Remuneration - Human Resources Interview Questions & Answers

What is the best way to develop pay systems?

Any system that you espouse to develop the remuneration system must be comprehensible, practical and acceptable. The remuneration system must comprise of 2 components, base rate and the scope for increasing the base rate.

While determining the system you should essentially take into consideration the below mentioned points in the mentioned order.

a. Job Descriptions: With the help of Job Descriptions you can determine the characteristics of the particular job and will also help in determining the factors like skill, experience, effort and working environment.

b. Job Evaluation: With the help of job evaluation you can again determine the compensable factors. There are various analytical as well as non - analytical methods to evaluate a job, for e.g., point ranking and factor comparison method in analytical ways and Ranking and Job Grading in Non – analytical methods. By conducting the job evaluation you can determine the worth of the job done by the employee.

c. Job Hierarchy: Once you have taken care of assessing the compensable factor, now is the time when you will look into the hierarchy of the job and evaluate where in the hierarchy the particular job falls in, is it in the top or middle or the lower side of the hierarchy.

d. Pay Surveys: Once you have established the hierarchy of the job, you now shall establish the pay differentials. For this you need to conduct a market survey to see what the prevailing rates of the job are in the same industry and set your pay scale in line with the market standards.

e. Pricing Jobs: Once you are done with the survey, you match your salary for the job and the salary paid in the market for the same job.

And then you decide the pay level for each job hierarchy designed by you and then grouping the different pay levels into pay grades.

What are the benefits of a merit pay plan?

Concocting the remuneration structure based on the merit pay is a more intricate practice than the traditional compensation plans. In the merit pay plan, performance is measured in contradiction to standards and the results are used to intensify the pay grades and determine promotions rather than using the traditional way of performance appraisals that focus on equitable pay among colleagues.

The advantages for this kind of a pay plan are:

- Helps in boosting the motivation of the employee and hence in turn improves employee satisfaction resulting into better performance of the individual.

- As the name suggests, it appreciates the performance of the employee rather than taking into consideration any other factor such as skills or reference from a senior employee.

- The employee is clear on his performance targets and works accordingly to reach the performance targets.

- With this method the company is able to retain the highly motivated employees.

Do you think salary is the only motivating factor for an employee?

No, Salary is not just the motivating factor, but is a huge factor that helps in keeping the employee motivated. Apart from salary, the work space environment, relationship with seniors and contemporaries also matter a lot.

Explain the below mentioned theories of remuneration?

a. Equity Theory: This theory accentuates equity in pay structure of the employee’s. It is very important for the employees as to how the company is treating them? If at all the employee notices any kind of inequality then it could result in lower productivity, higher skiving or increases in turnover.

These perceptions of equity directly impact motivation, commitment and on the job performance. That is the employees should not get the feeling that two people on the same level are getting different pays.

b. Agency Theory: the agency is responsible to pay to their employees. On one side the employees want the agency to increase their remuneration whereas on the other hand, the agency is looking for opportunities where they can minimise the costs. In such a case the agency theory focusses on contracting theory, i.e., the employers should choose a contracting scheme like merit pay or outcome oriented options to pay their employees.

c. Reinforcement and Expectant Theory: This theory emphasises the importance of a person actually experiencing the award, i.e. if you reward the constantly high performers, not only will they but the others will also be motivated to increase their performance standards.

Whereas the Expectant theory focusses on the link between rewards and behaviour; expectancy perceptions often have more to do with job design and training rather than on the pay systems.

List the factors influencing employee remuneration.

Many factors influence the remuneration of the employees. The factors can be widely categorized into external and internal factors.

A. External Factors: The external factors include

- Labour Market – The demand and supply of the labour influence the remuneration of the employees. If the demand of any kind of labour goes high, the salary for the same reduces as you have numerous people who are willing to do the job and if the demand is low then the wages are high as that will be a niche market.

- Cost of Living – The main purpose to include this section is that at any point in time of the prices increase that should not affect the salary of the employee. A rise in cost of living is usually compensated by Dearness Allowance.

- Economy – When recession hits the job market, it is but natural that the remuneration of the employee suffers a lot.

B. Internal Factors: The internal factors include:

- Business strategy – The overall strategy that a company pursues should determine the remuneration to be paid to the employees. When a particular company’s strategy focuses on rapid growth they need to pay more to the employees

- Job evaluation and Performance Appraisal – Job evaluation helps establish satisfactory wage differentials among jobs; whereas performance appraisal increases the monetary benefits based on the employee’s performance.

List the components of employee remuneration.

The main components of employee remuneration are as follows:

a. Wages and Salary – wages are paid on an hourly basis whereas the salary is on a monthly basis. Both wage and salary are subject to annual increment. The wage and salary differ from employee to employee based on their knowledge, area of work and other responsibilities carried out on the job.

b. Incentives – Incentives are paid over and above the salary of the employee. Usually incentives are regulated by the performance of the employee.

c. Fringe Benefits – These include benefits like, PF, gratuity, medical care, insurance, canteen, uniform etc.

d. Perquisites – Perquisites are usually paid to the top notch employees of the company like CEO, COO, and CFO and so on. They include Car Company, club memberships, holidays, furnished homes. etc.

e. Non – monetary benefits – These include challenging job responsibilities, recognition of merit, growth prospects, comfortable working condition and flexitime.

What importance does an ideal remuneration system carry?

Salary is a big motivational factor to help in retaining your employees and to keep them motivated as well as to increase their productivity. It also helps in reducing absenteeism from work. If the pay levels are not satisfactory, they will keep looking for a change and as soon as they will get a good opportunity they would just leave your company and go.

How do you decide remuneration for following special groups?

a. Team – based Pay – Teams are empowered to plan, control and improve the work processes and usually have one common goal to be achieved. The ideal method to pay them is to pay the base salary to each member along with the incentive based on their performance.

b. Remunerating Professionals – Professionals include strategy groups, management executives. For them either you pay them per visit bases just for the knowledge that they impart, or you could hire them as managers and pay them accordingly. Or you could also create a separate pay structure altogether just for these kinds of employees.

c. Contract employees – Contract employees are usually hired by a recruitment agency and the payment to the contract employees is also done by the recruitment agency. This kind of payment is usually called as the employee is on third party pay roll.