What do ‘fair’ rewards look like within your company culture?
A phrase we are hearing more and more in recent times is that of 'segmented reward'. In plain and simple terms it’s identifying where employee populations differ and adapting your reward strategy to suit their needs.
We’ve seen it for quite a while now in the benefits space with a recognition that with five generations in the same workspace, you need to segment your benefits offer as people value different benefits depending on the stage of their life cycle.
But we are now seeing more clients wake up and recognise that a one size fits all approach to pay just doesn’t work, particularly when you have very diverse populations in your organisation.
Purely from a base pay perspective, many companies default to a median pay stance without actually examining with whom they are competing within the market place. Whilst this approach might work for a large proportion of your population, I’m sure you’re not alone in experiencing challenges recruiting and retaining niche or scarce sets that create a headache for your pay ranges.
Often when organisations have one set of pay ranges for all roles, they can find that trying to encapsulate everyone just doesn’t work, and so many end up with fudges or workarounds that over time create inconsistencies and precedents that become hard to manage.
One way to manage these issues is by using job families. Whilst there can be some challenges associated with job families, most notably explaining to employees at the same level why they have different opportunities to grow their pay or the potential to create silos, they can be very helpful tools when you are managing populations that have very different worth in the market.
For example, we typically see a premium in the market for Legal or Digital roles and it can be useful to separate roles into families to ensure you don’t under- or over- pay when you don’t need to. It also enables you to adopt a different pay stance if needed – one of our clients had no problem recruiting operational staff and chose to set their pay position below median, but they also struggled to attract and retain high-quality analytical specialists that were critical to their commercial function, so for this family they adopted an upper quartile pay position, which meant they could position themselves in a strong place in the market.
Segmenting populations can also facilitate different approaches in variable pay. Depending on the type of roles you employ, you may require different types of bonus plans or LTIPs.
One of our clients had a set of very diverse employee groups, from those aligning themselves to the heritage sector, others to academia and others aligning themselves to the City. All had very different expectations when it comes to variable pay, with some expecting high levels of variable pay aligned directly to performance, and those from academia and heritage sectors believing that variable pay was not applicable to their roles.
This created a number of internal challenges and they found that a one size fits all approach to variable pay wasn’t having the impact they desired. Creating a clear distinction and strategy as to why you differentiate and adopt different approaches to variable pay can help employees understand why not everyone gets the same.
Segmenting reward can sometimes create challenging conversations in the business. Whilst in principle many senior leaders like the idea of being able to differentiate and segment reward, depending on the type of organisation and the sector you are in, the reality is often one that risk-averse leaders (particularly in not-for-profit sectors) will avoid as they like the idea of treating everyone fairly. But treating people fairly does not mean that you have to apply the same reward.