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Notes | Eduvos
3.1. Notes
6. Consequences of a lack of internal alignment
6.5. Blended activity: Memorandum
Case study: Chapter 2 Memorandum
Read the following case study and answer the questions that follow:
China’s Compensation Problems
China may view it as a problem, but workers view it as an opportunity. In a recent employee survey, 25% of workers had
already had three or more jobs in their career and 20% expected to leave their positions in the next year. On average,
employees stay with their companies less than two years. The same survey showed that managers felt less loyal and were
less likely to continue with the firm over the next five years.
There are enough people in the workforce, but there is a shortage of skilled people, especially at leadership level. The
growth of the economy in China is outpacing the growth of skilled talent. The question must then be asked? Why are people
leaving at such a high rate? According to the survey, the two major reasons are lack of growth and development
opportunities and the availability of career opportunities elsewhere. Poor compensation came in third.
Employees were more likely to stay with the organisation if they had a good manager, were recognised for their
contributions, and had great company leadership. Employees also indicated that better compensation could also result in a
higher retention rate. This show that organisations can temper that turnover.
There is another reason that Chinese labour cost will rise. In 2008, a new labour law went into effect. Included in the law are
limits on overtime and increases in holiday pay and insurance benefits. It also makes provision for full disclosure of
employee contracts and rights. This transparency is new. In the past, a contract that was signed with a company did not
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have to be disclosed to the employees. The change will now empower workers to see if they are being treated fairly.
Question 1
Companies in China are facing several challenges with regards to their workforce. To address these challenges a company
could develop a comprehensive remuneration framework. Before this can happen, they should consider what they want to
achieve through their remuneration system.
Explain with reference to the case study, which objectives of remuneration can be achieved through the development of a
remuneration system.
Question 2
Illustrate how surveys can assist employers in achieving external alignment with regards to remuneration practices.
Memo
Application:
Companies in China are faced with high labour turnover, skills shortages, and low motivational levels of employees.
To be competitive these companies must attract and retain the best employees available in the labour market.
This can be achieved through the design of a total reward package that considers the individual needs of employees.
However, companies in China are also facing the added issue of controlling labour costs after new legislation had been
introduced.
They need to attract and retain quality employees but at the same time stay competitive in the labour market.
To the choose the most effective remuneration strategy for their individual organisation, they need to be aware of
developments in the external labour market.
Surveys can be used to gather information with regards to remuneration packages offered by other companies in the
labour market. It would help to determine the level of salaries for a given position.
This would assist and employer to determine the correct remuneration strategy to achieve a competitive advantage
and reach the goals of the organisation.
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Choosing a pay strategy that is set above or equal to the market rate will also enhance the perception of fairness in the
company and help to attract, motivate, and retain key employees.
Note: Use discretion with regards to application to the case study. Award five marks for theory and five marks for
application.
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