Pay can be tricky. If pay is not understood, or feels unfair, it will demotivate. Regardless of the amount! So, how do you take control and stop reacting to those who complain loudest?
1. Choose your stance – as a company, do you want to pay around the going market rate? Most do as base pay is a ‘hygiene factor’. To pay above market can be expensive but could be a great differentiator. Below market pay can be dangerous but other aspects such as generous benefits, or charitable cause, could make up for it.
2. Decide what ‘fair’ means – draw a triangle and label the three points: ‘market rate’, ‘internal consistency’ and ‘contribution/performance’. These three principles affect pay in different ways so you need to establish their relative importance. Draw an X inside the triangle to mark the position you want to achieve
3. Get the market data – you’ll need good data to make informed decisions. It’s not about talking to a few people, or reviewing a handful of adverts. The best source is often published surveys with large relevant samples. Don’t be too narrow with your definition of roles or competitors. Think about all the different roles you might recruit from, or lose them to.
4. Create a framework – convert the market data into an easy to use format. If internal consistency or performance are important, broad bands work best. If market rate is important, job families, market anchors or even spot rates are right. Aim to create as simple a framework as possible.
5. Sort out the anomalies – a clear framework means you are no longer at the mercy of the ‘pay complainer’. But chances are you still have anomalies to sort out. Even if you can’t address all of them right now, you’ll know what actions are needed.
6. Communicate – do this as transparently as you can. We don’t mean publishing individual salary rates (although a number of US organisations are choosing to do this already). It’s about sharing how pay is set, using the frameworks you’ve created, and explaining to individuals how it applies to them personally.
All this will be easier for some organisations than others. But one thing is for certain. The later you leave it to take control of pay in your organisation, the harder it will be to get right.