Derek
Burn argues that considering the high costs employees place on an organisation,
too little time is spent analysing how this money is spent
The
capital and revenue investment in employees is unlike expenditure on any other
physical or capital asset in that it generally appreciates rather than
depreciates. But organisations seldom analyse cost versus return the way they
would on an investment in equipment.
The
10-year cost of employing someone today on £40,000 will run into hundreds of
thousands. As the investment grows in cost, will the return outweigh that
expenditure?
The
board would, rightly, agonise over an equivalent expenditure on a piece of
equipment that would depreciate to nothing over a similar period.
Many
organisations have employment costs that exceed 80 per cent of the total cost
of running the organisation every year. While finance is subject to audit in
every corner of the organisation, this cost seldom attracts more than a cursory
examination.
It
would be unthinkable for a board of directors to ignore return on capital, so
how can so many firms be blas‚ about the positioning of their salary structure
against the pay market? Performance appraisal systems seldom provide the assessment
capability they should, and so the pay structure and levels of reward and
progression within it go largely unchecked.
A
logical place for starting to achieve understanding of what is often the
largest cost to the organisation is job descriptions. These are fundamental to
individuals’ understanding of their roles, and to managers’ control of what is
done. They are, however, seldom up to date. Audit research shows that even
where they exist, it is usual for no more than 70 per cent of descriptions to be
accurate or complete.
Job
descriptions are one of the few mechanisms to use as a sound basis for deciding
reward levels. A sound job description need only be comprised of four parts:
–
Job title
–
Reporting relationships
–
Job purpose
–
Key tasks
The
analysis of the job under the factors used for job evaluation makes a fifth
element if it is to be used as the basis for pay.
The
audit of job descriptions should be straightforward, but there are about 20 key
audit points to be considered when checking the credibility and value of each
description. How many job descriptions, for instance, still include phrases
such as "Éto cover for any other duties that the manager allocates"?
How would this look to an employment tribunal?
There
are other key issues related to reward that must be audited if pay structures
are to be effective in fulfilling their business potential.
Grading
and broadbanding incorrectly applied or poorly maintained can be a hindrance to
corporate development – and a rich source of equal value claims. It is
especially dangerous to add or change grades without understanding the full
implications. Grade drift is an ever-present threat.
The
disillusionment of staff barred in their progression is a particularly costly
side-effect of inflexible grade structures that are out of touch with the
reality of the organisation. And a comprehensive pay audit and remedial action
are the only real solutions to this problem.
Research
shows that most performance management and appraisal systems are flawed in their
design and application. And local, national and international pay differences
all affect market reward levels and have an impact on the success of an
organisation. Yet how often are truly objective and professionally conducted
reward surveys carried out? The design, conduct analysis, interpretation and
application of pay surveys and their results should be the subject of rigorous
audit – otherwise, what basis do we have for the beginnings of fairness and
consistency in reward structures?
Non-basic
pay elements must also be included and measured as a proportion of
remuneration. But any pay audit should extend beyond hard, numeric measures to
issues of motivation and the impact of incentives and non-pay benefits.
To
make progress staff involvement in the design of reward structures is
important, particularly when implementing a job evaluation scheme that is to be
free of sex bias and other forms of discrimination. Unfortunately, the HR
function seldom uses its knowledge of pay issues to best advantage.
Derek
Burn is director consulting, DLA-MCG
Future
articles in this series will identify the audit points that can help both
achieve savings and identify more effective reward patterns.
Pay
Audit – Equal Pay Reviews & Beyond by Derek Burn, foreword by Julie Mellor
(chair of the Equal Opportunities Commission), is published this month by
Chandos Publishing (Oxford) Limited. It is available through Turpin Ltd on
01462 672555 or e-mail [email protected]
– quote ‘Reader of Personnel Today’ to receive a 20 per cent discount
