Setting salary expectations for private, public and third sector companies

What is a public sector organisation?

Put simply, a public sector organisation in the UK is a business that is owned, controlled, and funded by the UK government. An estimated five and a half million people work across government departments, schools, the NHS, libraries, local councils, the army, social care, transport workers, housing authorities, and the BBC, among many others.

What is the definition of a private sector organisation?

Private sector companies are just that – privately owned by individuals or groups of individuals. The private sector employs the largest proportion of the workforce – about 27 million people – and is truly the backbone of the UK economy

What is the third sector?

With just over two million employed, the third sector is a much smaller, though far from insignificant, part of the UK’s employment landscape. Interestingly, women make up 75 per cent of the third sector workforce, with over 50 per cent working as CEOs.

How does the definition affect pay structures for employees?

For the public sector funded by the government, the pay structure for employees is determined by a complex grading system that is connected to an individual’s ascent through the ranks rather than performance linked.

With defined career paths, those that work in the public sector can be assured of a slow but steady increase throughout their careers as they become more experienced and climb the ladders that are set in place by the hierarchical systems that are entrenched. In this respect, salary benchmarking is a relatively simple process, corresponding with pay grades across the board.

Any changes to the pay structure are a matter of national interest, which is why there is so much interest in the salary levels of those who work in the upper echelons of the BBC.

Getting paid in the private sector

Being self-funded, the private sector needs to set its own salary expectations within the boundaries of what it can afford. However, because this sector is subject to competition for the highest calibre of employees, it is essential to know and understand what the salary expectations are in relation to your market sector as a whole.

What is the definition of different private sector businesses?

The definition of a private sector business encompasses everything from a sole trader, partnerships, and limited liability companies, employing everything from one person (as a sole trader) to several thousand employees.

At its simplest, a private company is focused on bringing more money in than it spends. Once you have paid everyone’s salaries, the profit that is left over is then taxed according to whatever the tax rate is at the time, as set by the government. If not enough money is coming in, then ultimately, that business becomes unsustainable and shuts down.

It is for this reason that the calibre of employees is crucial to the overall success of the organisation, and why private companies need to have crucial knowledge about pay structures and benefits of competing companies so that they can attract and retain the best.

While third-sector organisations are described as ‘non-profits’, they still have a responsibility to bring in revenue for the cause they are targeting and ensure the correct and legal allocation of these funds.

Again, the higher the calibre of staff, the more likely they are to be bringing in much-needed funding, and so a private sector approach to pay structures is often adopted.