by Lua Leggett

In a nutshell

1. Fairness and equality

Organisations have a legal obligation to provide equal pay for equal work, free from any bias. If you become aware of any inequalities due to race, gender or other discriminatory practices, it is your duty to report this up the line to your own line manager, section head or human resources. The difficulty you may face as a line manager is when one of your team ‘perceives’ that s/he is being unfairly paid in comparison with a colleague whom they believe to be doing the same or a very similar job. Likely scenarios could be

  • The other colleague has been active in the role for longer and is evaluated by the business as more experienced or skilled or knowledgeable
  • The other colleague may have a better attendance record
  • The other colleague may have more qualifications
  • The other colleague may be achieving higher outputs, targets or goals.


2. Pay policies

Pay policies will encompass a broad range, from basic pay thresholds to specific policies relating to areas such as paternity or maternity leave, sickness and absence policies, holidays and sabbatical leave. Most, if not all, of these should be laid out in your employee handbook.

  • Being able to offer the appropriate level of pay is an integral element when recruiting (or retaining staff).
  • Find out from HR what the process is for establishing pay grades or bands in your organisation and be sure that you are comparing like for like on job titles or job evaluation criteria.


3. Pay structures

Typical structures are

  • Bands, such as salary bands £10,000 to £20,000; £20001, £30,000
  • Career, for example HR, Finance, IT, Sales and Operations likely to mirror your divisions or departments within the organisation
  • Family, for example Administrator, Supervisor and Manager within one department, such as HR.

Where there are no bands, careers or family structures, you may operate a purely individual pay basis. Conversely, there may be individual criteria wrapped inside a band structure.


4. Pay progression

The rate and limits of progression through pay brackets in a grade or pay structure are typically (though not exclusively) determined by performance ratings. They can be implemented at pay review time, during performance management reviews or at a specific organisation-wide date.

  • People can often progress quite quickly through the early stages of this structure.
  • It then becomes difficult for their line manager to explain why this slows down, so that individuals may get smaller increases when they are already performing well and at the top of their scale!
  • You may be able to offer other incentives, such as job swapping or outplacements, to broaden their experience, or one-off cash rewards.


5. Competency-related pay

People receive financial rewards in the shape of increases in their base pay, related to the level of competency they demonstrate in carrying out their roles. As in the case of performance-related pay, scope is provided for consolidated pay progression within pay brackets attached to grades or levels in a narrow-graded or career/family structure, or zones in a broad-banded structure.

  • It is attractive, in theory, because it can be part of an integrated competency-based approach to human resource management.
  • Paying for competence focuses the organisation forwards, not backwards.
  • But it can look suspiciously like performance-related pay and generic competencies are hard to measure and are not necessarily related to successful task performance.


6. Contribution-related pay

Pay decisions are related to assessments of both outcomes of the work carried out by individuals and also inputs, in terms of the personal levels of competence that have influenced these outcomes. There are several basic approaches to deciding contribution awards:

  1. Pay awards are governed by assessments of performance and competency; the amount is determined by a pay matrix and is somewhat mechanistic
  2. Separate consolidated increases and bonuses - output is the only factor that governs cash bonuses, but competency is the major component in determining base pay
  3. Consolidated increases are related to competence up to a reference point and then cash bonuses are paid for exceptional performance
  4. Rewards as either consolidated increases or bonuses - performers can earn a mix of base pay increase and bonus, which varies according to their position in the pay range.


7. Other forms of pay

There are a few other forms of pay which are more specific to some organisations than others.

  • Skill-based pay provides employees with a direct link between their pay progression and the skills they have acquired and can use effectively.
  • Service-related pay provides fixed increments that are usually paid annually to people on the basis of continued service, either in a job or a grade in a pay spine structure.


8. Handling pay conversations with your people

In all cases, take a methodical and prepared approach to get the best out of the discussion. Agree to set a time and an appropriate private environment aside specifically to discuss pay.

  • Never be persuaded into discussing pay off the cuff, ‘in a corridor’ or without the proper preparation.
  • Make sure you know all the following details: the current pay status of the individual; how this compares with others on same pay grade/role; the headroom within the pay scale or band; their job description and any competencies required, and the progression criteria.
  • Arrange a meeting to discuss the issue.
  • At the first meeting, listen to them and share the information you have acquired.
  • Arrange a follow-up meeting at which to give feedback and tell them your decision.


9. Pay transparency

Pay transparency means that every employee should understand the rationale of their company’s overall pay and compensation, how they themselves fit into the scheme and how their pay stacks up relative to other options.

  • Some companies will publish their pay scales and the criteria for progression openly on intranet sites, websites, forum discussions or within the public domain. Others will hold this information closely within the senior management and HR departments.
  • The best response to pay transparency is to adhere to your organisation’s cultural message and ensure that your own team understands the rationale behind growth, progression and performance-led reward.