5 Key Considerations when Developing Pay Structure

Employers want a robust system around how to pay people. Our UK Reward Management Survey captured employers’ optimism, which is often accompanied by a more buoyant labour market – making pay structures crucial in providing a fair framework on which to organise pay and driving value for employees.

Following our reward specialist Joe Price’s recent webinar on the subject of pay structures, here we outline his top tips and the boxes that your reward strategy needs to tick to ultimately deliver employee satisfaction.

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. Dan Pink’s influential text Drive underlines the importance of employers taking pay off the table as an issue.

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.

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.

Our UK Reward Management Survey highlighted how organisations are increasingly looking at their wider demographic pay records to achieve parity of pay throughout the business. 85 per cent of respondents have diversity and inclusion initiatives in place, up from 76 per cent last year, demonstrating the focus on fairness by employers.

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.

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.

A clear structure organisation-wide can also assist with managing payroll costs. One third of UK Reward Management Survey respondents anticipate that they will award out of cycle pay increases that account for up to one per cent of their annual pay bill. 78 per cent cite market pressures being behind the decision to make an out of cycle increase, whilst 52 per cent cite internal pay alignment and 28 per cent say they are driven by pay restructures. This matrix of individual decisions affects affordability and control, directly skewing ‘official’ figures for pay awards. Introducing a robust structure can reduce inconsistencies and provide Finance with more budget certainty.

Get in touch

Whether it’s a health check, analysis on your existing job evaluation framework or benchmarking, get in touch with us today so we can help you improve your current approach to pay. To listen to Joe’s advice in full, watch our latest webinar on demand about the key elements you need to consider when developing a pay structure and the main pay structures open to you.

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Pay & Benefits Benchmarking

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& Design

Employee Engagement

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5 key considerations when developing a pay structure

1. Align the design to your business vision

“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.”

The full webinar is now available on demand, to view at your convenience:

2. Consider internal equity holistically

3. Use a robust methodology

“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

5. Manage career progression within a clear and transparent structure

Get in touch

Joe Price

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