Fixed compensation translated – 2 – Key concepts

So you’re taking the plunge and getting fixed compensation setup properly, rather than cheating and using a custom field to just stick a salary value in. Well done, you’ll thank yourself for it later, there are quite a few cool little features within the compensation module that you don’t get to use if you bypass it completely, and as you’ll see in this series, getting things set up is not that hard really.

But before you start I want you to take a step back.

The first question I want you to ask yourself is this:

When a new role gets defined in your organisation, how do you establish what the occupier of the new role will be paid?

There are two possible answers here (well obviously there are lots of possible answers here, but they fall into one of two categories):

1. We look at what the person we recruit is currently earning, and we make them an offer in order to entice them in. We don’t particularly benchmark against other roles within or outside the organisation and there are no real limits (within reason of course) to what we might offer the right person.
2. We use a job evaluation (JE) method (like Hay) to position the role within our salary structure, based on levels of responsibility, skill requirements, etc, and this corresponds to a salary range. We then position the individual within that salary range at the point of hire. Due attention is paid to their current or previous remuneration level when assigning a salary, but it must fall (either strictly or loosely) within the JE indicated range.

Neither approach is right or wrong, and both can be accommodated. But it does change how you will approach the fixed compensation setup in Talent. So if you’re starting the setup, and you’re not 100% sure of the answer to this question, you need to go and answer it. And because the answer to this question can vary across company and country boundaries, you need to answer it for every legal entity you have defined in Talent.

The next question you need to ask yourself is:

When someone in my organisation gets a change in pay within role (either performance or service related) – what determines how much the new salary is?

Again, there are a range of different answers – but the key categories are:

1. We pluck a number from the air which sounds like a good reward package and that’s their new pay
2. We apply a percentage/fixed value on top of the previous pay, which might or might not be based on departmental or individual targets, resulting in a number which must stay within an acceptable range unless there are exceptional circumstances
3. The individual receives an increment to the next spine point within the grade

Answer number 3 here is much more prevalent in the public sector (Local Government, the NHS etc) than it is in the private sector. If it means nothing to you, you can safely ignore it, you probably fall into one of the other two categories.

The final question you should consider is:

What might prompt a change in pay within role?

Now of course, this is more a case of listing all the possible scenarios rather than one single answer. Things to consider are:

1. Is there an annual pay review process? When does it happen? Is it the same date for all employees or is it linked in some way to service dates?
2. Can employees receive pay increases outside of the annual pay review process? Why would that happen? What sort of information do we need to know when that happens? Do we need to know why? Does the increase need to be signed off by anyone?

Once you’ve got the answers to these questions, you’re almost ready to start. But before you do – there’s one key concept to get your head around.

Steps vs Bands vs Grades.

This terminology is used throughout fixed compensation setup, and it’s just kind of assumed that everyone knows what is meant here. Hopefully by now you’ve answered the above questions, so the explanations I’m about to give will allow you to slot the different pay arrangements in your organisation in to one of these three categories.

Step plans

If you’re familiar with spine points and increments, then step plans are for you. Step plans provide for salaries which are very tightly controlled, where each individual can only be paid a particular and very specific value. Step plans usually consist of grades and spine points. Employees are usually appointed to the bottom of the grade, and receive annual increments each year until they reach the top of the grade. They only then receive increases reflecting a rise in the cost of living, otherwise their pay remains stagnant unless they change roles or their existing job is regraded. As mentioned, much more prevalent in the public sector than elsewhere.

Grade plans

Are actually, when it comes down to it, pretty similar to band plans. They indicate a salary range (usually with a maximum and minimum value) within which an employee’s pay will be positioned based on their previous salary. Increases in role are usually percentage based up to the maximum of the grade.

Band plans

Like grades, bands indicate a salary range with a maximum and minimum value, but they are generally broader than grades, the available salary range will be larger. I have yet to discover a functional difference between the two, so it appears to be pretty much semantic, but as soon as I find one I’ll call it out.

You might find there are several different approaches to pay within your organisation. Particularly if there have been a number of mergers and acquisitions, or if different groups of staff are represented by different trade unions. That’s absolutely fine, just define all the approaches you find separately, and make sure they’re mapped appropriately in the later stages.