From a reward perspective, the most interesting aspect of the emergency budget was the public sector pay freeze. It is a classic example of a cost saving measure that seems simple to apply on the surface, but, as the saying goes, the devil lies in the detail.
The pay freeze will be applied for two years from April 2011 and affects public sector staff who are paid more than £21,000. Those earning less will get increases that are limited to £250 a year.
There are a host of potential pitfalls awaiting anyone who makes adjustments to their pay structure without taking account of the potential consequences. This almost always leads to the need for further amendment and clarification, often diluting the original message and causing more problems than the initiative solved. For example, in this case:
> It ignores the wider pay market, so their salary ranges will lag behind once other employers react to higher inflation and raise pay. With public sector job security already low, how will this impact on employee engagement levels?
> With public sector workers likely to be asked to contribute more to their pensions in future, how will the sector deal with this and the pressure on pay that will build up over the next two years?
> It distorts internal pay structure relativities, bringing the pay of staff in lower grades closer to those just above. Will this have an effect on career progression?
> Employees earning just below £21,000 will be expecting £250 rises in 2011 and 2012, but this might mean they leapfrog colleagues who are already earning £21,000. Their pay increases will probably be restricted to prevent this, but this will come as bad news to someone who saw the budget announcements and expects the full £250 increase in both years. Again, what will be the impact on morale?
To ensure the successful implementation of any changes you plan to make to pay structures, the budget announcement shows that these must be carefully thought through, modelled and tested before being communicated to staff. This is particularly the case if your organisation is considering a pay freeze. It is also relevant if you are looking to benchmark and rebalance your pay structure after freezing pay last year.
We can help you avoid falling into these traps, advising you of the options and putting in place a planned approach to changes in your pay systems.
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