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Tight pay budgets - doing nothing is not an option!

Economic and legal environment | Employee Experience | Engagement | EVP | Reward

Posted on: Monday May 17, 2021

A common theme in our recent work is the experience of tight (or non-existent) pay budgets. This is followed by a sense of hopelessness when it comes to managing pay, as the UK economy is likely to take some time to recover from the pandemic. Time and time again we have helped organisations rethink their approach to reward and realise something can be done. We have opened opportunities to address employee concerns with reward, even if tight pay budgets are in place. All this points to having a more positive impact on the employee experience from a small (or even cost neutral) investment in pay. These are 3 key lessons that we have learned in the process.

1. Keep it fair

Our experience shows that employees can and do understand that at times the ability of an organisation to invest in pay can be restricted. While not ideal, this is not the key issue to address. The issue that has the largest impact on engagement is the perceived lack of transparency and fairness in pay decisions. However, this issue tends to be overlooked. Organisations make the mistake of thinking that because there is little room for investment in pay, nothing can be done. Consequently they do nothing, focusing excessively on processes, instead of the potential opportunities for change. Or even worse, they take ad-hoc decisions which distort internal equity, resulting in disengagement. If clear guidelines are in place to manage pay decisions, understood by employees and consistently applied, organisations can go a long way to enhance the perception of fairness in pay. Provided that these guidelines set out clear principles for prioritising investment in pay as/when budgets increase in future. They also must be flexible enough to support pay decisions now and in future, when pay restrictions pay are lifted.

2. Think of the messages

It should not come as a surprise that, under strong restrictions in pay, on face value the material effect of any changes that are made is barely noticeable. But, again, this should not be taken as an excuse to bury reward heads in the sand. We have observed that the messages that pay principles and structures send have a powerful effect on perceptions of pay. The very act of doing something different signals a desire to improve things, which is welcomed among employees. Also, change is an opportunity to take pay decisions out of the ‘black box’. This builds greater understanding of reward among employees, increasing trust in the pay system. Finally, by describing how investment in pay is going to be allocated, employees can see that, as restrictions are eased, the material impact of any changes will be more relevant to them.

3. There is more to it than just pay

There is a silver lining from the squeeze on pay budgets. It has forced organisations to explore, understand and improve their Employee Value Proposition – and how it is communicated. In several projects we have found that approaching reward issues in the broader context of the Employee Value Proposition relieves pressure on pay. This can lead to more comprehensive and sustainable solutions that make a lasting difference on employee engagement. By uncovering what it is that employees truly value from working with the organisation, the scope for action becomes wider. In some cases this can even open up opportunities that are less sensitive to budget pressures. That is why as part of any pay structure project, or broader reward interventions, we strongly recommend taking the time to explore issues and opportunities beyond the realm of pay levels themselves. As one of my business school professors used to say: “When you can’t do what you must do, you must do what you can do.” And there is a lot that you can do. Get in touch to see how we can help you get more from your investment in reward.


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