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15 Nov 2019
by Juan Novoa

Tight pay budgets – why doing nothing is not an option

An ongoing theme in our work with clients is tight pay budgets. This is followed by a sense of hopelessness when it comes to managing pay; but there is then the realisation that there is actually much that can be done.

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Time and time again we have helped organisations rethink their approach to reward by opening opportunities for them to address concerns with tight pay budgets in place. All this points to having a more positive impact on engagement from investment in pay.

These are three key lessons that we have learned in the process.

1. Keep it fair

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 perception of a 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 on pay, there is little that can be done. Consequently they do nothing, focusing on process instead of the potential opportunities for change.

Or even worse, they take ad-hoc decisions which distort order and fairness leading to disengagement!

If there are clear guidelines to manage pay decisions, understood by employees and consistently applied, organisations can go a long way to enhance the perception of fairness in pay.

2. Think of the messages

It should not come as a surprise that, under strong restrictions in pay, the material effect of any changes that are made is barely noticeable.

But, again, this should not be taken as an excuse to just sit back and cross your arms.

The messages that changes to pay 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.

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.

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.

The author is Juan Novoa, consulting lead at QCG.

This article is provided by QCG.

In partnership with QCG Ltd

QCG provide expert and friendly consultancy on fair pay, effective recognition and a great employee experience.

Contact us today