Setting pay without a remuneration policy in place can lead to inconsistent application and subsequent revisiting of pay levels on a ‘squeaky wheel’ basis, which can be costly and time-consuming, writes Don Young.
Having a stated remuneration policy in place allows an organisation to articulate clearly how it goes about setting pay.
It demonstrates that the business puts thought and consideration into how it remunerates employees, taking into account the organisation’s philosophy and values alongside what’s affordable and sustainable.
Not only does a remuneration policy provide a solid foundation when it comes to rewarding new and existing employees, it provides staff with reassurance around aspects of pay determination that staff look for, like fairness and equity.
A policy provides a common starting point and represents the philosophy of the organisation.
In designing a pay policy, organisations articulate what they want to achieve and link it to wider business strategy. It means there is a theoretical and systematic approach applied across the business.
Setting pay without a policy can lead to inconsistent application and subsequent revisiting of pay levels on a ‘squeaky wheel’ basis, which can be costly and time-consuming.
Even where organisations believe that they do apply some form of considered approach, without a policy which underpins how pay is set, any level of consistency may be achieved by good fortune rather than design.
Operating without a well-designed pay strategy is leaving a lot to chance. A lack of direction may mean organisations lose good people, miss out on opportunities to improve employer-employee relationships or spend more money than they need to.
Wage bills and recruitment/training costs typically form a significant part of business costs and having a remuneration policy promotes consistent and efficient use of that investment.
1) Employee satisfaction and acceptance: Organisations often find that when they clarify how they go about setting pay, their employee survey scores improve. Even if people feel they themselves could be paid more, they do recognise that the organisation has a fair process of rewarding staff. Typically, employees have some idea as to what other companies pay too. A detailed remuneration policy shows that the organisation has consulted industry data and benchmarked appropriately, debunking theories of unfair pay that often arise through lack of understanding. While a policy still doesn’t necessarily mean that pay may be a high motivator for employee productivity or achievement, it does ensure it is not a demotivating feature.
2) Affordability, sustainability, consistency: Remuneration is often an organisation’s largest expense. If the same amount of money is spent on other areas, such as marketing, it is subject to vigorous scrutiny and the company would likely be looking for ways to get the best value for their investment. Designing a consistent policy not only promotes best use of the wage bill, it also looks at the long-term sustainability of current levels of pay. Every time the company employs a new person, or creates a role, the appropriate level of pay within that company’s context, and the market, is a solid starting point around which negotiations with applicants and/or managers can take place.
3) Strategic alignment: Taking the time to think carefully about how the organisation remunerates staff provides an opportunity to ensure the behaviours it encourages align with current business objectives. In a cycle of sustained growth, the remuneration strategy should reflect what the business values and is prepared to reward. When improving quality is the goal, the organisation may choose to reward employees for being innovative or providing solutions. People are the highest contributors and strongest determinants of a business’s success. By bringing strategy and pay together, businesses ensure they reward the actions and behaviours they need to achieve their current goals.
Creating and sharing a detailed policy also allows an organisation to ensure they align with their more people-focused strategic objectives. Often, companies have a mission statement about how they value their people – a policy proves that the company stands by their words.
Don Young is a senior consultant at Strategic Pay.