Transparent, motivational and fair – how to establish the best pay system

Nothing demolishes staff morale like the perception of an unfair pay system. This is particularly so when it comes to the annual pay review. If a business has done well over the previous 12 months, staff expect to be rewarded for their efforts.

Research consistently finds giving staff pay increases are more powerful than a one-off annual bonus. Therefore, it’s critically important to get it right.

How do you create a fair pay rise system?

The best pay scale increases are:

  • Logical
  • Transparent and objective
  • Occur at the same time each year
  • Reward staff who consistently work well
  • Motivate staff to go above and beyond their basic KPIs

3 Steps to establish a fair pay policy

Step 1 – Determine the budget you have for increasing staff wages

This is obvious but don’t set an amount or percentage increase for each employee. Use this budget wisely to reward your best performers and incentivise the rest.

Step 2 – Create pay increase bands for each position within your business

A pay increase band should have 3 levels – low, medium and high. The amount paid to each employee in the same role will be determined by their productivity and performance.

For example, let’s say you were planning to increase clerical staff wages by 10%. Rather than giving the whole amount to every staff member, allocate pay rises according to performance. That means:

  • A staff member who is trying hard but is falling a little short of their KPIs may receive a 2% pay rise (at the low end of the band)
  • An employee performing satisfactorily and achieving all KPIs might receive a 4-5% pay increase (the mid-way point)
  • A staff member who is highly engaged, productive and really contributing to the success of your business could receive an 8-10% pay rise (the top end of the band)

Step 3 – Fix a regular time of year to allocate pay increases

Too often, pay rises are given on an ad hoc basis to a few “special” employees. This approach will never produce the same productivity benefits you’ll gain with a regular, systemised approach.

Schedule a time to give pay rises to your staff each year and include it in your business plan. Then promote the fact you are an employer who recognises and rewards good workers. These simple steps should provide you with improved productivity and motivation throughout the year.

For help and advice on how to incorporate a structured, motivating and fair pay rise system into your business, speak to the HR experts at End2End Business Solutions. Don’t delay. Call them on 02 8977 4002.