Pay and benefits are about market forces and the idea that there’s a market price for each job. Determining how much to pay and what benefits to provide is therefore about analysing the labour market. Guesswork and bias are the big enemies. But there are huge issues about equity.
TimelessTime consultants have managed rewards systems for organisations large and small. Here are some of the issues.
Need for Equity
Staff compare their ‘lot’ with that of others both within their firm and outside. They develop ideas about what’s fair and what’s not. When they consider that the relative reward is unfair they’ll plan to quit. Getting pay and benefits right for each person and each job is crucial to staff commitment.
Pay and Benefits Model
Setting rewards is about developing a fair pay model often comprising base pay, competence related pay and performance related pay. Each element needs to be determined for each job. Every firm, large and small, needs a robust, fair pay and benefits model.
How a firm pays its staff is a function of its business strategy. Firms that expect to use staff competency as a competitive advantage can expect to pay more to get excellent staff that they can go on to develop. Firms seeing staff more as a commodity and who are prepared to tolerate a high staff turnover can pay less. And the greater the commitment that the firm wants, the better the benefits should be. The link between pay and benefits and the firm’s strategy needs to be established before setting pay strategy.
Jobs and Job Evaluation
Bigger jobs (with more responsibility, accountability, complexity and required training and education) can expect to command more salary and better benefits. But judging a job’s size relative to the size of others is a hugely complicated management activity referred to as job evaluation. All firms, large and small, engage in job evaluation. Sometimes it’s just not expressed. Objective evaluation positions jobs on a pay structure.
Job evaluation ensures that rewards are balanced such that jobs of the same responsibility, technical complexity and scope are paid similar wages. And differences in wages should always have valid explanation.
Pay Structures and Policies
Typically pay comprises a base pay, a competence-related element of pay and a performance-related element of pay. Pay structures set the framework for all pay across the firm. But a pay structure is nothing without the policies that guide managers in how staff can move within the structure as they take on more responsibility and acquire greater competencies. Managers need to know what to do when a new recruit is to be made an offer. And they need to know what to do when someone completes training, thereby perhaps allowing higher fee-earning or productivity for the firm.
Benefits are just that – for both employer and employees. Whilst private health insurance may appear a cost, loss of effort from a key staff member for many weeks waiting for and recovering from NHS treatment can be a massive financial loss. The firm can balance benefits and salary to achieve an attractive composite package that costs the employer less than an employee would pay if buying alone. It’s all about being clever about building a pay and benefits package. Pay and benefits add to give what’s termed ‘total reward’.
Determining pay and benefits needs good statistics and data gathering skills to build evidence for a particular pay strategy, pay structure and pay policies. It also needs a good understanding of psychology – staff are human and their attitudes are not necessarily always simple or logical.