In the past, pay structures were viewed as almost permanent structures which only needed the occasional tinkering to keep them going. That was a fallacy as pay/reward systems decay over time no matter how carefully they are crafted. In a recent column in the Daily Telegraph, John Timpson took a more strident view, “Every 10 years we should scrap the existing pay structure and start all again, asking this question: “what is each person worth to the business?”. 
Frequent Causes of Decay
The rate of decay is accelerated by, for example, ‘on the quiet individual deals’, changing market rates and changes in business/service needs. A major cause is the unwitting or intentional sabotage by senior managers who undermine the structure by:
- failing to address poor performance but still giving a pay rise for a quiet work life;
- favouring some individuals by inflating the value of and pay for their job; such favouritism may just simply arise because of an attractive appearance or an individual often digs the manager out of a hole;
- actively seeking to depress the value and pay of individuals who challenge such a manager or are not willing to submit to bullying;
- insisting that their function is worth more to the organisation and securing funds by shouting louder;
- distorting benefits packages of some staff groups to prove that the manager has influence.
Other managers may well say, “So long as the results are good, so what!” Such actions damage the internal sense of equity in the rewards received by different groups and also leads to a real feeling of unfairness by many staff that the favoured few are viewed as important by the company. That arises even though other senior managers may challenge the appropriateness of the above type of actions. Unless checked, this will lead to the decay of the pay structure, increasing sense of alienation among staff, decreases in discretionary effort and a higher pay bill in the future as delayed corrective action will have to be taken.
What Can You Do?
Do not rush into a major job evaluation exercise as that is rarely a cost effective solution. Most organisations have an equitable sense of their internal job ranking and that can be used to help to re-align the pay structure. Some practical tips are given below.
Distortions due to Market Rates
If you have to pay market to remain competitive, adopt a transparent approach by the use of market rate premiums. For example, if you have to pay an additional £6,000 to attract or retain individuals, on top of their basic salary, do not increase the basic by that amount but pay a market premium instead. That is simply an allowance which has several advantages:
- The use of a market premium allows an appropriate rate of pay to be given without the need to massage the job evaluation and pay structure;
- The market supplement/premium becomes a separate and severable term of the individual’s contract so that it may be varied or terminated by the giving of separate notice without affecting the main employment contract;
- Flexibility is retained in how you respond to a future change in market conditions e.g. reducing or staging reductions or eliminating or the supplement;
- You choose whether the market allowance is pensionable or not.
As such premiums are transparent, they are likely to be accepted as a reasonable response in a market driven pay structure.
Winning Over the Saboteurs
Managers who set out to undermine the pay structure need to understand that is no longer tenable as there are legitimate ways in which issues can be addressed without distorting the pay and/or evaluation structure.
A direct discussion will be required to explain the alternative solutions available and the expectation that the senior manager(s) will work with the rest of the senior management team to ensure the pay structure remains robust and fit for purpose.
Take a quick look at the pay rises given to the poor performers and see whether those increases are very small – an indicator that the manager hopes that a low rise will encourage the individual to leave. The reality is that if the individual is reasonably well paid in any case, he/she will not leave voluntarily so now is the time to work with the senior manager to address the poor performance or move the employee on.
With regard to favouritism, the manager will need help to adopt a different approach but it needs to be made clear that the making of such arbitrary awards is not acceptable to top managers.
© HR Management Dimensions 2008 – 2016.
Articles are produced for information purposes only. They are not published as legal advice and must not be relied upon or construed as such as neither the author(s) nor the Company are aware of the particular use to which the content will be put.