Whether you have just seen the news stories or whether you had to spend some of your weekend in petrol station queues, the knock-on effects of Covid and Brexit are hard to ignore. With the backdrop of news stories about how to overcome these challenges the country is facing, which inevitably include discussions on pay, for many companies October also sees budget season getting into full swing which means HR departments start planning for pay review. Planning for pay review can be tricky at the best of times but with the current market volatility, it is particularly challenging for this upcoming cycle. 

According to the ONS, average earnings are up by c.10% compared to this time last year, the number of vacancies in the economy has topped one million for the first time, and a record number of people started new jobs in the Spring/Summer. This is causing lots of challenges for organisations in terms of how to manage the upcoming pay review cycle. Increasing base pay as part of the pay review cycle to address the current labour market challenges may feel unavoidable for many companies but for some it won’t be affordable, and even if it is affordable is it ever as simple as that?

Here are our top five things to consider when planning for pay review:

1. Short and long term aims
Planning for pay review can often be driven by short-term priorities such as affordability and keeping in line with current market changes. These short-term issues can’t be ignored but it’s important to consider the longer-term business goals. If the longer-term goals are to grow but current priorities are to limit costs, then this causes a challenge in terms of how best to retain key talent in the short term and not jeopardise growth aspirations. Short term priorities may have to take precedent but considering how the short and long term aims either complement or contradict each other helps identify the potential risks and frames the communication needed to help employees understand the decision. 

2. External equity 
Gaining insight into how your remuneration compares to the market is valuable when planning for pay review. Understanding how you compare to the market will help ensure you set your budget accordingly, potentially identifying where you may be able to reduce costs vs where you may need to increase costs. Even if affordability dictates the budget, it can help the business distribute the budget in the most impactful manner, improving the competitiveness of pay where it’s needed and not continuing to overspend in areas that are already above the market. Reviewing market position against performance will also identify any flight risks and create a business case for any additional budget or how the budget is distributed. 

3. Internal equity 
The pay review process provides an opportunity to increase pay equity across the organisation. It is also an opportunity to ensure that pay decisions aren’t exacerbating gender or ethnicity pay gaps. Reviewing internal equity data ahead of setting budgets and plans will enable you to identify pay inequalities and allow you to structure the pay review budget and plans accordingly, reducing the risks of future pay equity and pay gap issues. 

4. The wider employee deal
If variable pay or benefits are generous in comparison to the market, then this may influence the pay review budget in a year where cutting costs and stability are both important. Pay will always be an important element of the reward package but research has repeatedly shown that it isn’t the only factor important to employees, particularly for those newer to the workforce. Considering if you can appeal to talent through things like flexible working, compacted hours, career development programmes, secondment opportunities, financial support for qualifications, all of which can make for an attractive proposition. Promoting those elements can give employees a longer-term vision they can buy into that may help them look past a short term pay increase that isn’t headline-grabbing. It is also worth considering how other elements of reward such as variable pay and long-term incentives can help create buy-in and loyalty to the long-term goals of the business in the absence of short term increases in base pay.

5. Communication 
Planning for pay review signposts how communication can support the message to manage the impact. If the budget means the approach will be different to previous years, then planning how best to communicate and roll out the new approach both to line managers involved in the process and subsequently to employees will manage the impact. Explaining the rationale and the balance of short- and long-term considerations, the influence of external and internal equity, the value of the wider package and other elements of the employee deal will help employees understand the decision. Pay will always be an important factor, and for some, it will be the most important factor, but viewing it in the context of the wider employee deal can take some pressure off the budget. 
 

If you would like support with Pay Review, we can help! If you are looking to take the pain out of the process, our Advance tool - which is part of the Innecto Digital Platform - has been designed to give you confidence in your pay process, with robust methodology and real-time insights which enable informed pay decisions. If you'd like to know more, please contact me via email (cathryn.edmondson@innecto.com) or call our team on +44 (0)20 3457 0894.

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