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The pros and cons of rigid pay and reward schemes

Thursday 9th May 2019

How your company functions and whatever way you organise office life, pay is ultimately going to be a big issue for your staff. After all, it is the primary reason they do their jobs; very few people would do what they do for a living as a hobby.

For this reason, pay and rewards are sure to be a key element of job satisfaction for everyone. This is not just a question of them being paid well – which enables them to pay the bills – but also of ensuring they feel they are being appreciated by being remunerated in accordance with how hard they work and the standard of skills they offer.

The size of an employee’s salary and bonus package is not the only issue, however. The fairness of the pay and reward system is also crucial. If anyone feels they are being disadvantaged unjustifiably, this is likely to breed resentment and could either prompt industrial action by a collective group, or simply increase staff turnover as individuals look for jobs elsewhere.

A key question is whether the pay and reward system should be rigidly formulaic or allow for some subjective judgement. Either option has pros and cons.

A rigid system
The greatest benefit of a rigid pay and reward system is that it is transparent. If people know just what they will get as a starting salary, just what they need to do to gain increments and what percentage of their salary they will be paid in any profit share scheme, they will know exactly where they stand. They will also know that their colleagues working at the same level as them will be earning the same amount. Everything will be seen to be fair and it can help eliminate pay variations based on negotiating skill or any form of discrimination.

However, a potential disadvantage may arise where there is a diversity of roles. It may be easier in some posts to achieve certain goals to secure a pay rise than others, as in practice setting equivalent targets for people doing different jobs may be hard. Moreover, if bonuses are linked to bringing home the bacon, it may be easy for people in a sales department to have clear targets and pick up a share of the revenues, but it will be difficult to find an equivalent metric for those carrying out support roles.

A flexible system
The alternative is to remove transparency and make pay a confidential matter between employer and employee.

An advantage of this is it allows for some nuance in assessments. Managers can decide if certain staff members have clearly shown more commitment, or might wish to pay a particular individual more to retain their services. It also removes the most likely shortcoming in a rigid assessment system – the list of criteria can take into account something of ‘added value’ brought to the table by a particular employee.

The disadvantage is that pay secrecy can lead to private speculation about who is being paid what, risking allegations of unfairness and favouritism. The lack of clear criteria involved may also provoke concerns about possible unfairness.

In the end, there is no simple, one-size-fits-all system. So whatever way decision makers choose to proceed, it is important to explain their system to staff in detail, along with the rationale behind it. By doing this, at least staff know where they stand from the outset.

Image courtesy of: iStock ronstik

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