BOARD LEVEL REWARD REQUIRES MORE FUNDAMENTAL ISSUES TO BE ADDRESSED

GETTING BOARD LEVEL REWARD RIGHT REQUIRES MORE
FUNDAMENTAL ISSUES TO BE ADDRESSED
By Derek Burn BA (Hons.) FIC CMC FCIPD

Attention to Pay & Benefits Makes Serious Business Sense
It is hardly surprising that Board level reward in major private sector organisations is perceived to be unrealistic, not least because few organisations know what the right level of pay should be for any of their employees. This is particularly the case for many private sector companies which, with some justification, are outwardly focussed and seeking to be competitive in an increasingly aggressive market. The concept of getting all employee, management and board pay into a logical and readily justifiable structure does not register as important enough to worry about and much of the work is often demoted to a routine administration task within the HR function. So it really is time for a fundamental look at reward within the workplace to make sense of what is fair and sustainable - but also attractive and motivating to the recipients. Pay and the broader concept of reward really are too important to be treated as anything less than an holistic, professional part of the overall business. Consider the costs relate to rewarding employees as a percentage of total business running - costs. They are almost certainly at least 50%, in manufacturing but probably nearer 90% of annual costs in knowledge based service industries. 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 accredited Independent Expert in pay, outlines the route to developing a fair reward structure which can underpin a fully justifiable senior remuneration package and most importantly, cost effective staffing throughout the organisation.

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- particularly those with a 6 figure price tag- we should have a clear definition of our expectations for deliverables. Obviously an outline job description has to be a fundamental requirement - But every job description must contain a clearly defined view of the expected outputs of that role and how it fits with the overall business need. At Board level the deliverables must not just be couched in terms of strategy and governance. Specific measurables closely geared to performance must feature - particularly if there is to be any form of bonus element.

Is Our Pay Fair - and Unlikely To Lead To An Employment Tribunal Claim?
Few HR activities have the degree of impact on the organisation as job evaluation. Contrary to popular belief, all organisations operate a system of job evaluation. Even if you only employ 3 people - say a Chief Executive, a Sales Manager and a Secretary / Administrator - by deciding a rank order of their worth to the company, you have undertaken a form of job evaluation called “Ranking”. Unfortunately this does not work so easily if you have just a few more employees- and you need a form of “analytical” job evaluation to ensure you do not fall foul of employment (equal value or discrimination) law. The author has been involved in advising on a number of claims, in Employment Tribunals, that have related to Board level - in Manufacturing, Finance, Logistics, Retail and other service sectors. At a time when all the legislation surrounding inequality, discrimination, 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 provides the basis for a fair reward structure that supports the business structure and can help you control and run the business the way that you want it to be run.

Your 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 and reward 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 (and even Board member disengagement) is by not recognising those who go the extra mile, so a sound system of Performance Appraisal, management and reward is essential. Note that dreaded employment law is against you again if you just pay people based on their “experience” or length of service with the company. (There can be age discrimination or sex discrimination issues). These latter types of claim of unfairness ending up in Tribunal are much more common at Board level and just below than you might expect. Remember also when carrying out a performance related pay review that “the Market” in totality 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 Increases as well as these are already included in “the Market”. However those Employees- and Board members- who are contributing more - are, compared to their peers, 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. Identifying individual Competence growth should also 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).  

Pull it all Together to Supercharge your Organisation.
It is worth carrying out a pay healthcheck of how the issues discussed in this article stack up for your organisation, particularly at Board level. Reward is a powerful tool that often goes to waste. Consider the importance of knowing what your people need to do to make the business successful - Job Descriptions and what they actually do - Performance Appraisal. Then make sure that you know the market that you are operating in - Pay Surveys so that you can recruit, retain and motivate the organisation’s most precious resource.

© Derek Burn 2012 Senior Partner HR Perform - Pay Auditor www.payauditor.co.uk
Tel : 01952 606690 ~~ Mob : 07768 731673
E-mail : derek.burn@payauditor.co.uk

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Derek Burn
14.06.2012

Makes a lot of sense!