At a glance: the fundamentals of reward

FTE Salary

FTE means ‘Full Time Equivalent’ and is the pay that someone receives as if they work full time hours. This is an essential calculation to perform if you want to compare what a part-time employee and a full-time employee earn – for example to check they are paid equivalently for doing the same job.

To calculate an FTE salary, you need three pieces of information: their actual salary; their contractual hours; and the standard full-time hours for the company.

Here is an example:

• Benjamin earns £24,000 per year for working 28 hours a week. The standard full-time hours for the company is 35 hours per week.
• (£24,000 / 28) x 35 = £30,000
• £24,000 divided by 28 hours, then multiplied by 35 hours. Benjamin’s FTE salary is £30,000 per year.

Median salaries

When looking at people’s pay, the most common way of presenting ‘average’ pay is to give the median salary. Statistically, the median is the figure where half of the people in the sample population receive less than that salary.

In other words, if you listed every salary from highest to lowest, the middle figure in the list is the median salary. This approach has an advantage over the mean salary (mean is what most people refer to when they say ‘average’) because it is not affected by a few people who have large salaries, therefore the median salary gives a better indication of typical pay.

Percentile

The median can also be called the fiftieth percentile. The sixtieth percentile is the figure where 60 per cent of the people in the sample population receive less than that salary (so a fairly high salary). The tenth percentile is the figure where 10 per cent of the people in the sample population receive less than that salary (so a very low salary). The ninetieth percentile is the figure where 90 per cent of the people in the sample population receive less than that salary (so a very high salary). You get the idea – but this is useful when looking at pay reports and presenting this information to the Board.

Reward Strategy

A reward strategy can mean a number of things – what they all have in common is that they must flow from the business strategy so that reward (pay, benefits and anything else) supports the organisation in meeting its goals.

A typical reward strategy focuses on the medium to long-term and will set out the intentions of the organisation on reward areas such as base pay, bonus and benefits. The strategy is likely to balance a number of considerations beyond the business strategy including organisation culture, affordability and employee engagement.

Total reward

Total reward is the combination of financial and non-financial things that an employee can receive or experience from their employer.

Examples of non-financial rewards can include tangible rewards such as recognition schemes, benefits and training opportunities. Less tangible examples include work-life balance, a friendly working culture and values which align with their own. Total reward statements are an excellent way of demonstrating to employees what an organisation can offer them beyond their basic salary, bonus and benefits – providing a summary of the full value employees receive from their employer.

Job evaluation

Job evaluation is a systematic process for establishing the relative value or size of jobs within an organisation. To get the most robust view of pay, measuring the size of your jobs is crucial and job evaluation is the best way available to do this.

Pay structure – organised as pay scales / bands / grades / ranges

There are a lot of terms that describe broadly the same thing (although this may be a controversial statement amongst reward professionals). All the terms mean a hierarchy of levels that similar sized jobs are placed into, which are then used to manage the pay of employees in those jobs. There are lots of different types of pay structures including broad bands, job family structures and pay spines (to name a few) but that is for another blog.

Salary surveys / benchmarking data

Salary surveys are often carried out by sector and job type. These databases and reports offer access to salary data for specialist jobs in a wide range of sectors and regions – this accurate market data enables you to make informed decisions about pay that is benchmarked to the wider market.

Market rate

It is a myth to say that benchmarking is an exact science but market data does provide vital information to allow organisations to make evidence based decisions on setting pay. In our experience the market rate for a role is best viewed as a competitive market range, rather than a single point, giving organisation’s a tool to identify an appropriate position to take, keeping in mind other factors (e.g. internal pay parity).

Equal pay audit

Whilst organisations must comply with the Equal Pay Act 1970 which prohibits men and women from being treated differently in terms of pay and conditions, pay differentials may inadvertently exist between different demographics in the business. Equal Pay Audits identify whether your pay system discriminates in practice – supporting the wider movement of fair pay regardless of gender, ethnicity and age.