Over the past 18 months we have seen companies slash costs; reduce head counts and lower salaries. Some of the questions now being asked are:
- How do we limit further increases to our pay structure?
- Should we convert our Base Salary Pay Approach to a Total Cost to Company Approach?
- Should we operate two sets of salary scales, one for ‘new’ staff and one for ‘existing’ staff? How many salary scales should we have?
- How has the remuneration market changed over the past 18 months?
Boom Time Remuneration Practices
Back in the ‘boom times’ the remuneration marketplace was fragmented and represented multiple shades of remuneration. By this, I mean it consisted of different salary rates for jobs of equal size across different disciplines. For example, an experienced accountant and an experienced engineer are of the same job size yet earned very different salaries. In response to this, many organisations adopted a pay approach which included, either multiple salary scales for various job families and/or benchmarked individual job roles directly to their salary surveys.
Well, those days have ended. The remuneration market is equalising and the premiums that were offered for so many job families during the boom years are dissipating. Organisations are therefore ‘rebasing’ their fixed remuneration rates in order counteract the ‘hyper-remuneration-inflation’ of the boom years however, what market source should be used in order to do this?
Should I use be using salary surveys to determine the current market rates?
Salary surveys are a good reference point, yet it is important to note that this source contains salary data from people that have been employed over a period of up to 3 years and more. Many of these people were employed during better economic times when remuneration rates were at a premium as compared to today. This means that the salary survey data does not reflect current market realities. Simply stated, it represents a market for people that are ‘employed’, not the market rate for people who wish to be employed.
What do I use then to ‘rebase’ my remuneration rates?
A combination of various sources is required, including traditional salary surveys; and your own internal remuneration market i.e. your company, and current market ‘spot’ rates which BDO utilises for many of our clients.
Do you have a template that can be used to achieve this?
Unfortunately not. In order for this to work it needs to be specific to your organisation. The pay scales you use need to reflect the levels of work within your business and this will differ from one organisation to another. Each of the pay scales may have a range, dependent on your remuneration policy and ‘newly defined market’ rates.
Depending on the approach taken, the pay scale may represent a ‘single pay point’ or, it may have a minimum, maximum and targeted pay point, or a combination of both depending on the work level or type of role in the organisation. To be clear, the pay structure we talk of does not represent the salary range taken from a salary survey report!
Sounds very complicated!
It may, but remember that your organisation is different to every other organisation. By default this means that your pay structure is also unique. It even means that what may be inappropriate for some organisations may be right or even necessary for your organisation. Further, departures from conventional wisdom are possible and in some cases should be considered. For example, paying certain job categories and/or roles at the 25th percentile of the market when training and job familiarisation is low and then escalating this based on certain performance criteria or, eradicate the compound effect of full salary increases over multiple years by paying a portion of the increase by way of a variable payment.
In short, it needs to suit your organisation and to do this, a number of questions which include the following needs to be asked and answered:
- What is the purpose of having this structure? Is it only for managing pay, for career pathing or other purposes?
- Will the scales be structured on salary survey rates, ‘true’ market rates, internal 'market' rates or a combination of all?
- How will the pay scales be structured i.e. point based or range or combination?
- What resources do we have to administer the system?
- What are our budgetary constraints?
As previously mentioned, there is no boiler plate approach - the design needs to support your ‘wallet’ and business objectives.
Operating performance is a pressing concern being faced by many businesses. Companies have been and continue to manage their costs mainly by reducing staff, postponing or cancelling capital expenditure and/or by reviewing staff remuneration.
Many companies believe they have remuneration under control because they have followed ‘conventional wisdom’ or because their salary survey provider has informed them as such. Even if you believe your salary scales and approach to remuneration is effective, it may not actually be the case because there are always more efficient ways of managing capital be it living or not.
Your remuneration approach in these new times can be a simple shade of transparency and simplicity if handled correctly. Should you be considering your organisation approach to remuneration, please don’t hesitate to get in touch with me to talk through the issues I have raised in this article.