This three-part guide provides you with a detailed overview of the different forms of salary and remuneration and information to help you spot the opportunities for negotiation and secure the best outcome.
Types of salary arrangements
There are a number of formalised and common pay / remuneration structures and understanding them will help you choose the opportunity to negotiate and take advantage.
Performance pay or incentive pay is based on the premise that where superior performance is expected, it must be rewarded. It is important to distinguish between fixed remuneration and variable remuneration.
Normally you will find a salary range is applicable to your position and this could comprise a number of pay points between the minimum and maximum values. Progression to higher pay points within this range is usually by annual increment.
Assuming satisfactory performance, these increases are not at risk and fall within what is usually Variable Remuneration.
On the other hand, variable remuneration is that part of your total reward that is performance based, with payments contingent on meeting set targets and corporate goals. It could take one of the following forms:
bonus plans – a discretionary payment based on organisational or divisional performance
performance pay – payments made as a lump sum or as part of regular salary on achievement of targets negotiated with your supervisor or manager
profit sharing – under this arrangement a prescribed proportion of profit is available for distribution to employees after an agreed threshold level has been realised
employee share purchase plans – in some instances these plans are linked to achievement of key performance targets and may involve the issue of company shares or an opportunity to purchase company shares at discounted rates e.g. option plans.
In private sector organisations, fixed remuneration would typically include base salary, any cash allowances, annual leave loading and non-cash benefits such as a motor vehicle and superannuation.
In public sector organisations, it would include base salary, annual leave loading and superannuation – vehicles are not usually provided until more senior levels have been reached.
Variable remuneration is the at risk part of the total reward provided to an employee and will therefore usually comprise one or more of the incentive or pay for performance arrangements outlined above.
As already noted, properly conducted performance / incentive schemes often follow the same approach to that used for performance reviews, and they are often combined as a single process. For example, there would need to be agreement on quantifiable targets generally arrived at by discussion between the individual and the manager concerned. This agreement should be in writing and, if possible, provide for a mid-term review so as to give an opportunity for fine-tuning and feedback. Both this and the end of term review should be conducted by the manager and the individual in a face-to-face interview.
Preparation for the interview should follow the steps outlined earlier as well.
If you need to know more about Performance Pay, contact the Association of Professional Engineers Australia.
Salary review & your market value
Although the approach differs between workplaces, it is still important to remember in any salary negotiation that pay increases are rewards for performance and reflect the value the employer places on the individual staff member.
You should emphasise the achievements you have made and how they have benefited the employer. Make a point of noting where you have:
- met or exceeded goals and objectives
- met budget targets
- run successful initiatives
- increased revenue
- increased efficiency
Your employer will always be interested in contributions to performance, so where you can demonstrate improved profits through efficiency (cost savings and increased productivity) or revenue (sales and business growth) make a point of doing so.
Most companies are prepared to pay more to an employee if they know they are going to get value for money. Keep a diary of your successes and achievements throughout the year in preparation for appraisals and the opportunity to discuss your salary.
Know your market value
Knowing what the market salary is for your role gives an objective measure for you to consider your own salary.
Evidence of your market rate is also a powerful bargaining tool.
For information on your market rate try our Salary Calculators .
Have a strategy
Prepare a work program with targets for the next twelve months so that your employer will be able to see how they will benefit from your contribution.
Consider whether you will include an at risk (variable) element in your remuneration package (see the performance pay section).
Be self assured and confident in your approach to negotiations with your employer. But do not overplay your hand and become too arrogant, or alternatively, allow yourself to be dominated in the discussion.
Don’t rush to explain your position and end-goal as the only solution you should.
Observe the demeanour of your manager and listen first. It might well be that your manager will commence by making some comments on your performance over the past year.
If things don’t work out so well, you shouldn’t threaten to resign in the heat of the moment. Nobody likes to be threatened, and it may be that your offer to resign is accepted. Aim to get a better understanding of the issues. so that you can make a properly considered decision once you have had the opportunity for reflection.