Perhaps the most difficult and controversial area of staff management lies in deciding how much to pay employees.
Using a simple business model, the way to maximise profit is to minimise pay. However, if this goes wrong then you screw up staff retention, adding much more significant additional cost than the amount that you originally saved.
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Working with a rigid budget sounds good in principle but in practice, it can have this undesired result.
The same can apply when using a fixed percentage pay rise (especially 0%) across the board, which is almost certain to make everyone unhappy, except for the very worst performers. Alternatively, setting aside a pool of money to be divided up will usually end in a similar place, unless that pool is much larger than you would wish.
Large organisations tend to work within rigid parameters. This means that they might assess all employees on a set scale and give pay increments based on say a one to five marking, with two of those numbers almost never used.
This means that nearly everybody is likely to get a three, equating to a meagre pay rise, if anything at all. If this covers 80% of employees, then some of the worst workers in an organisation and some not too far from the best will enjoy (please pardon the irony) the same pay rise. It does not take a genius to work out who is likely to be heading for the nearest recruitment agent in this scenario.
One issue that most partners struggled to acknowledge is the personal resentment that accrues when pay rises are inadequate. More senior members of staff may well look at a firm’s performance, determine what they estimate to be equity partners’ remuneration levels (which could be fairly obvious from published accounts), and benchmark against their own piddling salaries.
These days, reward also needs to be viewed as part of a total package. The first thing to do is benchmark against the market, which is usually possible. The problem is that employees will measure against job adverts and surveys, which tend to show considerably higher salaries than are actually paid in reality. This issue is compounded when you realise that in a tight market new recruits typically get paid far more than existing employees at the same level. Therefore something more is needed.
Accountants are really bad at incentivisation. While it may take little to keep trainees happy, at more senior levels innovation can be important.
Speaking personally, I have always been happy to be paid based on performance. Once you reach a certain level, it is possible to measure achievement. Why not try offering key people the opportunity to accept a lower base salary but a percentage of fees achieved? This should be a no-brainer for the employer, since if the individual does not perform your costs go down and if they achieve phenomenal results then you can afford to give them say 10% of the upside.
Bonuses have also gone out of fashion but are valuable when it comes to retaining and keeping staff happy. Very few people who know that a big bonus is on the way are likely to leave before receiving it. It is less certain what will happen afterwards but there should be a considerable feel-good factor for somebody who has just improved their pay by a significant percentage as well as the rollover impact of anticipating the following year’s even larger bonus.
A different and potentially financially neutral way of keeping people happy is to offer flexible working. Many employees now have strong views on work/life balance and may sacrifice a great deal to work four day weeks or from seven until three each day. Job sharing is also a possibility, although this may not be practical in many roles.
Depending on the nature of their duties, this could fit perfectly into your business needs, while making staff happy and, if they are working fewer hours than the standard but achieving the same outcomes, saving the firm money.
In summary, flexibility and considered generosity should be the keywords when considering how best to reward staff.