Managers understand the Value of Work to mean one of three things:
- How people are paid relative to similar jobs in competitor companies – The process of determining what the market pays to prevent employees from leaving for more pay
- How people are paid relative to colleagues internally – Ensuring equitable pay internally to promote teamwork and collaboration, or
- Total payroll and profitability – Managing compensation to not exceed budget and profitability targets.
All three need attention to avoid pay management from consuming an inordinate amount of time and budget, especially now, in a post-COVID inflationary world where neglect will destroy value.
The two ways to effectively manage pay are:
- Direct Market Comparison – when knowing competitive market pay levels is critical and internal equity is of little concern. Jobs are compared to similar positions in the market to determine competitive pay. Even the best market surveys will not cover every job as businesses differentiate from the competition, hybrid positions emerge that will not have market comparables.
- Job Evaluated Comparison – weights positions by the activities critical to achieving the company’s strategy. In other words a methodology for internally valuing and prioritizing work before comparing pay to the market. There are several proprietary methods and customized programs that work equally well.
Both enable the establishment of a work hierarchy relative to the size and importance of roles to the organization’s mission, with the most valuable positions paid the most and organized by levels. Pay ranges reflect the market value of the roles at each level with an individual’s pay subject to performance and position in the range, considerably improving the efficiency of pay management.
Line managers often perceive Job Evaluation as bureaucratic and an unnecessary step in getting to the heart of pay management i.e. the comparison with the market. JE can play a crucial role in reinforcing a company’s culture and the most critical aspects of its work and can be achieved quickly.
Neither work nor pay is static, and grade structures evolve to face changes in demand for skills or in their relative importance. A grade structure allows a company to integrate both market and internal equity considerations into pay decisions:
- Organizational values can be reinforced by inclusion in the evaluation criteria.
- Market pay comparison can be simplified through group benchmarking.
- Incentives, perks, benefits, and titles can be delineated by hierarchical level.
- Steps between levels denote a noticeable change in required competence, to enable visible, equitable career progression, and pay equity compliance.
- Budgeting becomes more accurate; and
- A common pay language will emerge to facilitate open communication.
Small organizations look at each individual position which becomes inefficient as employee numbers exceed 30, making process and grouping of jobs necessary.
A transparent pay structure will drive engagement and trust but it need not be open. Some organizations do not communicate grades or pay scales but manage pay equitably and capture administrative efficiencies.
The benefits of a well-managed pay structure on the cost of pay administration and employee engagement should not be underestimated. Now is the time to refresh and reevaluate those jobs that were modified to sustain the business during the COVID lockdown. Inequities and pay differences will be far more visible to employees who remain patiently waiting for these to be corrected.
Important skills need to be appropriately paid and performance and promotion consistently rewarded across the organization. This will contribute to lowering turnover at a time when labor is in short supply and increasing productivity.