What a difference a d?a?y? pay policy makes

When working with clients we have often found, to our surprise, that a number don’t have a defined pay policy. In a world where employees seek and expect pay transparency, even if it is not legislated, this is a key way to share the approach and application of pay and wider Reward. A pay policy is a great way to pull together all the elements of pay and define who is involved and their authority level in setting and changing pay. It can define the pay principles that will underpin all pay decisions when hiring, promoting or reviewing at annual pay reviews. This is a great tool to demonstrate how Reward links to the business goals and People strategy.

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Opportunity

Reward Heads consultants often cover vacancies in a Reward team as an embedded resource, to ensure critical activities happen and get everything ready to ensure new hires in Reward can hit the ground running. If there is no documented pay policy, it can be tricky to identify organisational practices in relation to hiring and benchmarking roles. More recent assignments have seen us covering a variety of projects which centre around pay, from job evaluation and benchmarking to covering cyclical pay review processes where principles about pay are key to decision making.

Having a pay policy not only means you have the opportunity to ensure compliance with pay-related regulations and mitigate risks linked to these, but also to set out the policy around benchmarking sources and pay positioning, and detail how and when this is reviewed to help create a competitive position for setting and maintaining pay for employees.

Whether or not your organisation is specifically covered under the new EU Pay Transparency Directive or regulations in other countries, the likelihood is pay transparency is coming in some form in the not-to-distant future. A well-developed pay policy is a great tool to help you on that journey.

Practical steps

A well-written pay policy can take time to agree and implement, but should provide a clearly documented approach to how pay is set, changed and by whom during the employee lifecycle. A clear policy on external benchmarking sources and frequency of review along with reviews to ensure internal equity and compliance against relevant employment laws and regulations (such as Equality Act and National Minimum Wage) can help with recruitment and retention of staff and any perceived views on fairness and equity.

The policy should be reviewed regularly; as a minimum an annual review of Reward practices and decisions should take place. This is to ensure the policy is reflective of current business requirements, measure the success of the Reward policy, ensure continued compliance, and review key Reward outcomes against the policy.

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Promise

Clear and well-documented Reward processes and policies are essential for organisations to effectively manage their workforce. They can mitigate risks associated with Reward management, show a clear and transparent approach to all Reward decisions, and provide a yard stick to measure success against. By establishing a robust Reward governance framework and implementing relevant Reward policies, organisations can ensure fair compensation practices, foster a culture of transparency, drive employee engagement and retention, as well as make the Reward decision-making process more effective and transparent.

Without a robust policy, the risks are myriad. These can be legislative and regulatory like NMW name-and-shame to Equal Pay claims, a breach of internal policies and principles and attendant claims, poor engagement, a poor offering which impacts recruitment and retention, and even risks around process and efficiency with Reward team impact reduced to dealing with BAU and issues rather than proactive initiatives.

When developing a pay policy, organisations should consider the following key elements:

1. Transparency: Clearly communicate the pay structure, including base salaries, bonuses, benefits, and incentives, to employees. Transparency can build trust and ensures employees understand how their pay is determined.
2. Internal Equity: Ensure that pay is fair and equitable within the organization by conducting regular compensation reviews and benchmarking against relevant external sources.
3. External Competitiveness: Stay up-to-date with market trends and competitor pay levels to remain competitive in attracting and retaining employees.
4. Performance-Based Pay: Linking pay with performance motivates employees to excel in their roles. Establish clear criteria for performance evaluations and tie rewards to achievement of goals. The definition of performance may not be purely about KPIs – this can be about acquiring the skills to make better decisions, be more expert, or be more productive.
5. Compliance: Remain compliant with relevant employment laws and regulations, such as the Equality Act and National Minimum Wage regulations, to avoid legal issues.

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Aside from the pay policy, creating a robust Reward governance framework will allow you to identify and mitigate the risks associated with Reward management. Reward governance involves establishing clear processes, policies, and oversight mechanisms to ensure that rewards are aligned with organisational goals and values. It also helps identify and address potential issues before they escalate.

Some Reward risks associated with the lack of governance include:

1. Inequitable Pay Practices: Without proper governance there is a risk of bias in determining pay, leading to potential legal challenges that can appear when decision-making is not well documented.
2. Cost Inefficiency: Lack of oversight can result in excessive or inconsistent rewards being made, leading to increased costs for the organisation in terms of out of cycle pay at the point of hiring, promotions, or counter offers. Having a clearly documented approach on who can and how they can change pay will make decision making more efficient and avoid any unnecessary delays in the hiring and promotion process.
3. Low Employee Engagement and Retention: Inadequate Reward governance can result in demotivated employees who feel undervalued, leading to higher turnover rates and reduced productivity.

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How can Reward Heads help

We hope we have given you lots of food for thought. We know that this is a complex and critical area and so have developed tools and expertise to help.

We can work with you to identify the key Reward risk areas as well as an audit of any Reward policies and principles that are in place already, ensuring that you can identify and prioritise the key actions on your journey to having clear and well-documented Reward processes and policies as part of a Reward Governance framework and pay policy. ?

There are a number of ways that we can do this, from facilitating a conversation to help you identify your own risks through to a thorough audit for you. Please get in touch with our CEO Victoria Milford on [email protected] or your regular contact at Reward Heads