Remuneration: How to get employee pay right

Money isn’t everything, right? You can read any number of articles on HR or people management explaining how employees prefer to be recognised by things other than money (we’ve written a few ourselves). It might be better benefits and perks, more time-off, or more flexible working hours.

But at the end of the day, for most people, earning money is a principal reason to go to work each day. It’s also one of the easiest ways for them to measure themselves and their achievements. So, what you pay people matters.

Remuneration can get left on the shelf as a low-priority item. This might be deliberate - say the business is in tight financial times and can’t afford to pay employees more in wages or salaries - or it may be due to people being too busy and finding the pay review process too laborious.

Whatever the reason, there are consequences for getting remuneration wrong, not the least of which are potential legal issues. Then there’s the damage it can do to employee motivation, retention, and recruitment, and the company’s overall reputation.

So let’s have a good look at remuneration, its significance, common strategies for paying people effectively, and how to review remuneration and understand employee pay parity.

What is remuneration?

Remuneration is how you recognise, pay, and reward your people. It is a broader term than just "pay,", and covers the total compensation package that an employee receives in exchange for their services, from their base salary/wages, bonuses, and commissions to any benefits and perks, like a company vehicle, health insurance, or child care assistance.

Why getting employee remuneration right is important

Many businesses are in a competitive labour market, so if you pay less in wages or salaries compared to your competitors, it can be difficult to attract talented people and you risk losing the ones you have. It’s pretty simple.

We consider paying people what they think is fair (and what the business can afford) a basic “hygiene factor”. These are things that need not to be terrible in order for people to be happy with their conditions and for you to be considered a decent employer. While paying people unfairly will have a big impact on their sense of value, their engagement, and commitment to the business, having the most sophisticated, absolutely fair remuneration strategy won't automatically add value to your people. It will just avoid the negative consequences of getting it wrong.

It’s a bit like brushing your teeth: not doing it is pretty gross; and though brushing them twice a day probably won’t win you any awards, it will help you avoid cavities and expensive dental bills.

So, employers need to view remuneration (pay rates and salary increases) as part of a wider strategy to keep employees motivated in their role and in helping the business achieve its goals.

It’s about offering a well-rounded package. So, as well as rates of pay, what are the elements that make your business a great place to work (your employee value proposition)? It may be employees having a sense of purpose in their work or a belief in the company’s mission, additional leave or more flexibility, development and training opportunities, career growth, a sense of autonomy and creativity, or strong relationships within the workplace.

What motivates one person may not motivate another, so it’s best to have a range of strengths and benefits to offer people.

Why you need to get pay right

In Australia, there are a robust set of legal minimum entitlements that form the foundation of any employment offer and all employers need to understand them and factor them into employee compensation packages.

Under the National Employment Standards, employees are guaranteed a number of entitlements which are non-negotiable. So employers can’t offer a higher salary in turn for less sick leave, or you can’t reconfigure the minimum parental leave entitlement in exchange for something else.

Most employees are also covered by a Modern Award, which sets the minimum conditions of employment, e.g. minimum wages, overtime and penalty rates, and annualised salary provisions. There is also federal, state, and territory legislation that prohbiits various forms of discrimination in compensation or benefits, e.g. Workplace Gender Equality Act.

Under the Fair Work Act, employers generally cannot enforce deductions on employees unless they are agreed to and in the employee’s interest. Then there’s superannuation, which has been subject to a lot of change recently, including increases to the superannuation guarantee rate (12% from 1 July 2025).

How you pay employees is also quite defined. They can only be paid in cash or money transfer, not in something else, e.g. the business’ products or staff discounts.

Many employers have suffered financially over the past couple of years for failing to meet all these minimum legal requirements. This has often been to salaried employees who were covered by an award or enterprise agreement and the company did not factor in the correct entitlements - e.g. overtime, leave loading - into their base remuneration.

Employers can also face criminal prosecution for intentionally failing to pay employee wages, benefits (e.g. superannuation), allowances or other entitlements under the Fair Work Act or an industrial instrument, e.g. a modern award. Penalties include significant fines and potential prison time.

Learn more about avoiding common pay mistakes.

The remuneration review: what it is and why it matters

A remuneration review is a structured review of employee pay to ensure wages and salaries remain legally compliant, competitive with the market, and fair internally. A good remuneration review process considers role scope, employee performance, pay parity, business affordability, and changes in minimum entitlements.

There are a number of good reasons why employers should regularly review their employees’ remuneration.

Things are constantly changing, whether it’s minimum pay, employment legislation, or the broader market, so you need to ensure that your business is keeping up with changes in order to avoid legal strife or employees becoming unhappy or being poached. People don’t like to stay stagnant or go backwards financially, especially with the cost of living increases we are currently seeing.

Remember, it’s usually a lot more costly to attract new employees rather than to hold onto the ones you have. By the time that you recruit, onboard, and get a new employee’s performance up to where the previous person’s was, you were probably better off paying the employee you already had a little more.

It’s also important to align remuneration with company performance, objectives, and culture in order to support the overall business strategy. Reviewing remuneration along with changing performance goals is key to ensuring that individual employee performance and incentives can be set in line with broader company goals.

All employees’ efforts should help the business achieve its goals and they should be rewarded accordingly.

Another key question is when should remuneration be reviewed. This can be tied into calendar or financial year business-planning. Often businesses align it with employee performance reviews, but we believe separating individual performance reviews and remuneration reviews is best, to ensure performance conversations focus on performance and pay discussions on pay. You may also wish to review an employee’s remuneration at milestones throughout their tenure, such as after probation or a year’s service.

Whichever way, it’s important to ensure that there’s transparency and that employees understand when and how their pay is reviewed.

What is employee pay parity?

Pay parity (or pay equity) is a general concept of paying people fairly for performing the same job, regardless of employer, sector, the employee’s gender etc. Parity does include allowing for some differentials, like location, performance, and experience.

Pay parity is important for employers to keep in mind, because without it you run the risk of losing touch with what people could earn elsewhere or finding your employees are unhappy when they compare their remuneration to that of others inside or outside the business.

There are 3 main ways to approach pay parity:

1. Market parity

Market pay parity - employees are paid fairly compared to what other employers would pay for their skill set. This is usually what people mean when they talk about pay and remuneration parity.

Market parity can be tricky to assess because the pay rates for individuals employed by other businesses are usually confidential, however, some pay data is publicly available, e.g. salary surveys, job listings.

2. Internal pay parity

Internal pay parity -  employees in different roles, teams, and levels of seniority are paid fairly when compared to each other.

It‘s all about ensuring your pay scales make sense, e.g. is someone earning $100,000 adding twice as much value as someone on $50,000? Is it okay for there to be a $30,000 difference between your juniors and intermediates, but only $5,000 difference between intermediates and seniors?

Another good question to ask yourself is would you be happy for your pay scales to be made public? Private sector employers with 100 or more employees have to report annual gender equality and pay gap data to the Workplace Gender Equality Agency (WGEA), with results readily accessible to the public.

3. “Like for like” pay parity

“Like for like” parity -  employees in identical or similar roles are paid fairly and it can take experience and performance into account. It can’t, however, take things like gender, ethnicity, religion, parental status etc. into account, as they are prohibited under Australian legislation.

There is clear legal risk for your organisation if you pay people who perform work of equal or comparable value differently, as they could lodge a claim of workplace discrimination or adverse action, e.g. under the Fair Work Act, Australian Human Rights Commission Act, or relevant state-based anti-discrimination laws. 

Different employee pay strategies

Now that we understand the legislative landscape, reasons for reviewing pay, and ways to achieve pay parity, let’s look at the different ways to approach remuneration.

Wages and salaries are usually one of the biggest costs to a business, and for many smaller employers, trying to construct competitive, equitable and motivating pay packages can take up a lot of time and effort.

Here are the 3 main ways that businesses can approach their remuneration structures:

1. Pay low rates

So long as you meet legal minimum entitlements, there is no law that says you have to pay employees market rates. Pay below the market can be useful for small businesses or start-ups that may have limited cashflow.

Pros: Keeps your wage bill down, with less impact on cashflow; you can maintain more positions than you otherwise could at market rates.

Cons: You will need to accept high churn or employee unhappiness, and/or compensate in other ways, e.g. do you have an amazing company culture or can offer employees unique or challenging project work? Are you a charity or not-for-profit? Or can you offer employees equity in the company (sometimes called “sweat equity”) such as share schemes? Low wages may also affect product/ service delivery and your reputation.

2. Pay market rates

This is the most common approach, to pay what everyone else is paying.

Pros: Takes pay out of the equation when you’re competing for employees with other companies; pay rates tend to be middle-of-the-road, which doesn’t unnecessarily inflate your costs and makes benchmarking easier; employees generally feel their compensation is fair.

Cons: Vulnerable to employees being unhappy or leaving for reasons other than money; you will still need to distinguish your company for other reasons (as discussed above). Market data may not account for experience, unique skills, or high performance an employee brings.

3. Pay above-market rates

This is a strategy certain companies, e.g. Netflix, Apple, use to attract top talent.

Pros: People who care about money will come and work for you; easy to compete with other companies on pay alone because you’re paying more; employees are less likely to leave.

Cons: Expensive; may increase pressure on staff or keep employee turnover artificially low (i.e. people are reluctant to leave which limits healthy fresh blood coming into the company); potential friction with existing staff when you pay new hires above-market rates.

If you need more information or would like expert help in conducting remuneration reviews, please contact MyHR.