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Remuneration in Western Australia

Paper outline

Economy of Western Australia

III. Theories about remuneration

Application of remuneration theories to the economy of Western Australia


In the modern business world a lot of competition has been experienced in all industries of the global economies and business people have been required to adjust their activities to the changing environment. As competition intensifies the need for qualified people has also increased and it has been of great importance attracting and retaining professionals in an organization. The high rate of employee turnover being experienced today can only be reduced by adopting better strategies of retaining employees. Employee turnover causes failure of many systems in an organization and managers should try to protect their organizations by applying the best strategies of retaining their workers. Remuneration is one of the greatest elements of employee motivation that organizations use. However, human resources managers are required to use a mixture of strategies to motivate their employees. Globalization has increased competition in the labour markets because skilled individuals can move to markets which provide better terms of employment. In this paper I will discuss the role remuneration plays in retaining staff in the expanding regional economy of Western Australia. Various theories about remuneration and employee motivation have been discussed to identify the strategies adopted by companies to retain their employees.
Economy of Western Australia
There have been steady growth in the economy of Western Australia and this has required many business entities to expand their operations. Western Australia contributes more than 38 percent of all the exports of Australia as per the 2009 statistics[1]. The high rate of economic growth is expected to have great pressure on the labor market because many people are required to work in all sectors of the economy. Resources available in the economy as well as the development projects being undertaken in Western Australia have provided a favorable environment for expanding business activities and this has intensified the demand for labour. Resources and construction sectors in the economy have created a high demand for labour and this has led to competition because every institution is seeking more workers. Adequate measures have been taken to reduce the shortage of labour and skills and to enable the state and the nation to tap the opportunities available[2].
To balance demand and supply of labor in the country, the Department of Training and Workforce Development has developed strategies by aligning the workforce with the needs of the industry. Population demographics in the labor market of Western Australia indicate that most of the employees are aged 35[3] and there are projections for an increase in the median age to approximately 45 years[4]. Birth rate in Western Australia has dropped and this indicates that population would reduce drastically in the future years. Workforce participation rate in Western Australia has been estimated to be above the average even though it has been predicted that the rate may decline in the near future. The increasing demand for labor which has been coupled by the demographic trends have created a situation where there is need for investing more time and resources to attract and retain professionals and skilled workforce[5].
In the global scene, changes in demographics, improved business growth and the increasing competition for professional employees have made it impossible for managers to predict as well as achieve an optimal staffing level. Competition for skilled workforce requires establishing good plans for attracting and retaining employees. To attract and retain the workforce of a given industry requires satisfying all the needs of employees. In Australia, the state and national governments have to provide a suitable environment which satisfies employees by regulating all sectors of the economy and providing physical and social infrastructures. Business entities have a role of creating terms and conditions which have monetary and non-monetary rewards with the aim of improving the level of satisfaction of employees at the workplace[6].
There are several challenges facing the government, industries and organizations as they strive to attract and retain employees in Western Australia. Remuneration strategies adopted by any organization must consider the living standards of the people in the country. Workers face the challenges of increasing cost of housing and other living expenses and this must be catered for in the remuneration packages provided by the employers. The price for a median house is approximately $822,000 in Karratha and $ 685,000 in Port Hedland. Renting a house per week would cost $3000 in resource towns and $350 per week for a single room[7].
Theories about remuneration
Employees are motivated by both monetary and non-monetary factors within the organization. The monetary motivators are called the transactional motivation factors because the employees seek financial benefits from the work done. The non-monetary motivators are called the transformational motivators because the employees also seek non-financial aspects. Both monetary and non-monetary motivational elements are applied by managers to attract and retain professionals and skilled individuals. Human resources management has been said to be a transactional process such that subordinates perform their duties because they have been promised monetary rewards. According to Greiner (2004) these rewards may take the form of salaries or wages[8]. Reward systems are used to attract, retain and motivate employees in an organization. Remuneration levels applied by organizations should satisfy the human needs of the employees. In addition, remuneration also should be felt fair by the employees by offering rewards that reflect the contribution of each employee. There are legal requirements that managers should adhere to when implementing any reward systems. On the other hand, any reward system should be affordable and aligned to the strategies of the organization[9].
According to Zügner and Ullrich (2007, p. 2)[10] there are three levels of remuneration: fixed levels of payment, payment based on performance of individual employee and payment based on the results of the company. Fixed payments are made when the salary or wages of employees do not change unless when the employer implements a general pay hike. There are several factors such as the time an employee has worked with the company, skills, position, and other factors which determine the amount of salary paid to the employees. This system does not motivate workers because there are few incentives to improve job performance as well as retaining employees. This remuneration system does not offer employees with the opportunity to have better payment scales as their performance and productivity improves[11]. Firms that are able to motivate their employees have a lower rate of employee turnover and can retain the workforce for a longer period of time.
Firms using a remuneration system that is based on the quality and quantity of work done are able to motivate their employees to work extra hard while encouraging them to work for a longer period with the company. Most companies use a combination of the two systems to encourage employees to improve their performance. Employees get feedback about their performance through this system because their performance determines their remuneration level. Employees tend to work for a longer period of time with a firm when they get positive feedback from their employers[12]. Some companies use remuneration systems which are based on the results obtained in a given period. There is a fixed remuneration level for all employees while bonuses are added according to the performance of the company in a given financial period. This system can be implemented in different ways such selling shares to the employees. When the company has good performance, its reputation improves and share value increases and as a result, employees get a higher dividend level. This system has some risks to the employees because their remuneration is determined by their performance as well as external market factors[13]. Employers using this system do not motivate their employees to a greater extent compared to other methods of remuneration and therefore, this system is not effective in retaining employees.
It is important for managers to conduct market analysis about the prevailing remuneration rates in the market to ensure they implement appropriate pay rates. An organization that provides a lower rate of payment than the market rate has the risk of losing its customers to competitors. With the free flow of information in the labour market, professionals compare the wage rates in the market and they tend to accept offers by companies with better terms. On the other hand, providing too high remuneration rates may not be health to the organization. An organization derives profits from the excess revenues obtained after subtracting operational costs. Bearing in mind that labour costs are operational expenses, increasing wage rates reduces the profits of a company. Managers must balance the wage rates provided by to their employees and the prevailing market conditions to ensure appropriate decisions are made[14].
Managers should conduct continuous job evaluation to ensure they get the best out of the employees. Evaluating employees determines the decisions about changing the wage rates. It is important that managers should adjust wage rates when employees improve their performance. A grading structure should be established in an organization to provide employees with a clear picture about their progress as they continue working with the organization. Grading structure helps employees improve their performance and motivates them to continue working for the organization because they have the hope for a better wage rate whenever their performance improves. Managers should consider internal and external market environments when setting the wage rates and pay structures[15].
Retaining employees requires motivating them at the workplace by the use of different aspects. Managers use both monetary and non-monetary reward incentives to motivate their employees. The monetary rewards include promotions, increment in wages, paid leaves, and hospital allowances among others. The non-monetary rewards include thanksgiving for improvement in the workplace and recognition by the top management among others. The management encourages the workers to improve their performance when they create reward incentives within the organization. Reward incentives such as promotions and salary increment should be based on the quality of work done[16].
According to Bogardus (2009), employees are not only motivated by the wages they receive from the organizations but are also motivated by many other factors within the environment of the organization. Performance-related pay improves the quality of the work done by the employees. Money is a motivator and increase in wages improves the performance of the employees. This system provides incentives to the employees to work hard to increase the total amount earned. Workers are more productive when their wages are determined by the individual efforts. Performance related system encourages employees to improve the quality of work done and also motivates employees to increase their productivity. Promotions within the organizations are done on the performance of the employees to encourage them work effectively and efficiently[17].
Fayol (1949) suggested that money is a motivator and can be used to change the behavior of employees. He suggested that remuneration packages provided to employees should be attractive to motivate them. To ensure there is a balance between remuneration policies and available resources, Fayol suggested that managers should create wage systems which coincides with the resources of an organization. As such, managers have an obligation to provide remuneration scales which motivate employees and at the same time the organization is not deprived off its ability to operate[18]. In the modern business world, employees are seeking other motivational factors other than monetary benefits. Managers have the obligation of developing different motivational systems to encourage employees improve their performance. Traditionally, money was perceived as the major motivational tool in an organization but managers have come to realize that there are many factors which motivate employees. Therefore, an integrated system is important in an organization such that managers use a variety of motivational elements to improve performance.
Bruce and Pepitone (1998) suggested that there are two categories of motivational factors: Intrinsic and extrinsic factors. Intrinsic factors refer to the inner feeling that a person has about the place of work. Extrinsic factors are the external factors which motivate an employee. Extrinsic factors include rewards, promotion, and recognition among others. Employees work harder when their welfare is put into consideration by their managers. Employees are motivated to work when they are made to realize that their work add value to the organization. When employees are provided the opportunity to take interest in their work, they improve performance and contribute willingly to the organizational goals[19].
In a capitalistic economic system the employees (owners of the labor factor of production) and the managers (owners of capital) are rivals and each of the party aims at maximizing his benefits from the other. The employees aim at getting the highest amount of wages possible from the organization. The management aims at obtaining the maximum output from the employees. The two groups are always against each other and the initiatives to engage employees are just but methods of promoting the goals of the management. Most of the initiatives to motivate employees have no monetary benefits to the employees[20]. Creating equilibrium in the labour market ensures that the employer and the employee are satisfied by the prevailing market conditions. Legal systems in a country are established to protect the interests of both the employer and the employee. Employees are protected from exploitation by the employer while the employers are protected from excess pressure by the labour unions.
To reduce conflicts about the remuneration system adopted in an organization, it is important for employers to engage employees in decision making process. In some cases, trade unions are involved in discussing the best rates for employees. Labour unions have been found to be effective in uniting employees and employers and in the making of collective decisions. Collective bargaining is important in modern business environment because it provides all parties with opportunities to express their ideas about the best decisions to be implemented. Collective bargaining encourages employees to continue working for an organization for a long period of time. A legal agreement is made during a collective bargaining process and both the employee and the employer have the mandate to adhere to the decisions made. The remuneration rates applied in an organization must be discussed in a collective agreement process to ensure fairness to all parties involved. The government has the mandate to intervene in situations where employers are likely to oppress employees[21].
Application of remuneration theories to the economy of Western Australia
The declining population in Western Australia requires the government attracting people from other countries to work in the country. A lot of effort is required to retain the existing employees as a measure of reducing the deficiency. Retaining the existing number of employees will require the use of suitable remuneration packages for employees. Favorable remuneration should be applied to ensure professionals and skilled employees are retained. In addition to using money as a motivator, other non-monetary factors should be implemented to ensure that employees are attracted and retained at their place of work. Labour unions in the country should be encouraged to protect the welfare of employees. Solving conflicts between employees and employers will provide a good foundation for promoting the welfare of employees. Collective bargaining about the remunerations applied by organizations should be encouraged to avoid imposing decisions upon the employees. Through collective bargaining employees will have a stake in the decisions implemented in an organization.
The increasing competition in the domestic and global markets requires the managers in the country to focus on establishing strategies which will provide competitive advantage. Globalization has changed the business environment and managers are supposed to take diversified strategies of motivating their employees. Globalization has been accompanied by an increase in competition in both domestic and global markets. This has forced managers to come up with better strategies to manage organizational resources to create competitive advantage as well as increase profitability against the highly competitive market environment. As globalization continues to take place in the local and global markets, managers are required to adopt better strategies to manage their workers[22]. As market conditions continue to change, there is increasing need to come with better human resource management policies about remuneration systems to maintain competitiveness in the global markets.
The labor market has experienced a lot of changes because many organizations are operating in the global markets. Labor factor of production has become mobile and people can work in different countries. This has increased competition for skilled labor and there has been a great need to improve employee motivation. Reducing employee turnover in the current market conditions requires adopting better strategies when establishing remuneration systems of organizations in the country. Employees become loyal to an organization when they are motivated to work. Winning employee loyalty is an important aspect that organizations should focus on because skilled labor is becoming scarce in the country. Different reward systems are accepted by different labor markets and this provides opportunities for managers to attract professionals from different countries. It is important for managers to understand the legal regulations established by different governments, especially when working in a multi-governmental environment[23].
Remuneration provides workers with morale to improve their work and also motivates them to deliver according to the requirements of the job. Employees are motivated by monetary and non-monetary benefits. Motivation is the inner feeling that a worker develops to improve performance in the workplace. Countries have regulated remuneration systems adopted by organizations operating within their jurisdiction to protect the interests of both the employers and employees. In Western Australia there have been a decline in the population and this has reduced the number of people available to provide labor in the country. Remuneration has been identified as a major factor that employers use to attract and retain professionals and individuals with skills. Motivation helps attract and retain employees in an organization because workers are satisfied at the workplace when their needs are fulfilled. Providing better terms of payment should be a major concern for all employers because professionals and skilled workers will be attracted and retained in an organization when they are provided with good remuneration packages. The government in Western Australia should consider establishing legal systems which attract professionals from other countries to boost the workforce in the country. It is also recommended that apart from using attractive remuneration packages to employees, organization should focus on improving the overall welfare of employees by applying other non-monetary motivational elements.
[1] The Department of Training and Workforce Development. Attracting and retaining a skilled workforce. Government of Western Australia. 2010, p. 1-2
[2] Ibid
[3] The Department of Commerce. Worksafe. Government of Western Australia. 2010.
[4] Australian Bureau of Statistics 2010. Retrieved 16 Oct., 2010 from; http://www.abs.gov.au/
[5] The Department of Training and Workforce Development. P. 2
[6] Ibid. p. 2-3.
[7] Council of Australian Governments, National Affordable Housing Agreement, Canberra. 2008.
[8] Greiner, J. M. Exemplary Public Libraries: Lessons in Leadership, Management, and Service. Libraries Unlimited, 2004.
[9] Shields, J. Managing Employee Performance and Reward: Concepts, Practices, Strategies, Cambridge University Press, Melbourne. 2007.
[10] Zügner, Christiane and Ullrich, Stefan. Compensation and Remuneration. (GRIN Verlag, 2007, p. 2). ISBN 3638702200, 9783638702201.
[11] Ibid
[12] Ibid
[13] Ibid
[14] Armstrong, M., Murlis, H. and Group, H. Reward management: a handbook of remuneration strategy and practice. Kogan Page Publishers, 2007. p. 8-9. ISBN 0749449861, 9780749449865
[15] Armstrong, M., Murlis, H. and Group, H. Reward management: a handbook of remuneration strategy and practice. Kogan Page Publishers, 2007. p. 8-9. ISBN 0749449861, 9780749449865
[16] Bogardus, A. PHR / SPHR Professional in Human Resources Certification Study Guide. John Wiley and Sons. 2009. ISBN 0470430966,
[17] McClelland, D. C. Human motivation. CUP Archive, 1987. ISBN 0521369517,
[18] Fayol, H. (1949). General and industrial management. (Trans. C Storrs). London: Pitman.
[19] Bruce, A. and Pepitone, J. S. Motivating employees. McGraw-Hill Professional 1998. ISBN 0070718687, ,
[20] Lawler III, E. E., Mohrman, S. A., Benson, G. & Jossey-Bass, (2001). Organizing for High Performance: Employee Involvement, Tqm, Reengineering, and Knowledge Management in the Fortune 1000: The CEO Report.
[21] Caisley, Kiely T. Collective Bargaining. CCH New Zealand Limited, 2007. 80-99. ISBN 0864756348, 9780864756343
[22] Cooke, W. N. Multinational companies and global human resource strategies. Greenwood Publishing Group, 2003.
[23] Bohlander, G. and Snell, S. Managing Human Resources. ISBN 0324593317, Cengage Learning, 2009.

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