What are your pay progression options?

Herzberg’s two-factor theory of motivation-hygiene sets out what makes an employee satisfied within their work life. Motivation brings job satisfaction, while a lack of hygiene factors attribute to job dissatisfaction. Pay progression links to multiple factors across both motivation and hygiene, therefore the need to get it right is essential.

With the cost of living continuing to rise, at a minimum your employees will want to see their pay rising to keep up with their increased outgoings. Many employers offer an annual pay increase based on inflation, but is this really a pay increase? I would not say so, this is merely increasing your employees pay to keep up with rising costs. What about their performance, skills, output, the company’s performance, and length of service? How else could you allow your employees pay to progress?

Pay progression is where an employee can make more money for doing the same work/job. This increases their compensation and can improve employee retention rates and help to attract the best employees. Many companies choose to have pay structures that allow increases and can be used as guidance by Line Managers. Pay structures also allow employees to gage their potential salary during their employment. There are several types of pay progression, each one providing different benefits to both the employer and employee, some of which look at performance and others are based on length of service. There are no right or wrong options, those a company chooses will depend on the outcomes they are trying to achieve. Here are some you could consider:

Performance Related Pay (PRP)

Performance related pay is usually linked to annually set goals/objectives. These goals/objectives ideally need to be set using the SMART approach (Specific, Measurable, Achievable, Realistic and Timely). This allows an employee to evidence their achievements to their Line Manager, at the end of the cycle. Normally, goals are stretched and not easily achievable in the employee’s day to day role. They should also connect to the company values and be in line with the overall company aims. In return, employers offer pay increases to reward the employees for their hard work. One off payments, linked to performance, like a bonus or commission are not a permanent change and therefore not classed as pay progression.

Company Performance

You may want to reward your whole work force for their overall contribution to the company’s performance. You could do this by sharing the company’s annual target and agreeing a percentage of increase to employees, ahead of the fiscal year starting. For this to work well, you need to ensure your employees understand how their role supports the growth of the company. Which in turn supports your employees to feel connected to the success of the company.

Competency Pay

Whilst goals and objectives measure your employee’s performance, it generally does not measure their capabilities. As an employer, you might want to consider increasing the pay of your colleagues that have more knowledge and skills or are producing a higher standard of work. It will encourage self-development and motivation amongst your employees. The employer will need to clearly understand the knowledge and skills requirements of each role, to be able to put this pay progression option in place. It also tends to require higher input from the Line Manager and People teams, as more support and understanding of each role is needed.

Length of Service

Pay relating to length of service is generally found in well established companies, as they have the stability to commit to future pay awards. Lots of companies make non-consolidated awards for length of service, however research shows this can push an employee to stay to receive their payment, but shortly after they move on. Offering the payment as consolidated (within the salary), allows the employee to continue to benefit from the additional salary increase, thus supporting to retain them.

Benchmark Rates

For me, benchmarking your salaries is key. This does not need to be completed every year; however, I would certainly suggest it is completed every 2-3 years. The company may offer one or more of the other pay progression options I have mentioned (or a different one), however if they do not keep up with the benchmark for their roles, their efforts will likely be wasted, as they will soon see their pay structures fall behind their competitors. This does not have to be a tedious task, there are some great benchmarking platforms available, with the cost outweighing the return on investment. The company would also readily have access to benchmark roles as and when needed, for example difficult to recruit roles or an employee pushing for a higher salary.

Whether your company is at the start of their pay progression journey, or looking at what is already on offer, they need to ensure that they have robust, future proof pay structures, which allow for some flexibility, to implement the right pay progression options. An understanding of your corporate and people strategies, plus employee demographic and what your employees want, will be key to your pay progression success.