A bonus is a sum of money added to a person’s wages as a reward for good performance. A pay rise is an increase in the amount of money you earn for doing your job. Bonuses and pay rises are important to attract, engage and retain employees. Employees will be motivated to do better than what is expected of them in order to achieve bonuses and pay rises.
Before you implement and manage bonuses and pay rises across your business there are a number of strategies to consider:
Performance- related Pay (PRP)
PRP is a way of managing pay by linking salary progression to an assessment of individual performance, usually conducted through a performance appraisal.
Benefits: By linking performance to pay, employees will want to perform well which will result in high performance levels across the business.
Things to look out for: It can be difficult to give those perceived as high performers, more pay than those whose performance is seen as being good. As an employer, you will need to ensure you have detailed levels/grades/zones that clearly outline the bracket an employee will fall into to ensure there are no claims for discrimination or unfair treatment.
Pay Structures
A pay structure is a framework which defines what each individual and job role is paid. This can be based upon their value to the business and effectiveness in their role. The strategy will correspond with the businesses mission, vision, purpose, and culture by encouraging required behaviour and therefore performance.
Benefits: The clear strategies and policies bring order and clarity in managing pay rises and career development.
Things to look out for: Ensure that your pay structures align with the business/employee needs and aspirations such as affordability, clearness and fairness and continue to work in line with the businesses missions, vision, and values.
There has been considerable evidence around gender segregation and pay structures. Because of this many UK businesses, are working to ‘gender-proof’ pay structures. All businesses should ensure they continue to put in place and comply with anti-discrimination practices.
Pay Progression
Pay progression is how an individual increases their pay within a pay grade. Progression is usually determined by the width of each pay band, the pay level variation within each band and the number of pay grades within the overall pay structure.
Types of pay progression includes:
- Length of service
- National minimum wage requirements
- Individual performance
- Team performance
- Organisational performance
- Competency
- Skill- based
- Market rates
- Inflation- linked
Benefits: This type of pay increase encourages employees to work to a desired requirement of the business whilst providing a fair and transparent process to which individual wage increases are determined.
Things to look out for: As a business you will need to maintain salary competitiveness while controlling payroll costs. Progression arrangements should fit an organisation’s strategy and ethos. It’s also important that arrangements are fair and free from unlawful bias due to an employee’s age, gender, ethnicity, or other protected characteristics.
Implementing Raises and Bonus Schemes
To implement any pay rises or bonuses, efficient arrangements must be in place. You, as the employer should focus on encouraging high performance first, and then, at a later stage, implement pay as a reward to help achieve that goal.
Systems must aid consistency and transparency when assessing achievement.
Contract of employments must include a clause supporting the implementation of pay rises and bonuses and the review of them. The contract should clearly indicate the process of how and why a bonus/pay rise may be awarded. It should also clearly state the terms surrounding this. For example, if an employee leaves part way through a year, what payment they will or will not be eligible to receive. Failure to follow such terms in the contract can lead to a breach of contract claim or constructive dismissal.
Risks
Associating pay awards with the performance review process may prevent a transparent discussion of an employee’s training and development needs. To avoid this, you can separate the pay review part of performance assessment from the development review by holding separate meetings to discuss each point either weeks or months apart.
Ensuring objectivity is important to avoid rewarding favourites and prioritising certain individuals. Managers need to be made aware of the impact that unconscious bias can have when monitoring employees and selection of pay awards by gender, ethnicity, age and so on. You must ensure employees are always treated equally and fairly.
It’s important to consider the issue of pay award distribution carefully when ranking individuals based on performance. You need to be considerate to those classed as lower or middle level performers. This is too ensure they don’t feel unappreciated and therefore demotivated.
You need to be aware that pay awards may drive individuals to focus on some targets more than others. Linking pay to both individual and team achievements may be better than just focusing on one or the other.
If you would like to talk to a specialist, get in touch. We can help you with your payroll and benchmarking activities! You can contact us using our online form, or calling us on: 0330 400 5490.
A valued member of the Wurkplace team providing administrative and coordinating skills for the HR department and also overseeing the accounts department of the business whilst carrying out key bookkeeping tasks and conducting payroll.
Georgia holds a level 3 in Business Administration and AAT level 2 whilst continuing to work towards gaining a diploma in AAT.