While money is not the sole driver of the workforce, it is a key factor for most. Therefore, the more employees feel they are being fairly compensated, the higher chance there will be of them remaining with the business long term. To ensure this, employers must develop a pay strategy that is competitive, attractive and fair to new and existing employees.
The UK workforce is currently experiencing a period of severe disruption, as the cost-of-living crisis continues to impact businesses and employees alike. The need for higher salaries to combat soaring costs has fuelled arise in professionals entering the jobs market in search of a new role.
With this in mind, a pay strategy that is right for your business is key to attracting new talent, while it also helps to keep existing employees happy and engaged without putting the company’s finances at risk.
What is a pay strategy and what is its purpose?
A pay strategy, often referred to as a compensation strategy, is the approach behind compensating employees in terms of pay and benefits, often reflecting an organisation’s culture, ethos and environment.
A strong pay strategy is often required in order to attract and retain professionals who have the suitable knowledge, skills and experience that the organisation desires – without it, it’s much harder to compete against other companies vying for the same talent. That said, creating effective pay strategies can be somewhat overwhelming for many small and medium-sized businesses.
Depending on a company’s ambitions, pay strategies may be used to achieve one or multiple objectives, such as reducing turnover or increasing morale across the workforce.
What to include in a pay strategy
Pay strategies are unique to every organisation and are often guided by a company’s decision to match or lead the market. While leading the market, which involves offering higher salaries, does lend itself to attracting the best talent, it can only be achieved if an organisation has the necessary financial resources available.
Most companies choose to offer competitive pay, while increasing other areas of compensation which may not directly affect financial constraints. The main areas to consider when putting together a comprehensive pay strategy are:
Every pay strategy should address an employee’s basic salary, while explaining how it’s calculated – taking into account economic and industry trends, alongside the current market value of the role. Alongside a fixed rate of pay, employers are encouraged to look into salary increments that increase with years of service, as well as pay rises that can be offered at certain intervals.
Strategies should also address any additional, performance-based or, if appropriate, overtime compensation. To make sure employees fully understand, bosses should outline how bonuses or commissions are structured within the company and who is entitled to them. For overtime pay, make it clear how it works and what an employee must do to receive it. If overtime pay isn’t viable, this may be a good opportunity to mention flexi working, time off in lieu or other terms.
Benefits make up an integral part of any compensation strategy and should be outlined for all employees, including any eligibility criteria attached, such as when they can access them. Employers need to determine the types of benefits most valuable for their employees, with the likes of health insurance, paid sabbaticals and pension schemes highly sought after.
After developing the initial plan, it’s good practice to check any salary figures against the current market to make sure they’re competitive and fair. Utilising data – such as our 2023 salary guides – can help employers benchmark salaries for a variety of roles across multiple sectors. Our salary guide information can be used to help develop salary ranges to keep pay competitive, while remaining within budget.
It's also worth making sure any salary research looks beyond your chosen industry to others where desired talent may work. For example, a digital marketer can find a job in most industries as digitalisation moves forward, and some employers in certain areas may be able to pay more for their services. To attract marketers, employers need to consider the alternative options available – from direct competitors – to ensure the entire pay strategy is attractive.
For more information on salary benchmarking, download our 2023 salary guides here.
Open clear channels of communication
One of the most important aspects of developing any pay strategy is making sure it’s successfully communicated. Keeping communication channels open between employees and line managers about financial challenges helps to ease discussions around monetary concerns.
With inflation rates causing many employees to seriously consider their future, employers need to remain open and transparent when it comes to pay. Despite the added pressure on employers to support staff with living costs, the solution needs to be balanced with protecting future jobs and finances. Alongside useful additions like pay reviews, a fully comprehensive benefits package, which could include education and wellbeing tools around finance, can make a huge difference for both the business and its staff.
Think long term
Employers need to consider whether long-term incentives may assist in staff retention and performance. For employees who have been earning the same amount throughout their time with a company, long-term incentive plans (LTIP), typically of three-to-five years with the full reward given at the plan’s maturity, could be the catalyst that motivates and encourages them to remain in post and increase their productivity.
Share plans and retirement plans, added time off and long-term cash units are a few incentives to consider, which can be implemented at certain career milestones.
A yearly review of all pay strategies is also crucial, to make sure any offerings are appropriate and relevant to the employees. For those industries that change more frequently, such as technology and finance, business leaders should consider more frequent reviews to ensure they remain competitive and appealing.
Developing an effective pay strategy can be a challenging and time-consuming process but with careful planning, businesses will go on to secure their position in an increasingly competitive market.
If you’re looking to create an effective pay strategy that’s relevant to your business practice, reach out to one of our specialist consultants today or download our 2023 salary guides to learn more about salary benchmarking.