Pay

by Lua Leggett

Pay structures

There are several forms of pay structure available to any company, and these are discussed in this topic. If you are to deal effectively with queries or complaints from members of your team, you need to familiarise yourself with the structure used by your organisation and the ways in which individuals are assessed.

Broad banded structures and career/job family structures

In these types of pay structure, you are likely, as a line manager, to have some freedom and discretion in positioning staff in bands or family levels and adjusting their pay. This has to be managed in a fair and appropriate manner and you will have been trained in implementing this form of reward. You will require full information on how the structure affects individuals and it is your duty to ensure that you are clear on the details of the process. This is particularly important if your team members are dissatisfied and so the need has arisen for a review of how their grading has been established.

Typical structures are

  • Bands, such as salary bands £10,000 to £20,000; £20,001, £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.

Individual or contingent pay

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 as above.

This area is the one line managers have most control over and it is here that they also suffer the most grief with team members! Individual or contingent pay is the term used to describe a scheme for providing financial rewards that are related to individual performance, competency, contribution or skill.

It can come in the form of cash bonuses, consolidated pay increases, or a combination of the two.

Note

Many people see contingent pay as the best way to motivate people, but it is simplistic to assume that it is only extrinsic motivators, such as cash, that provide or encourage long-term motivation. This ignores the role and importance that non-financial rewards play as an integral part of a complete reward and motivation proposition. However, as this topic is devoted to pay and financial reward, we will concentrate on pay mechanisms.

When talking to your team about contingent reward, ensure you understand the difference between incentives and rewards.

Financial incentives

These are designed to provide direct motivation. They tell people how much money they will get, in the future, if they perform to a certain standard: ‘Do this and you will get that.’

Example

A shop floor productivity bonus or sales representative’s commission falls into this category.

Financial rewards

If you pay peanuts, you get monkeys.

James Goldsmith

Because they provide tangible means of recognising achievements, these act as indirect motivators (as long as people expect that what they do in the future will also produce something worthwhile). Rewards can be retrospective: ‘You have achieved this; therefore we will pay you that.’

Alternatively, they can be prospective: ‘We will pay you more now, because we believe you will produce high levels of performance in the future.’

Performance-related pay

Methods of operating and managing performance-related pay vary considerably, but its typical main feature is that pay increases are related to the achievement of agreed results, defined as targets or outcomes.

Agreed outcomes (targets)
    > Performance measures (what happened)
       > Formula (measures are converted to some kind of rating)
          > Performance pay

Consolidated pay

Scope can be provided for consolidated pay increases and progression within brackets attached to the grades or levels in a graded band, career or family structure, or zones, in a broad-banded structure. Because these are permanent increases and seldom, if ever, withdrawn, line managers need to think very carefully and operate on strong evidence of consistency and perception or belief that performance will indeed continue at the desired level.

Cash bonuses

Sometimes an alternative and sometimes an addition to pay increases, high levels of performance or special achievements may be rewarded by cash bonuses. These are not generally consolidated and have to be ‘re-earned’ in the future. As a line manager, you can use this type of payment as a reward for individuals who may have reached the top of their pay grade or have achieved full competence or qualifications.

Sorry – no pay rise!

In recent years, many line managers have found themselves obliged to tell staff there will be no pay rise this year. In such circumstances, it’s perhaps natural to ask yourself if there is any way you can sweeten the pill...

You can’t! Don’t even try. Be honest: provide the evidence that the company should have given you as to the rationale. Be sure that you are correct when you say it is universal; on the other hand, if one group has been selected in isolation, you need to be able to justify this.