Using our heads to solve your Reward challenges.
Annual pay reviews are highly resource hungry, frequently painful, and often dreaded by most people involved in the process. So why is this, and what does a successful pay review look like?
Reward Heads' Consulting Manager, Jo Cole has some advice:
How to have an effective pay review
A pay review is an essential activity on the reward calendar with a number of purposes. Reward spend is typically the biggest cost for most organisations and base pay is the biggest portion of the overall reward spend so it is essential this cost is utilised in a way that ensures you can attract the best people, retain them once they are here and maximise that spend.
It is an opportunity to review your overall pay positioning utilising internal and external factors, to make sure you retain market competitiveness and that you reward colleagues in a fair and equitable way. There is no one size fits all to setting and deciding how to distribute your pay budget but there are some key actions you can take that will help identify how to make the best of the budget for your business. Once Reward work though agreeing the pay budget and principles of spending that money, the business needs to overlay the people context. Line Managers have a pivotal role in delivering an effective pay review and will be able to take the central guidance and apply the valuable insight on evaluating employee performance and context for their individual team members.
Getting it right - the principles
Before embarking on the annual pay review process, comes the budget process where you need to use internal and external factors to determine the budget required for pay review. This work involves a great deal of data from a huge variety of sources, pulled together into something that will tell the story of where you are and what you are wanting to achieve for the next pay award.
Once you have your pay budget determined you might choose to apply this as a flat uplift or you might differentiate pay by individual performance or market positioning, in either scenario you will also need to understand any differential work required as a result of increasing NMW/NLW. A high number of modelling scenarios is often undertaken once you have the budget to best determine how you can focus that spend. Your reward principles will detail how pay is set and increased, what elements of Total Reward are included in the pay review, ensure decisions are fair and how you proactively identify and address any inequities in pay. Equal Pay reviews and Gender Pay Gap Reporting are not activities that should solely happen at pay review time but this serves as a good opportunity to review and address any issues at this time.
"Having a full picture around the market and internal insight can make sure pay awards are focused in the right areas, which in turn has a positive impact on retention issues, out of cycle pay requests, equal pay and colleague engagement."
Getting it right - the process
Once you have defined the budget and know the principles in how you will apply the pay review, the hard work of making it happens gets underway. There is often a very small window of time between the budget signoff and the payroll cut off for applying the pay awards. A successful process starts with a detailed project plan and engagement with all stakeholders before beginning, to ensure everyone understands their responsibility and criticality of keeping to the timeframes. Pay review processes often involve multiple people across multiple teams and line managers/leaders, who often have other competing priorities at the same time of year.
"I have not yet been part of a pay review where the washup didn't include the mention: 'timescales were too tight."
Whether your process is managed in a complex matrix of excel spreadsheets or an online tool, the data is always the part that can cause the biggest headache and therefore never underestimate the benefit of investing sufficient time by the business or relevant HR team to ensure all data is accurate and any exceptions or anomalies are captured.
Once all decisions are collated and approved and sent to Payroll (with any queries resolved, of course!), comes communication to colleagues. Again this is an area that often has a peak of workload and also where technology can certainly help. The key here is ensuring the line managers have what they need to be able to have a conversation around performance and reward with the colleague, and the physical communication is confirmation of that conversation. Timing is again a challenge with the ideal being all conversations are had before the confirmation letter or payslip lands with a colleague.
"One consistent theme that has run through the businesses where I have supported on pay reviews is a great team effort across all the relevant departments, and stakeholders are all fully engaged in the process and aware of their own accountabilities and a joint desire to ensure the colleague is the recipient of a 'right first time' experience."
Summary
In summary, the challenge is making sure you have enough insight to make conscious decisions about pay budgets and how to apply that to individuals, some key areas to use are the external insight around market pay movements, inflation, benchmark data, NMW/NLW, the Living Wage as well as internal insight around affordability, employee retention, internal relativities, performance, talent, positioning against benchmarks.
The process to make it happen is often achieved with a huge team effort across multiple departments and technology can certainly help with the burden but does still require the base data to be accurate otherwise the benefit of the technology is lost.
Here is our 5-point plan:
You are not alone…
How can Reward Heads help? We have a team full of Reward experts, people who have completed many, many pay reviews at a variety of companies and there are number of ways in which we can support you in relation to pay reviews:
If you would like to talk about how we can support you, please email rewardsolutions@rewardheads.co.uk or contact any of our team.
We also run a number of regular reward forums for differing sectors, particularly Retail and Hospitality and Charity/3rd Sector which are a rich source of insight into the current challenges businesses are facing and sharing best practice in a supportive environment. If you would like to join us, please email victoria@rewardheads.co.uk (it's free to attend)..
Jo Cole - Consulting Manager