Pay is an incredibly important part of anyone’s career. When we are applying for jobs, it’s the first thing we notice on an advert, and it’s one of the key drivers in attracting people to an organisation. But the fact is, once we’re secure in the role, pay becomes less of a motivating factor. In fact, it can become hugely demotivating if managed incorrectly.
Research tells us that the perception of fairness is more important than what we pay people. The way we manage pay progression in our organisation should be perceived as fair to avoid demotivating our employees.
Often, organisations have a way of deciding salaries for new starters or people who get promoted. This may be by carrying out a formal benchmarking exercise, speaking to recruitment companies or looking at online data. However, the struggle tends to come when figuring out how progression takes place over time.
Limitations of Length of Service
A common way of determining pay progression is to base it on a person’s length of service. Essentially, the longer a person has been in a role, the higher the salary. However, this can be a problematic method for several reasons.
Assumptions:
Length of service based progression assumes that an employee’s value to the organisation increases over time. But this isn’t always the case. Imagine an employee who is showing no signs of improvement or development. They could still end up on a higher salary than someone who is contributing more to the organisation. How? Simply because they’ve worked at that organisation for longer.
Inequity and Discrimination:
Employees who are doing the same role may end up being paid very different salaries based on their length of service with the organisation. Depending on the broadness of the pay bands, there could be tens of thousands of pounds difference between two people doing exactly the same role.
This creates an equal pay concern and can also result in age discrimination.
New Hires:
This method of pay progression can also put new hires at a disadvantage.
Let’s assume that everyone does contribute more and performs better over time. Somebody could have three years of experience in a role at another organisation. However, when they join us, they join at the bottom of the pay band.
This means they’re lagging behind the people who also have three years of experience, but they happen to have been with our organisation for the duration. This means we are not taking into account somebody who may have experience in the same role at other organisations.
Negative Impact
If employees perceive a lack of fairness in their pay progression, it can have negative effects on their motivation and emotional wellbeing within the workplace.
The feeling of inequity can lead to resentment and demotivation. This is particularly an issue for high performers. Witnessing colleagues who underperform, or contribute less, receive considerably higher salaries due to their length of service can be demoralising.
3R Strategy Recommends
We will always encourage organisations to take a total contribution approach to pay progression. This looks at both the input and output of an individual.
An employee’s output includes how they are performing in the role, but it also considers how they are contributing more widely.
For example, are they taking responsibility for tasks outside of their job description? How are they supporting team members? It could also be how they’re improving processes and demonstrating innovative thinking.
Total contribution also looks at their input. This considers how they are doing their job and how they are behaving. This can be linked to our organisational values and the culture that we’re trying to create.
For example, you can have a salesperson who’s delivering a lot of revenue in terms of sales and it may look like they’re performing really well, but they’re actually damaging the business’ reputation by being rude to customers.
So, by using total contribution to determine pay progression, we can look further than what people are doing and consider how they’re doing it.
For further information about this topic, you can check out these other blog posts:
5 Factors That Can Lead to Pay Progression
How to Develop a Transparent Reward Strategy Linking Career Progression with Salary Progression
Why does equal career progression mean sacrificing family life?
Lack of Career Progression: An Opportunity For HR to Be More Strategic