Part II - How to spend your pay review budget effectively and communicate like a pro

There’s one thing that will make even the most faithful employees question their loyalty to your business: a much bigger pay offer from one of your competitors. With a shortage of skilled talent and the restriction of free movement around the EU, attracting and retaining employees is a major focus for businesses. And pay is a critical component of your offer. Which makes getting your pay review vitally important. In the first article of this two-part series, I explained how to establish the right pay review budget for your business. This post explores how you can effectively distribute that budget and get the best return on your investment with powerful pay review communications.

How to spend your pay review budget

Let’s imagine that 10% of your employees are paid very low in comparison to the market data and the rest of your staff are paid in line with the market data. You could apply the pay review budget equitably to everyone. However, this isn’t going to help those with low pay catch up to the market or their colleagues. Instead, you could consider giving a bigger increase to employees whose pay is lower than the market and giving a smaller increase to those whose pay is in line with or above the market. Assuming you have a pay review budget of 3% of your salary bill, you could apportion it as follows.

This is just an example for a few people. But you can see how, by using the ‘rob Peter to pay Paul’ approach, you can make the most of the budget you’ve got. You’d need to complete this exercise for your entire organisation ensuring that you don’t spend more than your pay review budget. This could be 3% of your current salary bill for example and would need to be factored into your spreadsheet to ensure you don’t overspend.

Align Your Pay Review With Business and HR Strategy

The table above shows how you could increase the salaries of your people by using market data alone. However, this approach fails to take into consideration a range of other factors including:

● Individual performance - John’s pay is a long way from the market rate, but if his performance is poor you might not want to give him such a big raise. If his performance is outstanding and he’s ripe to be poached by a competitor, you might feel 10% or perhaps even more is justified.

● Recruitment and retention issues - different roles become more or less in demand at certain times. If you’re struggling to retain employees in marketing for example, you may decide to divert more of your budget to these roles. That means reducing what you spend on other roles where the risk is lower.

● Equal Pay - it’s a legal requirement to pay people of different sexes the same pay for work of equal value. That means you might need to use your pay review budget to address any

equal pay issues.

● Other factors - depending on individual circumstance, you may not need to pay certain people as much money. Think about staff whose fees you’re paying for further education

related to their role for example. They’re less likely to leave you if they don’t get as much of a pay rise as others. Equally, some people may be very settled in their role and their life and be highly unlikely to leave. Whether you depend to pay them less is up to you and your sense of what’s fair. But from a business perspective you could reduce their pay increase and give more to someone who’s a greater flight risk.

Some firms like to reward employees for long service or loyalty - whether this is right for your organisation depends on your culture and your strategy. If performance is critical to the success of your firm, this is what you should reward for.

Why? Because how you spend your pay review budget sends a message - you’ll quite literally be putting your money where your mouth is - so spend it wisely.

Communicate Your Pay Review Effectively

Speaking of messages, you’ll need to be able to explain to employees how you’ve arrived at their pay review outcome. If you intend to change the way you award pay rises, you need to set out your approach at the start of the new financial year. This enables employees to adjust their behaviour and performance to secure the best possible fiscal outcome.

For example, if you’re going to use performance and market data to inform their pay review, let them know how this will work. You’ll need a clearly worded pay review policy and communications that will support managers in explaining the process. What’s most important of all is giving employees the opportunity to influence their pay outcome.

After all, if your pay policy is aligned to your business policy, you’ll be dangling a carrot that will help your business achieve its goals. The better you communicate what they are, how employees can help deliver them and what’s in it for your people, the better your business outcomes for the year. There are plenty of ways to communicate your pay review:

● A clear pay review policy document

● Booklets/explainer videos that set out how market rates and performance (or another combination) impact people’s pay

● Leadership blog posts on your intranet that explain your position

● Guidance to support managers in communicating your approach

● Q&A documents that answer common questions and save managers or HR from explaining

● Pay review letters that set out the employee’s new pay and incentivise improved performance in future

● Ongoing communications throughout the year that re-focus employees on business performance, their own performance and the link between the two

You’ll need to decide whether communicating digitally, in or face to face print is right for your organisation and employees. Whatever you decide, make sure your comms are on-brand, written in the right tone of voice for your culture and clearly worded.

How do I know all this? Because I used to research and recommend pay review budgets to big corporate organisations in my role as a compensation and benefits specialist. Now I help business owners communicate the value of their total reward package to deliver the best return on investment.

If you want to secure the best possible return on your pay review budget, get in touch on 07703 155 404 or at becky@clarioncallcomms.co.uk to find out how I can help with your pay review communications.