Small business owners are often wary of too much procedure and structure in their people management, fearing it will limit their flexibility and decision making and inhibit growth and agility in a competitive marketplace. We think the ability to make effective management decisions without being hampered by burdensome procedure is crucial to a successful small business, so we only recommend formal procedures and documents where they will genuinely be a useful tool for the business owner.
Many small business owners would class formal salary structure systems as among those procedures that are unnecessarily inhibitive, but is that the case? Below we consider some of the advantages and challenges around creating a formal salary structure in a small organisation.
Why structure your compensation?
- It gives a framework for fair, consistent and effective decisions around compensation.
- It gives a solid grounding of data to justify pay decisions, making defending any kind of grievance or legal claim much easier.
- It helps avoid discrimination claims or equal pay claims in the first place by reducing the likelihood of inequalities creeping in.
- It reduces inconsistencies in pay creeping in, which happens more often where more than one manager is making decisions about pay and results in resentment and possibly grievances.
- It provides reassurance to employees that decisions around their pay are fair and consistent, reducing distrust of management.
- Creating a salary structure when your business is small can be much easier than when you have many more roles to manage. Trying to group 50 or 100 roles into salary bands or similar can be very challenging, and the bigger the organisation the more likely there are already significant inequities in pay, resulting in difficult decisions when implementing a structure in terms of how you address those discrepancies.
How to do it
A salary structure or at least some kind of formal system for determining pay doesn’t have to be complicated and overly restrictive with spines, points, scales and complicated rules. It is possible to have a looser, more flexible framework for pay.
The options available for reward structures are numerous and can be complex. You could use job evaluation and set formal grades for each job. You could use competencies and set pay against how well each employee achieves the relevant competencies for their role. You could pay against skills rather than looking at job titles and where a role sits within the hierarchy. You could have performance-related pay whereby at least some of an employee’s compensation is directly related to their performance and/or the organisation’s performance. This could go further with bonus or commission schemes.
It’s essential to make the right choices for your business, and to implement those choices fairly and effectively. Getting the right system in place can be enormously valuable to your business but poor implementation/communication or poor choice of systems can inhibit growth and result in a management team bogged down in grievances, appeals and resentment. Which system works for you will depend on the type of roles in the business, common practice within your marketplace, what you want to achieve, your management approach and culture and many other factors.
If you are considering implementing some kind of framework for remuneration in your business we strongly recommend you seek professional advice before doing so. An expert with lots of experience in designing and implementing effective reward systems, ideally in similar organisations, can be a valuable investment and help you achieve a system which works for your business, and which employees buy into and understand.
If you would like assistance in implementing a salary structure in your business, do get in touch.