A pay structure is built around a job level or career framework. Job levels demonstrate increasing complexity and responsibility in different roles.  

 This helps to define career progression for employees, as well as what an organisation is willing to pay for different jobs based on their level of responsibility and complexity.  

 The purpose of this is usually to find the right balance between internal equity and external competitiveness. 


How Does This Look in Practice? 


Let’s imagine you have several levels, each defined by a particular set of skills and competencies. Roles are evaluated according to their content—not just the job title—and placed into one of these levels based on the requirements of the job. 

 This creates a consistent way for us to categorise jobs within our organisations and helps us take a fair and consistent approach to pay. 


Internal Equity vs. External Competitiveness 


setting a pay structure - competition

If your organisation had a complete focus on internal equity, all jobs sitting within particular level would get paid exactly the same salary.  

 On the other hand, if you had a complete focus on external competitiveness, you would consider what the external market pays for all jobs at a certain level. For example, if the external market pays one role at level four £30,000, we’ll pay this job £30,000. And if the external market pays another role at level four £60,000, we’ll pay £60,000.  

 So, even though these roles sit within the same level, they get paid vastly different salaries.  

 Organisations will usually implement a pay structure to try and find a balance between these two outcomes. This creates a sense of fairness, but at the same time recognises that there are different pay rates for different skills in the job market.  


Challenges for the Insurance Sector 


The insurance industry needs to attract people from across a wide range of roles. This could include:

  • Call-centre sales teams 
  • Claims adjusters 
  • Underwriters  
  • Actuaries 

 Just to name a few…  

 This displays a large amount of diversity with some highly technical roles that are very difficult to recruit and train, versus some high-volume roles where the focus is all about the quantity of employees.  

 In sectors where there is so much variation, you typically find a greater focus on external competitiveness and less on internal equity. However, a standardised pay structure would offer such a broad pay range that it becomes almost meaningless to employees.  

 For example, a customer service role sitting at level four may have a salary of £30,000. Whereas, a highly technical, actuarial role at level four might offer a salary of £80,000.  

 A standard salary range that helps you to manage all of these roles could start at £25,000 and go all the way up to £90,000. From an employee’s perspective, this is meaningless because there’s no possibility of the customer service employee progressing from £30k to £90k in their current role.  

 Similarly, you should never pay anyone £30k for highly technical actuarial roles after they’ve spent years on training, qualifications and development. Nor would you ever be able to recruit at that salary.  

 The lower end of that pay range is irrelevant to your technical roles. The higher end of that range is irrelevant to your customer service roles. This communicates the wrong message to employees, making them think that they can progress to a salary that is not possible.  


What Is the Solution? 


Instead of trying to implement a standardised pay structure, we should have a range that is more reflective of the skills and specialities of people in those roles. 

 For example, a range of £30k to £50k may suit some functional areas. However, you may assign a level of £70k to £90k for other, more highly trained functional areas.  

 This provides a clear rationale for the way you pay employees of different skill levels and with more or less responsibility. You can demonstrate the alignment to the external market while providing realistic pay progression opportunities. 


Reward Communications 

reward comms

This process needs to be communicated clearly and honestly to employees. People will be looking for explanations about how and why there’s a different pay range for people who sit at the same level.  

 As pay can be quite an emotive topic, we need to ensure we are offering plenty of education and training for line managers on how to have these conversations with employees. 

 This will help you to avoid employees thinking that certain roles are valued more highly than others. Instead, we can give reasoning such as: “These skills are very difficult to recruit, and the external market data tells us that if these employees were to go and work elsewhere, these are the pay ranges that they would be looking for.”  

 Not only will this improve the trust and relationships you build with employees, but pay transparency is one of the best predictors of employee engagement. In fact, a PayScale survey found that employees’ job satisfaction increased from 40% to 82%, even when they were being paid less than the market rate, simply by having someone take the time to explain how pay decisions are made. 

 If you want to improve your internal communication processes or offer training for managers, then get in touch with our reward comms team today.