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Is your company's pay strategy rewarding enough?


UK businesses are paying out more than ever on salaries – £738bn was paid last year, with an extra £44.3bn in bonuses.

But very few firms apply the same rigour, in terms of ROI, that they would the rest of their business costs. Failing to understand the role incentives play in getting the best from your employees means not getting the best from your business.

Here we look at how being smarter about the way you reward your employees can have a direct impact on your business’ overall performance.

The rise of the wrong pay strategy

While employees are working longer hours, the money in their pocket isn’t keeping pace with the cost of living. Employers are under pressure too, struggling to find the right rewards that will attract and retain talent without overpaying and failing to grow. All during one of the most acute skills shortages the UK has ever faced.

But these increased expectations are causing precisely the wrong behaviour – blanket pay rises across the company which makes everyone a little bit happier but fails to channel resource into the places where it has the greatest impact on overall productivity.

By contrast, if you can establish precisely who needs more pay, which roles deserve more pay and how the right changes can have the biggest impact on the bottom line.

Against the easy-option, scattergun strategy, any business that employs a considered, measured compensation management process will always come out on top.

What is a compensation management process?

You already have a compensation management process; you just might not have a very good one. Essentially, it means the ways you decide how to reward everyone in your organization for the work they do. The key distinction between a good process and a not-so-good one is measurability.

If you have metrics then you can deliver rewards directly to those who contribute most to your business and use pay as a strategic business lever, just like any other.

How the right compensation can benefit your business

Increasing the measurability of your approach will help to optimize your salary spend in five ways.

1. Predict retention more accurately

According to the CIPD, 13.5% of employees move jobs each year. Assuming a quarter of this is from compensation-related issues, this research model estimates that basing pay and rewards on measurable metrics could reduce compensation-related attrition by 50%.

2. Drive performance

There’s an intrinsic relationship between your employees’ pay, their engagement and their performance. The more you understand the dynamic between pay and engagement, the easier you’ll find it to get the absolute best out of everyone right across your organization.

3. Boost your productivity and profitability

The more engaged your employees are the more productive and profitable your business is. According to a poll of 24,000 businesses by Gallup, employers with engaged employees had productivity boosted by 18%, and profitability by 12%.

4. Identify who will stay with you longer

While not all retention is good, performance management will reveal which reward strategies create good and bad retention by linking it to engagement and performance. Firms with engaged employees enjoy 87% less employee turnover than their disengaged competitors.

5. Increase your HR efficiency

The background advantage to a more measured approach to pay is a significant boost to the efficiency of your whole HR function. As well as speeding up processing time for rewards, it will reduce error rates and establish a set of rules that help prevent overpaying. By having a proper audit trail and a system that’s generally fairer for everyone, your spend is optimised all year round.

A win-win for everyone

Pay for work is the oldest transaction known to man, but for many firms the sophistication of that relationship hasn’t evolved much over the centuries. Businesses that can measure and understand the relationships between pay and productivity, can make sure they reward their best performing individuals and optimize their biggest overall cost in a way that directly impacts their bottom line. And that’s a win-win for everyone, whichever way you look at it.


Want to find out more about how your company can improve through reward and performance management systems? Read the full article ‘The Return of ‘Pay’ and How to Optimise It’ published in Strategic HR Review.

If you would like any more information, please contact me using the email address below.

Image: Priya Dharni.
Priya Dharni

Icon: Envelope. pdharni@emeraldgroup.com



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