It’s all about data
To start off with it’s all about data, data and more data. It is important that you spend the time collecting data and establishing if there is any specific action required with certain groups of employees. Within your own four walls, take a look at your voluntary turnover levels and look specifically at their salary grade and job function or family. Is there a pattern? Are you losing employees within a certain location? Are they all in a certain function and are there other employees who may be considered a flight risk?
On the flip side, are there any specific attraction issues? Speak to your recruitment team and/or senior leaders to establish if there are any areas where you have difficulty recruiting. Is the overall package attractive enough? The organisation should aim to attract, motivate and retain their employees. It is therefore important to establish if there are specific attraction or attrition issues and also look at what action, if any, needs to be taken. For example, consider any retention packages for flight risk employees or sign on bonuses for new employees.
Once you have looked internally to establish if there are any issues that need addressing, it is useful to then look externally, to establish if there are any specific premiums or variances that need to be considered further. For instance, is there a regional premium? It is widely known that organisations in London have paid more in salary, compared to the rest of the UK, for a number of years. However, it is important to track regional variances to ensure your compensation package tracks the market. The same can be said for any functional or industry premiums. For example, there has been a documented shortage of graduate engineers entering into the UK workforce and, as a result, there has been a slow but consistent increase in base salary, ahead of the overall market, paid to engineers in the last few years.
When discussing the overall pay award, it is important to not just look at what the overall market is doing, but consider other factors simultaneously. It can be easy and straightforward to award increases that follow the market. However, if the organisation cannot sustain the cost increase, it can pose additional risk to the performance of the organisation. When looking at the affordability from a company viewpoint, it is important to look at the overall increase in headcount cost and not just in base salary terms. For example, any increase in base salary may also increase the employer National Insurance Contribution cost. Also, will any increases be pensionable? Will it add to the overall bonus pay out? Will it mean additional costs to any life insurance or other additional benefits that are offered to employees? It is also prudent to look at the latest inflation figures to analyse what effect inflation has on any salary increases.