveys are a great starting point, salary curves need to be projections that include economic predictions and other trend lines. Projection-based salary curves are normally accurate for the year with a minor adjustment applied to the following year salary curves. However, trigger events can indicate the need for a review. Salary data is derived from a number of sources, and the myth that salary surveys will provide the answer is just not true, as they are based on one- or two-year-old data that often ignores anomalies and exceptions.

Role of base salary in determining remuneration

Base salary is the critical starting point for packaging, so organisations must get it right or they will exacerbate inequities because:

  1. Statutory benefits are largely based on percentages of base salary; and
  2. Variable or performance is also a percentage of the base salary.*

A precise assessment of the value of the human capital in any organisation will be the first step to removing discrimination and inequity while managing the people in a more professional way.

With the methodologies and technology available today, there is just no excuse for poor management of human assets and no excuse for the levels of inequality reported recently by the Workplace Gender Equality Agency (WGEA).

*Note: Performance payment in one year should not influence the base salary at all, but it might confirm the competence or trigger the need for an assessment.

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Here’s what science says is the best way to decide remuneration


Many organisations fail to apply the fundamentals of good asset management when it comes to their people. One of the biggest culprits? Inadequate remuneration.

Remuneration is one of the most poorly managed components of Australian organisations, and this is most evident when we read reports about salary inequity, especially between male and female employees. There will always be differentials in salary between organisations, but this is also a matter of affordability and competitiveness. We are simply failing to put science behind determining the true value of the work our employees do. Here’s why you should decided on remuneration before you go to market.

How is remuneration decided? Position vs. incumbent valuation

The position base salary is what, under ideal circumstances, this position contributes to the organisation; it represents what is needed. The incumbent base salary is the value of the person appointed against a specific position. If gaps exists, it usually means this person is working at below the position value and there will – or should – be a development plan to bring this person up to the incumbent salary.

The valuation of the position contribution

It’s been more than 20 years since the demise of the ‘point factor‘ and similar job evaluation methodologies. However, this coincided with the emergence of new human capital management (HCM) methodologies that are precise and determine the base salary of all positions before considering applicants or incumbents.

Positions are designed utilising HCM technology to give the precise added value of a position, and when linked to market curves it provides a good picture of that contributing element. These methodologies have been around for a while now, and are driven by tried and tested outcome-based competency models. However, organisations seem reluctant to apply science to people management. Why?

How to stop the pay inequity

This assessment is based on a continuum of ‘demonstrated’ competence – again, with the process being driven from the HCM technology. Where gaps exist, the system will identify the development needs that can be incorporated into the applicant’s letter of offer.

Utilising a quantitative system to determine base salary will avoid, as far as possible, the discrimination that is evident today in salary – especially between men and women. There is no excuse for the inequality in the workplace today if the positions are properly designed and valued before any recruitment or promotion is considered. If the assessment is carried out scientifically, it assigns a ‘person’ value against the position, which is a definitive figure regardless of whether the applicant is a man or woman, or any other area of common discrimination. Base salary plays an important role in total remuneration package.

There are many articles floating around about how men are better negotiators, and therefore getting better pay packages. If the remuneration package includes a proper, quantitative performance management system, then this is where the ability to perform ‘above and beyond’ is rewarded – let the proof be in the pudding. If there is inequity in the base salary, then this will be exacerbated in the total remuneration package.

Salary surveys are a starting point, but not the answer

While salary surveys are a great starting point, salary curves need to be projections that include economic predictions and other trend lines. Projection-based salary curves are normally accurate for the year with a minor adjustment applied to the following year salary curves. However, trigger events can indicate the need for a review. Salary data is derived from a number of sources, and the myth that salary surveys will provide the answer is just not true, as they are based on one- or two-year-old data that often ignores anomalies and exceptions.

Role of base salary in determining remuneration

Base salary is the critical starting point for packaging, so organisations must get it right or they will exacerbate inequities because:

  1. Statutory benefits are largely based on percentages of base salary; and
  2. Variable or performance is also a percentage of the base salary.*

A precise assessment of the value of the human capital in any organisation will be the first step to removing discrimination and inequity while managing the people in a more professional way.

With the methodologies and technology available today, there is just no excuse for poor management of human assets and no excuse for the levels of inequality reported recently by the Workplace Gender Equality Agency (WGEA).

*Note: Performance payment in one year should not influence the base salary at all, but it might confirm the competence or trigger the need for an assessment.

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