Company :

Multinational fast moving consumer goods manufacturer and distributor. Australian Listed. Employs 12,000.

Mandate :

To devise a remuneration strategy to complement and reinforce the new multi-channel business strategy. To design and implement the components required to fulfill those strategies, including the job grading system, the determination of fixed pay, the magnitude and basis of performance based pay and the integration of remuneration with the broader HR strategy, in particular the Performance Management system.

Background :

The company was hamstrung by an ancient grading structure consisting of more than 36 grades. Salaries were determined using an elaborate job-sizing method which had the effect of firstly ratcheting up individuals within grades irrespective of the business strategy or performance and secondly encouraging promotion to higher grades in order to increase the salary budget of managers and to maintain compa-ratios at acceptable levels. The total fixed pay costs were escalating out of control.

The company continued to use a bonus arrangement which was very expensive and bore little relationship to performance levels achieved. Bonuses had become an entitlement.

For executives, bonus payments were also unrelated to Business Unit performance and the allotment of Options was determined by Grade. The options themselves were more heavily influenced by stock market movements than increasing shareholder value relative to the company's competitors.

Solution :

A new structure was implemented which reduced the number of grades to a quarter of what they had been and put the variable portion of pay genuinely at risk by ensuring no funding was available in the absence of satisfactory corporate and business unit results. Managers were held accountable for a fixed pay budget calculated with reference to the middle of the grade, thereby immediately controlling fixed labour costs. Grade jumping to circumvent the salary budget became impossible (because of so few grades). The culture of entitlement began to dissipate and performance metrics began to increase.