As pundits and analysts continue to predict the state of the economy Croner provides practical advice on how to make pay and benefits add up for your business
Pay and Benefits: review, refine and results
It is more critical today than ever before for organisations to have a well-communicated, benchmarked and transparent pay and benefits package. As the economic outlook shows no significant signs of change, we are settling into a ‘business as usual’ situation. At the same time, the job market is opening up and people are on the move. A recent survey by Croner identified that of those currently seeking to change jobs, two thirds were confident or very confident that they would find another job. So, with funds still tight, but a more competitive market for top talent emerging, it’s time to review and refine your pay and benefits.
We recognise that you need to do more with less. So, we’ve outlined the 3 R’s of pay and benefits to help you to identify what’s needed to make your packages add up.
Review – are you comparing apples with apples?
In the last few years, belts have tightened, as a result pay and benefits’ packages have changed. Organisations have had to become more innovative in introducing low cost, high value mechanisms to retain talent. Yet, when was the last time you carried out a benchmarking exercise? For some the answer may be never, but it’s critical to help you to attract and retain talent.
In highly unionised environments and charities, who need to justify their pay levels to donors and trustees, independent benchmarking is widely practised and critical for success. However, companies large and small can benefit from benchmarking.
Benchmarking really important for small companies
In small companies where everyone is key to success, and often perform several roles, losing somebody can create a gap which is hard to fill. As companies grow and reach 20 to 30 employees, you may have several employees doing the same role, but potentially on very different pay and benefits packages. This is not good, and can become messy, but benchmarking will help you to put a sensible pay structure in place to support on-going growth.
Identify if you are overpaying or underpaying
For large companies where salaries are often the largest expenditure (particularly in service-led businesses), keeping an eye on the market can pay big dividends. Benchmarking the local labour market and competitors will help you identify if you are overpaying or underpaying and could save you from continual re-recruiting. It also provides you with an informed view of whether you are where you want to be on the market pay range in order to attract the right calibre of employee.
What is best practice for pay and benefits benchmarking?
Ideally benchmarking should be carried out extensively every 3 – 4 years and then reviewed annually, although ultimately this is driven by the nature and competiveness of your market. With the reward pot tight in many organisations you may wonder ‘what’s the point in benchmarking?’ Yet it’s critical to enable you to recognise and then communicate the value of your package.
Refine – time to get innovative, particularly with benefits
Once you’ve identified your position in relation to your competitors, you can then refine your benefits. You may not be able to provide the pay increases you would like to or that your employees deserve, but there are things that can improve the value of what you offer your staff.
Benefits, such as gym membership, company discounts, health care schemes and pensions are an important part of the overall package. Now is the time to look at renegotiating deals with the benefit suppliers, which could save you money while retaining value.
It’s not just about the money
Some may consider benchmarking as salary comparison, but it’s not all about the money. You need to calculate and communicate the total value of the package. Providing a ‘total rewards statement’ that covers pay, performance-related bonuses and benefits will help your employees to recognise their true value. On the other hand, don’t ignore the fact that there are potentially some softer job -related elements that could have more value to individuals, for example flexi-time or allowing employees to work from home.
Organisations now need to think about lifestyle packages that deliver benefits geared to individual needs and therefore add more value. There are clearly quite significant differences between the benefits valued by different age groups: in general terms, younger generations may value gym membership and training, money is likely to be of more interest to slightly older people perhaps with family responsibilities, and for the 45-54 age group there may be a preference for flexible working and CSR initiatives.
Results – by sharing rewards
Taking a fresh look at base pay, variable pay, and exploring opportunities for one-off or results-based bonuses will help you manage costs and retain talented staff. The introduction of performance-related schemes (for individuals and the company) can add much value to the overall package and set you apart from your competition. Negotiating better benefits can leave that bit extra in the reward’s pot. Although not enough for pay increases, it could fund a one-off annual bonus. A lump sum payment could be of more use to employees and strengthen their loyalty to you.
Commission and company bonus schemes for senior executives and high performers, such as those in sales, have not really changed. Yet we have seen a fall in pay freezes, often a result of poor company performance, which has dropped from 25% in 2010 to 17% in 2012.
This direct correlation between company performance and pay however has resulted in employees taking a much greater interest in how the business is performing. Moving forward, directly linking performance to pay is a very clear way of encouraging the right outcomes.
And finally…
Many in HR dread the annual pay review, but defining and refining your packages and understanding their true value could help you to approach this with a new found confidence. Communicating your ‘total pay and benefit’s package value’ is increasingly important. However, benchmarking is the only way to establish where your package sits in the marketplace. Refining your packages can ensure you retain and attract the right talent and sharing rewards – not just for top performers – but for all, is important.
