Managing pay and benefits


It may seem strange to have a page on 'managing pay' alongside a range of  management skills. But perceptions of how well people are paid can have a massive impact on their contribution at work. In the section on Motivation we describe how difficult it is for people to be motivated if they feel they are unfairly paid. Dealing with this perception is critical if you are to remove one of the potential sources of de-motivation and establish a level playing field where the individual can indeed be motivated at work.

All too often organisations and their managers fail to think about how their pay and benefits policies are perceived by the folks who work there, with potentially very damaging consequences. But with a bit of thought and care, it is possible to have a policy that is understood and respected by employees, even if you are not the best payers out there. So how do you start?

Pay and benefits meter

Creating a pay policy

If you explain to colleagues how you set pay levels in the context of the broader benefits of working within your organisation, then people are more likely to understand and accept the situation. But be careful -  this is not a cynical exercise in saving money at the expense of your colleagues and assumes that you are willing to create a workplace where other benefits are apparent in addition to basic pay. If your organisation is a lousy payer and there are no compensations, expect people to be dissatisfied.

As an example, I might be more than happy to work for somewhat lower levels of pay for the (fictitious) ABC company which works hard to provide flexible working conditions for its people. I am making a trade off - for basic pay which is at the lower end of what is normal I can take advantage of flexible working arrangements that suit my family circumstances.

Or I might be happy to work for the (fictitious) XYZ company for a relatively lower level of pay because I am attracted by XYZ's commitment to working on the development of its people. If XYZ provides a half day per week of coaching and skills development I might think that a more modest rate of pay is worth the price.

I am not advocating that organisations get creative around a pay policy in order to con colleagues and suppress pay. Far from it - and your policy may well go in the other direction. The XYZ company may have a policy that it aims to pay at 15% ahead of average pay in its sector, but in return it expects clearly superior levels of productivity from its people and flexibility around working hours when things get busy.

Similarly, the ABC company may state that it expects to pay around the average for its sector, but enhances earnings for all with a profit share scheme (more on that later).

So it is important that any organisation thinks carefully about its pay and benefits policy, and comes up with a clear set of statements that explain what people can expect by way of a total package of benefits. That organisation must of course then deliver what it promises. Now you might argue that there are organisations out there that are able to offer superior levels of pay and make working conditions and other benefits top class as well. That may be the case and we should not be surprised if they become the employer of choice for many!

But it is always possible for an organisation to come up with something that will help to set it apart and become a sought after place to work. Just remember that a pay policy is no good unless it's publicised within the organisation, and adhered to by its leaders. A policy that is not adhered to will quickly become a source of resentment.

Example pay policies

These are extracts from fictitious pay policies and additional elements may well be needed to satisfy other obligations. But hopefully they provide food for thought as to how organisations can choose to position themselves in the battle to attract and retain committed, hard working and talented people.

Extract 1:

"The XYZ company seeks to attract and retain motivated and capable people who work together in a spirit of mutual support and respect. It is this mutual support and respect that creates an environment where people can enjoy coming to work and it is therefore at the core of our values, and a key criteria against which an individual's performance will be assessed. We shall seek to pay at the median of companies undertaking similar work."

Extract 2:

"The XYZ company seeks to attract and retain the very best talent. As such, pay scales reflect performance in the job and show a considerable variation between the entry level and those who attain the top level for their position. Superior earnings are therefore possible."

Extract 3:

"The XYZ company seeks to pay a realistic but not excessive basic salary to all and to supplement this with a share in the profits generated. This enables all staff to participate in the success of the undertaking. This profit share means that staff will always receive 30% of the companies net profit after tax, distributed in proportion to the total salary bill."

Extract 4:

"As a young tech company with not much history but a bright future, the XYZ company is keen to attract talent that can see the possibilities for future success. To that end we may not be the best payers, but all staff will have the opportunity to participate in a share scheme that awards shares at no cost. Hopefully this will enable us all to become zillionaires at some point in the future!"

Extract 5:

"The XYZ company aims to pay a realistic salary whilst working with you to create a flexible working week that enables you to tie in your personal commitments with a fun and rewarding job."

Salary and payroll files

Copyright: <a href=''>vinnstock / 123RF Stock Photo</a>

Profit share schemes

We referred earlier to profit share schemes. Clearly these won't work in 'not for profit' organisations, but can be a fantastic aid to employee engagement and motivation if used correctly in businesses. We can only touch on them here, but few things say more about an enterprise's commitment to its people than giving them a share of the profits. I have seen how it changes attitudes - suddenly people are questioning the wisdom of spending money on projects or actions without a clear and obvious payback! There has been much debate about the value of management bonus schemes and whether they really work. I for one would encourage firms to consider their replacement with a profit share scheme that allows everyone to participate in the success of the undertaking. The other great thing about them is that, unlike many management bonus schemes, they are easy to measure and truly reflect the desired result.

Such schemes do not have to be complicated. At its simplest level, a scheme could distribute 'the pot' (an agreed percentage of the profits) according to salary earned in the period in question. So if when calculated the pot represents (say) 18% of the firms salary bill, then everyone gets 18% of their salary by way of their share.

Conclusions on pay and benefits

The process of thinking through your policy on pay and benefits and then getting it written down and out in the open can be a real eye opener. Most people in business are used to the idea of articulating a (hopefully!) compelling proposition for customers, but it's not nearly so common when it comes to your own people. And that's a real shame, because you are unlikely to succeed in delighting customers without a loyal and motivated group of people on the payroll.

So I would urge you to set about defining why someone would want to come and work for your organisation, and lining that up with a clear statement on pay. But you must then do what your policy says, otherwise you will quite rightly incur the anger and frustration of your people.