One of the main considerations for employers when setting pay is aligning it to the market rate for the role in question.
This is largely driven by three factors: the skills and competencies required for the role; the degree of accountability and impact on the overall performance of the organisation; and the relative supply and demand for the role. Once a market rate of pay is established, organisations will then assess factors such as internal equity, relative value of a role to the organisation, and individual circumstances, such as a recruit’s pay levels at their prior employer.
Role type variations
Based on the above factors, rates of pay can vary significantly by level or by role type. There is general acceptance among employees that the above factors lead to pay levels that are perceived to be logical, if not always fair. However, pay is not always a rational issue and there are many emotional factors that can affect employee motivation.
There are further steps organisations can take to avoid motivational problems when large pay disparities exist. These include developing clearly articulated reward principles, which are fair, robust and communicated to all employees.
Transparency of the pay process is more important than transparency of the pay levels themselves.
Employers should adhere to the reward principles when making pay decisions, whether in developing an overall pay framework or making individual salary decisions. They should also ensure the pay framework provides for sufficient reward for stretched performance, whether through merit-based salary increases, individual performance-based bonuses, recognition schemes, and/or career progression.
A core set of benefits that does not vary by level or role type should be provided for employees, to establish a baseline level of provision and to reinforce the culture of an organisation. Employers should also establish early career training or rotational programmes, which enable high-potential employees to upskill to, or move into, other, more attractive roles.
Bethany Powell is a senior consultant in Towers Watson’s UK rewards practice