Building Remuneration Frameworks

HR is occasionally asked by their clients to revise the framework used to manage fixed remuneration. Such requests can arise for a variety of reasons, and some of these reasons can relate to the framework itself – as opposed to, say, ham-fisted management driving away good staff.

The framework may be too restrictive in not allowing scope to differentiate in-demand jobs that attract a market premium or individuals who are consistently operating at a level above their peers. It might also have been around for long enough that salary ‘discrepancies’ have accumulated e.g. individuals paid well above or below their peers for no obvious business-related reason. It might be associated with a predecessor organisation of a merged entity and therefore, inadvertently, sending the wrong message about organisational values. It might be regarded as lax and needing tightening up in order to better control cost; or it might be seen as opaque by stakeholders.

In my experience the best place to start with such an assignment is with the business strategy and the big-ticket items the organisation is promising to deliver. From there, the obvious segue is the internal capabilities that drive these outcomes, and which of these are considered core to competitive advantage and should therefore be retained internally. From there it makes sense to consider traditional sources of supply and forecast likely changes in the labour market that could influence the make or buy decision.

At this point a salary policy can be developed to explain the purposes of the framework. These purposes are likely to include:

·        Setting starting salaries based on work value and market relativities

·        Recognising person-based changes i.e. growth in individual skills and competencies within the current job

·        Recognising job-based changes i.e. movement to a different job at a different salary range.

It’s vital that management buy into these purposes. In particular, they must come to a landing on the relative priority of these – and any other – purposes. In a professional services company, for example, it’s likely that person-based changes are prioritised over the other two because the difference between good and exemplary performance can put money in the bank. This may be less likely in, say, a local government setting where work processes are generally more well-defined and compliance is a paramount concern.

Now, at last, it becomes appropriate to get into the ‘mechanics’ of the framework; and the first such decision is the biggest. How many frameworks do we need? This is such a big question because, on the one hand, you don’t want to create barriers between staff e.g. academics and administrators and, on the other, career progression is easier to envisage and navigate within similar work categories.

If you’ve done the work, you know what the core capabilities are for this organisation. You also know the likely future sources of supply and the internal development paths required to build these capabilities. These factors should then lead you to an optimal design for your remuneration framework – one that provides visible career paths without creating unnecessary barriers between staff.

This is perhaps the biggest task for HR in its impact on the finances and culture of the organisation, but it’s not a task that comes around often. Therefore external consultants are often brought in to do the work. I hope this brief discussion can assist internal HR to be a more active partner to these subject matter experts in any such endeavour.