How to get pay and reward right with compensation modelling

With inflation, the cost-of-living crisis and high staff turnover on everyone’s lips, keeping your pay grades and wage structures up to scratch will be vital to continue recruiting and retaining top talent.

Between April and June this year, real terms pay fell by 3%. Salaries rose by 5.9% in the private sector and just 1.8% in the public sector. But few employees are feeling the benefits after inflation hit 10.1% in July. This puts the gap between pay growth and inflation at its highest on record.

By autumn, the Bank of England predicts inflation closer to 13% as energy, food, and fuel costs continue to soar. Adding in high employment and unfilled vacancies, it’s no wonder that pay rises are firmly on the agenda.

So, how can employers ensure they strike the right balance between rewarding employees fairly and keeping pay awards sustainable?

The art and science of pay modelling

The answer is to introduce a fair, consistent, and structured approach to pay with pay grades based on job roles. When undertaking a compensation modelling initiative, employers should be guided by four key principles:

1. Transparency

Ensure you understand the job evaluation process from end to end and record the justifications behind any decisions you make.

2. Thoroughness

Identify any inconsistencies in the job evaluation process.

3. Clarity

Collaborate with managers and employees from across the organisation to evaluate the nature of different job roles.

4. Standardisation

Create standardised, role-based profiles that can be accessed by whoever requires them for decision-making purposes.

How to make better pay and reward decisions

Consistency is key when it comes to pay modelling. To ensure your evaluations are on a par across all job roles, establish a framework of key factors to take into consideration when reviewing the pay for each role.

1. Responsibility

Staff management, equipment, stock, buildings and land, finance, freedom to act, advice, and impact.

2. Knowledge

Qualifications, experience, and skills.

3. Reasoning

The information environment, role complexity, creativity, and innovation.

4. Communication

Contacts, oral, and written messages.

5. Environment

Working conditions, hazards, and physical demands.

How compensation modelling can help you find the balance

Given the delicate and potentially complex nature of compensation modelling, you may find third-party support useful.

Zellis’ pay and reward consultancy service can help you understand which employees should come within the scope of the project. It can also assist you in determining whether basic or total reward packages, and any other important terms and conditions, should be included in the review.

Another important service is defining suitable data requirements and accessing appropriate data sources, including those from payroll, HR, surveys, and wider market information. This data can then be imported into our compensation modelling software.

The tool analyses a range of possible pay scenarios based on current design structures and any proposed changes relating to pay progression by evaluating employee impact and dynamic cost projections for up to 10 years.

Those employers who take a structured compensation modelling approach to pay and reward will find themselves in a much better position to avoid a summer, autumn, and winter of discontent.

Learn more about Zellis compensation and pay modelling.