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What is a Remuneration Policy?

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  • Written By: Justin Riche
  • Edited By: A. Joseph
  • Last Modified Date: 21 September 2016
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    Conjecture Corporation
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A remuneration policy, also called compensation policy, is simply a payment plan that any type of organization will have and that mainly outlines how employees will get paid for working for the organization. This policy might state the base salary for each role in the organization, and it can illustrate the conditions under which pay raises will occur as well as any additional benefits. The benefits can include many types of incentives, such annual bonuses, overseas trips that are fully paid for by the organization, dental plans and more. Moreover, a remuneration policy will be designed to fit a particular organization and the goals that it desires to achieve.

In a typical organization, there are different roles that require different levels of responsibilities, tasks and skills. Therefore, the remuneration policy is there to determine the appropriate pay rate for each particular set of responsibilities and tasks. It controls how the pay will increase as employees take on more responsibilities and tasks or move up in higher roles.

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For a typical firm, the compensation policy will be influenced by factors such as the firm's size and profitability, the type of business the firm conducts, the affordability and the overall remuneration objectives for the particular firm. Most of these objectives will aim to encourage performance and staff retention. Staff retention is particularly vital because firms usually seek to keep highly skilled workers that allow them to reach their goals relatively easier than if those workers were not present. Therefore, paying them at a level that keeps them happy is necessary to keep them on the team.

Generally, companies will base their remuneration policy on their industry standard or benchmark. This benchmark is normally the average pay for similar firms in the same business. For example, if senior management positions in the investment banking industry paid an average of $200,000 US Dollars per year, then many firms in this industry will try to base the salaries for similar roles on this number. Each organization has goals it needs to reach, and thus if a company has a standout remuneration policy compared with its competitors, for example, the company will likely attract more qualified candidates for employment than the competitors.

Many incentives, as shown in a remuneration policy, are not normally guaranteed and are usually directly tied to performance. The typical incentive is the annual bonus, which can be rewarded to an employee when he or she performs above a certain level for a given year. This type of incentive can make employees work hard in order to get the annual bonus, so both the firm and the employee can benefit accordingly. Furthermore, the remuneration policy might include other benefits, such as healthcare programs, retirement plans and all sorts of insurance plans, for which the organization will fully pay.

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