Issues in designing the pay structure
1. Align the design to your business vision
Whilst organisations have been changed overnight by the pandemic and hybrid working is
being widely considered and implemented to varying degrees, pay parity will remain
important regardless of where employees are based. This speaks to fundamental fairness
within an organisation.
By satisfying fair pay, employers can unlock the overall effectiveness of the reward strategies
they have in place and pay structures are an important consideration in the reward strategy
design. What does your organization want to achieve in the long run? Your HR and reward
strategy should underpin the wider business vision and align each individual to achieve this
together. This is the starting point when selecting the right pay structure for you.
“Don’t just jump to the creation stage – make sure you take a step back and define how to
optimise the pay structure as a key part of the overall reward strategy.”
2. Consider internal equity holistically
Initial research will identify if there are any internal equity concerns to factor into the new
pay structure. People want to know they are working for a company who pays fairly and that
they are not being underpaid in comparison to a colleague. This applies in law through the
Equal Pay Act 2010, but also extends to Gender Pay reporting. The discovery phase exercise
of putting in place pay structures can help identify areas of risk from an equal pay
perspective.
3. Use a robust methodology
When competitors change their reward design, it is tempting to want to pick and choose
elements to copy and to pay the most. However, understanding the market position is the start
of the process. This will need to be balanced with affordability and the other reward elements
in terms of the investments being made, but also the culture. One pay structure will not work
identically for another company. When we work with employers to pay structure projects we
take an evidence-based approach to guide the selection of the best pay structure.
A key choice will be whether to follow an analytical or non-analytical job evaluation. There
are pros and cons to each choice, as there are when it comes to selecting pay ranges or spot
rates when it comes to setting salary. We recommend following the analytical method so that
decisions around roles and where they fit into the structure can sustain the organisation in the
long-run. It also provides a defence in Employment Tribunal proceedings over equal pay too.
“Think about what is driving you to assess your pay structure – the project will have
greater success in the long-run if it supports and champions a business’ vision and is
carefully designed to achieve clear objectives.”
4. Actively listen to employees
By identifying what your employees want from their reward package, this will help to guide
the design and any nuances required of the new structure to truly drive employee
engagement. Whilst the data analysis part can focus on balancing what is currently being paid
against what the market is doing, it is important to meet the needs of stakeholders which
should not be assumed. It is important to approach the exercise as a blank slate, with
employees given the opportunity to outline what matters to them. Feedback may be more
about the importance of internal parity of pay or opportunities to progress that go beyond
purely financial equations.
We recommend an implementation period of between 3 – 12 months to ensure the success of
the project. Without proper methodology and a strong communications plan, 70 per cent of
change projects fail. Bringing your employees with you, by communicating why a revised
structure is needed and the benefits to them, will need to be planned as early as possible to
achieve maximum buy-in across the organisation.
5. Manage career progression within a clear and transparent structure
Employees need to be able to see where they go from here. By having a clear pay structure,
employees are equipped with a roadmap for progression. This also supports Line Managers
roles as they can all sing from the same hymn sheet, producing more consistent performance
management decisions across an organisation.