Have you ever been in the situation where an employee comes in on a Monday morning complaining that he/she saw a job advertised over the weekend that pays $10,000 more than what he/she earns? Only to look into it and find out that the advert, whilst for a similar job, is advertising total package and the employee is thinking in terms of base salary?
Much has been written in recent years around the need to focus on Total Reward when it comes to valuing packages. Total Reward has become an accepted way of describing the value proposition. A recent trend to move from use of the Total Reward term to that of Employer Value Proposition (EVP) hopes to better encapsulate the complete offer.
However, there is still a lot of variation in how the offer is valued and a lack of consistency in describing what the offer actually is in quantitative terms. Part of the problem behind the variation and lack of consistency is that there are many ways of looking at reward and many reward elements that can be counted. In Australia we have been tempted to “simplify” the valuation of the financial elements of the EVP by adding up guaranteed financial benefits and base salary and creating an aggregate of fixed remuneration (AKA FAR/TEC/TRP/TFR). Also, in line with global trends, we have added short-term incentives (STI) and long-term incentives (LTI) to packages to two create further financial reward aggregates. To add further variety we can talk of STI and LTI at target or actual.
Some organisations use base salary, some total fixed pay, others fixed pay plus STI, others total actual pay, etc etc – a potentially confusing situation indeed.
The diagram below can be of some use in understanding why there is inconsistency and attempts to put it all together in a common framework for package valuation.
Diagram 1 - Framework for package valuation:
Still, this is not sufficient to create clarity, what is needed is an understanding of why the package is being valued in the first place because this, in my experience, is what drives the valuation approach.
Three primary purposes why packages are valued:
- A value needs to be captured in the contract of employment
- Employees need to have packages communicated to them to understand the value proposition
- HR needs to value packages in order to calculate comparisons to market for informing increases or undertaking market benchmarking for other reasons.In this paper I explain why the purpose of the valuation and valuation approach should be closely linked and how to bring clarity to you valuation approach. Doing so will make it easier for your employees to understand what they really earn and do not get confused when they are comparing or looking externally.
In this thought piece I explain why the purpose of the valuation and valuation approach should be closely linked and how to bring clarity to your valuation approach. Doing so will make it easier for your employees to understand what they really earn and not get confused when they are comparing or looking externally.