How to ensure pay rises are fair, impartial and given for a reason
When it comes to managing an organisation’s annual pay review process – or promotions and pay increases – there are several questions that need to be asked.
• Why is pay managed the way it is?
• Why should pay progress?
• Should it progress based on performance? Length of service? Or development of skills?
More money just for still being around
There are challenges with length of service and performance-based pay. Making increases based on length of service – which is common among public sector and non-profit organisations – is problematic. It is giving people more money purely because they’re still around, regardless of whether they're actually contributing more.
This is a concern from both an equal pay and age discrimination perspective. It can lead to two people doing the same job, making the same contribution – but on different salaries, simply because one has been there longer.
With performance-based pay progression, there is still an element of service length. But, instead, it's based on how people perform. Research says that the perception of fairness is more important than what people are paid. So before anything gets linked to pay, it’s important to ensure the performance management process works and is trusted by colleagues.
The past doesn’t guarantee the future
This is a big challenge. Most HR leaders don't feel their performance management process is working.
Even if that the performance management process is working and trusted, it tends to use the last 12 months of performance to pay people for ongoing contribution, on the assumption that past performance translates into future performance.
But that's not always the case. Performance fluctuates. A much better way of rewarding people for performance is through variable pay.
A total contribution approach
To have equity and progression within a pay structure, total contribution should be looked at. This means input as well as output. Input is about the behaviours people demonstrate. It’s not just what people do in their jobs, but how they do it.
It’s important for the ‘how’ to align with an organisation’s values. The ‘what’ is defined by setting objectives. And ‘how’ is defined by specifying the behaviours expected from employees – so they deliver their objectives in the right way and support their colleagues.
A total contribution approach looks at both areas. This approach is recommended because while output can vary year to year, input and behaviours tend to be more consistent. If people show behaviours that reflect their organisational values and expectations, this is unlikely to change. But there are many factors that can impact performance, such as health, wellbeing and relationships with colleagues.
So, for people to progress, what input and output are expected from them? By having a set of definitions and guidance, leaders can make fair and consistent decisions, rather than relying on gut feeling.
In summary, to have fairness and equity requires having definitions and a consistent process that all leaders use consistently. While there might be an element of judgement, ultimately, it's about starting from the same framework to ensure even-handedness and impartiality around pay.
In partnership with 3R Strategy
Independent Pay & Reward Consultancy