REWARD EMPLOYEES COST EFFECTIVELY This article identifies important issues to consider during a Pay Review including: Pay Surveys, Performance and Competence Appraisal, Job Descriptions, Recruitment, Career Progression, Succession Planning, Training, Job Evaluation, and Organisation Development. Getting Pay Right Makes Serious Business Sense So many organisations do not know what the right level of pay should be for their employees. This is particularly the case for many smaller organisations who believe it is not important enough to worry about and don’t have the time to do the necessary research. A pay review undertaken without reference to essential data is equivalent to running a business without knowing anything of the market in which it operates, without accounts, and without any form of strategic plan. In this article Derek Burn, Partner in HR Perform-Pay Auditor and ACAS Independent Expert onPay describes a straightforward methodology for obtaining the required data to achieve the most cost effective staffing including undertaking an Internal Pay Relativity Check using techniques which have the potential to impact on almost every aspect of HR - and can help focus the business on its strategic objectives. What Are We Paying For? We would probably all agree that, when buying something, we should know what the item’s purpose is and what service it is expected to deliver to us? Equally then, it’s probably a good idea that when employing people we should have clear Job Descriptions. These can be prepared as a start point, in draft form at least, by existing employees - and checked by managers. The reason for the former’s involvement is because managers - while they usually know what they want, seldom can recall - or never really ever knew (but that’s another story!) the detail of what is required, to achieve all the deliverables. Is Our Pay Fair - And Unlikely To Lead To A Tribunal Claim? Few HR activities have the degree of impact on the organisation as job evaluation. Frequently dismissed as a technique that can put the organisation in a straightjacket and remove the flexibility needed to manage the business successfully, Job Evaluation has received a bad press. It is true that - applied by narrow specialists who are devotees of 'branded schemes' - the whole system of revising job descriptions, evaluation panels and appeals sessions can apparently seem nothing but an end in itself - a cottage industry spawned by those who are out of touch with the realities of the business. But it need not be like that. At a time when we have to exercise care to avoid inequality and discrimination and information and consultation issues clamour for our attention in a seemingly never ending battery, a 'light touch' form of job evaluation can provide us with a key to setting the right pay levels and improve employee communication and engagement in the process. In particular, of course, job evaluation should be used as the foundation for a robust pay structure, but first of all we have to understand that it is not a stand- alone “panacea” for all the employment ills of the organisation- a fact that is not always recognised in the rush to implement. Remember it is just a means to an end (or several ends if used properly). Job Evaluation can provide the basis for a fair Pay Review. The Business Does Not Operate In A Vacuum - There Is A Competitive Market Out There We have to recognise that it is folly to develop a pay structure that does not take account of the competitive market place for employees. You must not believe that a pay review can simply be undertaken by adding a “cost of living” uplift- even if it is supplemented by performance awards where appropriate. There are too many nuances in the reward market for that approach to be taken. It is strictly a supply and demand situation and this varies year on year to the extent that if you are not in touch then you will lose key staff before you understand why, and you will most certainly be overpaying others by an amount that could shock, if not you, the Finance Director and Chief Executive! So external Reward Comparisons - Pay Surveys- are an essential and ultimately a very cost effective tool, if you approach them in the right way (which is not immediately setting up an all singing all dancing “club” or local employers’ survey.) Remember the apparent limits of your grade salary boundaries can be breached by job holders quite legitimately (without risk of a successful equal pay claim) if you can prove the market insists that you pay “over the limit” in order to attract and retain a particular specialism or skill set - All the more reason for conducting regular pay surveys. And Some People Really Do Give More Value Than Others One sure way of achieving staff disengagement is by not recognising those who go the extra mile, so a sound system of Performance Appraisal, management and reward is essential. Remember when carrying out a performance related pay review that “the Market” is by definition, at the median point, paying the average/satisfactory performer rate. So if you are matching the market average with your pay scales and giving people genuine market related pay you do not need to be giving Cost of Living Allowances as well as these are already included in “the Market”. However those employees who are contributing more - and are “above average” or “outstanding” performers - are worthy of an additional reward. There is a debate as to whether or not this sum should be consolidated and a conservative policy of non - consolidation might be more appropriate in the current climate. Competencies -The Seeds of Growth Competency awareness is central to establishing fair pay. Again, like job evaluation, there is some resistance to the buzz word “Competence” but it is a fact of life and it might as well be formalised through Competency Assessment. It is a very small step to take, from good job descriptions and a performance appraisal system, to identifying technical and behavioural competencies and linking these to the business strategy. This can achieve the ultimate focus and linkage to business needs which is necessary for the pay bill to be cost effective. Identifying individual competence growth can become an essential part of the Pay Review process, allowing you to control progression through pay scales and to stop salary and grade drift (that is, paying beyond the necessary amount and weakening any structure you have for trying to achieve fair pay). Growing Your Own Training and Career Development have to be considered at pay review time (and throughout the year). Huge amounts can be saved by investing in development of staff and ensuring that there is the basis of an internal pool for future promotions - this is particularly important in SME’s which cannot necessarily afford to recruit regularly in competition with those that have deeper pockets. This links closely to Progression both within a grade pay scale and through grades. While there is a cost associated with training and “growing your own” it is far less costly than going to market to buy sometimes scarce talent that can name its own price. The cost associated with losing and replacing any employee can easily amount to a third of their annual salary. So, by investing in career development and being very aware that value is created, there are rewards to be gained by the organisation. All the reward must not go one way into the company coffers otherwise the newly knowledgeable member of staff will leave- some must be shared. However by “creating your own market” you are to some extent in a position to control it - and you need not go out to recruit and pay upper quartile market reward for people who are untrained in the idiosyncrasies of your organisation. A Sense Check Organisation Analysis and Development should be a continuing process - constantly aligning the shape of structure and staffing to developing business needs. Sensible then, to ensure that you have a good idea of what the organisation’s expectations and staffing needs are for the forthcoming year before the annual pay review. Otherwise you could end up paying out money unnecessarily and compounding any redundancy payment bills or amounts paid in claims. Moving Forward Closely tied to the latter heading and career development is Succession Planning - by having a view of who is available and competent to replace any key players should they leave or otherwise be unavailable, panic and additional cost can be avoided - a well worthwhile insurance policy. But of course, as with all insurance policies, there is a cost - so don’t expect the understudy waiting in the wings to hang about indefinitely without “infill” challenges and reward, hence the important link to , and need for, consideration at Salary Review time. The Costliest Decision Of All The decision to move to external Recruitment can be very costly - but of course is essential from time to bring in new specialists or to replace those who have moved on, where there is not a suitably “succession planned” replacement. Ideally you will be in a position to recruit at the bottom of the organisation (more cheaply) and progress people internally most of the time. However if the foregoing integrated approach is followed it is only a small step to apply the information from Job Evaluation to Recruitment. The outputs from job analysis, job evaluation and competency development can so easily be transferred to job and recruitment specifications and person profiles. Then, of course, the pay and grading information gained from pay surveys and reviews can be directly applied to the new employees reward and progression package - completing the circle. One final word of warning - Please do try to ensure that your recruitment salaries are consistent with your existing structure - and certainly not higher than existing pay for similar jobs - this is a sure-fire route to Employment Tribunal - and more than just a monetary cost to the organisation! © Derek Burn 2013 Senior Partner HR Perform - Pay Auditor Tel : 01952 606690 ~~ Mob : 07768 731673 E-mail :

Derek Burn