A medium-sized, family-owned biopharmaceutical company had grown enormously through market success and had expanded, including internationally. The collectively agreed remuneration in the company with around 1,300 employees followed the collective agreements of the chemical industry (IG-BCE). In addition, there were around 110 non-tariff (AT) employees.
Dissatisfaction due to non-transparent AT remuneration
There was a need for action regarding AT remuneration. On the one hand, some new hires in the AT area were paid significantly more than the company level. This had led to dissatisfaction among long-standing non-tariff employees. On the other hand, there was no clear process for reviewing and adjusting remuneration. Adjustments were only made occasionally at the request of individual employees and/or their line managers.
Furthermore, there were considerable differences in the level of variable remuneration (both in absolute terms and in relation to basic pay). Due to the company's expansive development, the management had agreed very high variable remuneration components with newly hired non-tariff employees. For existing non-tariff employees, however, the variable remuneration was still largely based on the collectively agreed annual benefit (Christmas bonus). It was therefore considerably lower than the target bonuses of the newly recruited AT employees.
AT remuneration evaluation system and remuneration review
The brief was to select and introduce an AT remuneration evaluation system with available market comparisons from an external remuneration consultancy and to negotiate with the works council. In addition, the job descriptions were to be adapted in order to create a transparent remuneration structure in line with the market and performance. From the outset, the project was set up for the long term. The HR expert was initially hired as HR manager. At the same time, it was agreed that he would later continue to support the project as an interim manager.
Bringing remuneration levels in line with the market
In particular, the following objectives were agreed for the project:
- The remuneration level was to be brought in line with market conditions in the medium term. The basic remuneration should be below the market, but the target bonuses should be significantly above the market.
- A hierarchy of AT positions (grading) and a uniform percentage level of target bonuses in the target structure, depending on the grade (between five percent in the lowest grade and up to 30 percent in the highest grade) should be introduced.
- The job descriptions should be reviewed using the remuneration-relevant criteria of the selected AT remuneration evaluation system and adjusted if necessary.
Develop and introduce an annual review process for AT remuneration
In addition, an annual review process for AT remuneration was to be established with the following sub-goals:
- Shareholder expectations: The effects of the remuneration adjustments should be available transparently and clearly in the form of various scenarios in euros for the current year and subsequent years before the increases are approved.
- Bringing remuneration in line with the market and bonus targets (as a percentage of base salary per grade)
- Consideration of the situation compared to the market, the level of target bonuses compared to the target value as a percentage of base salary and performance in the previous year
- Extensive automation of the process: Upload of data from SAP, calculation of all scenarios, creation of reports and individual information letters on the result of the pay review via mail merge
- Selected managers and the works council should be involved in the design and introduction of the system.
- The structure of the variable variable remuneration and the annual remuneration review process were to be set out in a company agreement.
Reliable market data allows comparability of remuneration
The first challenge in implementing the project was to find a suitable remuneration consultancy that had reliable market data for the pharmaceutical sector. The choice ultimately fell on a provider that uses an analytical system for job grading. This system not only takes into account the "grade", i.e. the value of the position in the company. It also considers the "career band", i.e. the defining task of the position in the company (company management, management, sales, application of specialist knowledge, etc.) and the function (finance & controlling, HR, IT, production, quality control, etc.). As a result, this system makes it possible to establish comparability of remuneration within the pharmaceutical industry in Germany.
The provider's data updates were available annually. They were also made available in the form of a pure data table that could be uploaded to Excel. This enabled an annual automatic re-evaluation of the remuneration level (from the SAP system) in comparison to the market using a traffic light system.
Job descriptions reviewed and adapted for re-evaluation
In order to ensure the allocation and evaluation of all non-payroll positions in the company via the system, the existing job descriptions had to be reviewed and in many cases updated. To this end, the HR officers were trained in advance, the managers and the works council were informed and the managers were consulted. The discussions with managers in particular proved to be very fruitful in many cases. This was because they not only talked about the job characteristics and objectives, but also about the job holders and their development needs.
In individual cases, the value and characteristics of individual jobs were viewed differently by senior managers than by the HR department. These differences were brought together so that the management could decide on them. In a few cases, these decisions led to an adjustment of the organizational structure.
Annual remuneration review and reporting programmed
After the analytical evaluation of all non-managerial positions in the company, the interim manager programmed a system in Excel for the annual remuneration review with the following functionalities:
- Upload of the remuneration data from SAP of the annual benchmarks of the remuneration consultancy
- Report for the management and the shareholders: Consideration of an investment amount for the increases; calculation of the effects according to the specifications (in scenarios) on the basic salary and bonus of the individual positions, taking into account the market data (traffic light system); calculation of the effects in the increase year and subsequent years
- Reports for senior executives: List of the effects of the review on the AT executives in their own area, i.e. proposals for increases in basic pay and bonus (traffic light system) with the option of requesting deviations
- Creation of a list that could be used to produce form letters to inform AT executives individually about the results of the pay review.
In parallel, the interim manager prepared a presentation for the shareholders on the structure of the new system, its effects and an implementation plan for approval.
Disagreements about the AT remuneration system resolved in workshops
Towards the end of the process, it became apparent during the distribution of a brochure on the new AT remuneration system that not all managers had fully accepted the plan. The remuneration system and the planned annual review routine were therefore discussed again at several workshops with all senior managers. In this way, the concerns of some managers were allayed. The brochure was also adapted. It was then presented to the AT managers at information events.
The interim manager had previously agreed the new structure of the variable AT remuneration and the annual AT remuneration review process with the works council and recorded the results in two works agreements.
New AT remuneration system is largely well received
Company management and shareholders are satisfied with the new remuneration system. Senior managers particularly welcome the annual review process, which gives them new transparent options for structuring their remuneration. The majority of AT employees have also responded positively to the new system, as it is obviously more transparent and fairer than the previous one. A few AT employees, whose high salaries have now essentially been frozen, expressed dissatisfaction.
The process of individual performance appraisal, which is to be included in the annual adjustments, is currently open. To this end, the appraisal criteria for individual position families still need to be formulated more clearly and the managers carrying out the appraisals require extensive training.
