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Base pay management is high on the reward radar - QCG

BASE PAY MANAGEMENT

Base pay management is high on the reward radar - QCG

With news of executive pay and bonus payments continuing to hit the headlines, the topic of base pay management for employees often gets buried. However, one of the key messages to emerge from recent research conducted by QCG is that base pay is ignored at your peril. This is particularly the case through this period of ongoing economic uncertainty and the associated limited pay budgets.

Indeed, with median base pay increases for 2013 expected to remain at modest levels of between 2% and 3%, more pressure than ever before is being placed on managing base pay effectively.

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Key survey findings

The highlights of the QCG survey, which were supplemented with the key conclusions from QCG’s Reward Leaders Forum, a group of senior reward professionals, are that:

  • For most employees, base pay is in monetary terms, the most important part of their reward package, particularly for more junior employees who typically have limited annual bonus and long-term incentive opportunities. In line with this, most organisations promote base pay as a core part of their reward offering.
  • “Getting it right” often means being market competitive, linked to performance and ensuring internal relativities, fairness and consistency. Each of these guiding principles involve a number of key considerations and a range of practices exist relating to each of them.
  • In particular, linking base pay to performance was considered to be particularly challenging and several organisations participating in the research have taken the link away, instead using variable bonus payments as a vehicle for rewarding performance.
  • At the same time, talent management considerations are playing an increased role in determining base pay increases as organisations really focus on motivating and retaining their high potential employees.
  • Most organisations participating in the research have broad bands/grades in place to manage base pay, although very few private sector organisations share base pay range information. More generally, the majority of organisations are only transparent about the overall base pay philosophy and guidelines as well as drivers of pay progression.
  • The answer as to how transparent base pay needs to be is often linked to the level of trust in an organisation and conversely, high levels of trust often lessen the need to be more transparent. Interestingly, several organisations are considering making base pay management more transparent, perhaps reflecting the need to keep employees engaged and motivated at a time when there is more organisation uncertainty and potentially less trust.
  • Line managers play a core and front-line role in base pay management, yet often have a limited understanding of how it works and fits together. This continues to present a key challenge, and educating line managers on base pay management and more generally on reward is high on the agenda for many organisations.
  • Reward also plays a key role in base pay management, but the extent of its influence over key decisions varies widely. Several organisations reported the increased influence of the finance function, with 25% citing that finance is involved in decisions on individual increase levels.
  • The area of base pay management is not set to stand still, with a number of changes planned by over half of the research participants. These changes are largely being driven by cost controls and include changes to the pay review process, pay structures and competitive positioning, but also include changes to the level of transparency and education of managers.

A final word

“Base pay is only one piece of the reward jigsaw, but it is a very fundamental piece and not getting it right can undermine the rest of the reward offering. A number of challenges stand in the way of getting it right and foremost of these challenges is making the most of a limited pay spend. In order to meet this challenge, reward professionals need to play a leading role in determining the base pay strategy and helping HR and also line managers to deliver that strategy effectively”. – QCG.

Want to know more?

Title: QCG’s Base Pay Management Survey, October 2012.

Survey details: Conducted by QCG for its Reward Leaders’ Forum, the survey is based on responses from 35 organisations, 71% of which were private sector organisations and 29% were in the public sector. These results were supplemented with the conclusions from QCG’s Reward Leaders Forum.

Availability: The full survey results are only available to survey participants, but a summary is available by contacting Vicki Badham at QCG, email: vicki@qcg.co.uk.

QCG is a “medium-sized business effectiveness and HR consultancy focused on helping organisations to improve and sustain long-term performance.” To find out more visit www.qcg.co.uk.