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Pay and reward

Introducing a non-discriminatory pay system

The need to introduce or develop a pay and reward system may arise when a business grows and more staff are taken on. Changes can be required to existing pay systems because of a change of ownership to comply with the equal pay law or so that a business can enhance their reputation as a fair employer.

To help avoid staff dissatisfaction or disputes, it's important your people know how their pay is calculated, and any pay and reward system should be clear and easy to understand. It is also essential that your pay system does not include any features which may lead to unlawful pay discrimination.

Even in a very small business, a structured pay system is easier to monitor and control, and is more likely to provide equal pay than a system which relies on managerial discretion.

Pay systems often include a grading structure, which provides a framework for managing pay and reward. A grading structure provides the same level of pay across groups of workers who are doing work that requires similar levels of effort, skills, knowledge, and responsibility. Each grade may feature a number of steps, levels or increments which allow pay to be increased at a specific point in time, or when some other specified criteria has been met by the staff concerned.

The table below provides an example of a simple pay structure, which features grades with pay ranges set for each grade.

Grade A	Grade B	Grade C	Grade D	Grade E
18,978	21,224	22,407	26,050	28,632
19,363	21,548	23,204	26,659	29,394
19,750	21,781	24,739	27,288	34,336
21,005	22,236	24,300	27,923	34,632

Different grading structures suit different businesses, but in every case consider how many pay grades are appropriate (for example, A to E). Pay grades, sometimes called job families, may include jobs related to each other (such as IT, or administrative jobs), but whether related or not, jobs should be placed within a grade on the basis that they have been identified as involving similar levels of effort, skills, knowledge and responsibility.

Also consider how many pay levels, steps or increments are appropriate within each grade. Care must be taken to ensure that the number of steps or levels within each pay grade can be justified, by meeting criteria which are fair and relevant to the work carried out. Including too many steps or levels on the basis of experience, for instance, may lead to unfair pay discrimination if this cannot be justified.

Example

A pay grade includes 10 annual increments or steps, and the justification for this is experience in the job. However, it takes only two years to become fully proficient in all aspects of the job. In such a case, the number of increments or steps cannot be justified on the basis of experience alone. This type of practice is potentially unlawful on the grounds of age and sex.

There must also be consistency when placing staff at a particular pay level, increment or step. For example, placing new staff at a higher level within the pay grade on appointment because they have negotiated a higher starting salary, can potentially lead to unfair pay discrimination.

You also need to check whether there is any overlap in salaries across different grade boundaries. Overlapping grade boundaries may lead to unfair pay discrimination, as an employee in a lower grade might be paid more than someone in a higher grade for work of that is of equal value.

You should also consider:

• Whether the existing system could be adapted or improved.
• Whether the system you intend to adopt could discriminate, directly or indirectly, against women or men.
• Keeping records of all discussions and any decisions made about the system.
• Monitoring your new or modified system on a regular, ongoing basis.

Involve your staff and their representatives in the process as much as possible. Taking time to consult the people who will be affected can be extremely beneficial to the process, and help ensure acceptance of the proposed changes.

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