– Written by Juan Novoa, Director of Consulting

I was recently invited to speak at a webinar about the challenges and options to mitigate the impact of recent National Living Wage increases. This made me think of several conversations with clients and colleagues over the last year or so about the increasing pressure National and Real Living Wage increases are putting on budgets and pay structures. These are the main points that keep coming up.


The Challenges

Affordability

Beyond the obvious pressure this puts on pay budgets, there’s a wider point around how to prioritise investment in pay. After all, there’s just so much money available to fund pay increases. This means that in some cases, organisations will have to divert funds for pay increases for some employee groups in order to meet these requirements. The question is, how to decide where to take the money from?

Motivational Impact

Next, it’s the motivational impact on the layer of employees just above those who receive living wage adjustments. We’ve heard clients facing questions of “Why should I bother with more responsibility if pay is almost the same?. There’s also a question about the optics of some employees receiving disproportionally high percentage pay increases when compared to other employees. We need answers to these questions.

Pay Compression

Finally, there’s a point of pay compressionand impact on pay structures. Many organisations have already seen pay ranges for some of their more junior grades fully overlap with the next grade(s) up. What does this mean for organisations and what (if anything) can/should organisations do about it?


Potential Solutions

Differentials

At a tactical level, some organisations have introduced fixed or relative differentials (e.g. an extra 50p or 10% of the living wage rate) for roles with direct reports on living wage. Others have explored enhancements to or the introduction of incentives, benefits, recognition and/or development options for that particular layer of employees.

Structural Changes

In terms of more structural changes, there is the option of redesigning supervisory/team leader jobs to increase their impact and level of pay. Reviewing or introducing pay progression mechanisms to make higher levels of pay more attainable can also help.

In terms of pay structures themselves, we will have to accept having more jobs in fewer pay ranges at the more junior levels (not grades, as these are still relevant for equal pay and other purposes). WE need greater focus on which aspects of the employee value proposition can help us keep staff engaged – and consider the options presented in this article.

Pay Transparency

More generally, we need to make sure we’re having the right conversations about this. Context and transparency on how and why we are making these decisions will make a big difference to employee buy-in. Some employees may not like the outcomes, but if we have the right conversations, we give ourselves a better chance at protecting perceptions of fairness and trust in our approach to managing reward.

There’s no easy answer here. But how we manage these issues can determine whether we protect engagement and fairness in the face of challenging decisions; or face the gradual erosion of trust and transparency. Either way, the result will impact motivation and, ultimately, organisational performance.

Contact me at juan@3r-strategy.com if you would like to talk about any aspect of this article or how to ensure your organisation can be an engaging place to work through a fair and equitable approach to pay and reward.