This presentation provides a brief overview of the process for reviewing and redesigning a salary system and structure for Local Councils.

Transcription

1 Developing Future-Fit Salary Systems. Mastertek has a long and proud history of partnering with local government. Our history in local government stretches back to the development of the Local Government Job Evaluation Methodology during the 1990 s. Mastertek consultants have continued our proud relationship with the industry since that time. We continue to work with General Managers and their leadership teams to address the challenges of sustainability and the State Government s reform agenda. This presentation provides a brief overview of the process for reviewing and redesigning a salary system and structure for Local Councils.

2 Time for a Change? Each day Mastertek collaborates with organisations across Australia to engage their people and build effective reward frameworks. Across the Local Government sector, many salary systems in place today were developed over 20 years ago following the introduction of the modern Award. Whilst the systems have worked well, many organisations are facing a similar set of challenges. The principles upon which those systems are based have often not been reviewed since their inception. In addition to the general ageing related challenges shown here, for many, the Local Government Reform agenda will mean that the time has come to review and redesign salary systems to ensure they support a Fit-for-the- Future organisational strategy. Lacking Relevance Skill descriptors developed many years ago lack relevance and meaning in relation to the requirements of today s jobs Capping Out large proportions of staff stuck at the top of their salary range and feeling a lack of performance-related reward Grade Creep where job evaluations have been used to push up the grade of a role in order to pay a higher salary Compression where salary levels for Managers has not progressed at the same rate as other roles, often a symptom of Grade Creep

3 Insights from the Data. 70.0% % of Incumbents at the Top of their Salary Range ("Capped Out") Source: Mastertek NSW Local Government Remuneration Survey 60.0% 62.3% 50.0% % Incumbents 40.0% 30.0% 39.3% 41.9% 47.2% 20.0% 10.0% 0.0% Band 1 Band 2 Band 3 Band 3 (des. MNGR)

4 Our Process for Review. PHASE ONE CLARIFY. Do we have a clear strategy or Reward Philosophy? Do we understand the needs and views of all stakeholders? What are the related systems and processes that need to integrate? + Why, specifically, are you considering a review of the current salary system? + What do you think the salary system and broader reward offering should achieve? + How would you describe the current levels of employee engagement? + Do you have any insights as to what changes or improvements stakeholders would like to see implemented? + To what degree do other processes/systems integrate with the salary system (e.g. capability frameworks, development planning, performance management, market benchmarking)? PHASE TWO CREATE. What is our target market positioning and where are we now? How do our jobs compare to one another? What is the optimal salary structure and design? + Detailed market benchmarking provides a key input to the design of a fit-for-purpose salary structure and related policies. + Consistently applying an appropriate JE method provides the second key input to salary structure design. + Bringing together all of the inputs from the Clarify and Create phases to develop detailed proposals for change + Build understanding and acceptance by testing and refining with stakeholders. PHASE THREE EXECUTE. How will we ensure that what s been designed gets implemented? + Complete a detailed impact analysis (considering costs, impact on employees, degree of alignment with related policies and processes) + Develop a practical and effective implementation plan that answers the me issues.

5 Developing Your Reward Strategy. CAUSE. Why we are here. CAPABILITY. What we need to be successful. CULTURE. The way we do things.

6 What s the Point of Reward? Whenever we consider change, it s important to be clear on what we are seeking to achieve. Before developing solutions we must understand our people and our strategic imperatives the WHY? of reward. We can then look at using reward to support truly engaging employment propositions that drive organisational success. The objectives of any given reward program or strategy might be defined through the underlying benefits we seek to achieve Increase employee engagement Improve employee motivation to contribute to success Recognise contribution and achievements Support and reinforce alignment behind a common purpose Enhance opportunities for job satisfaction and enrichment Develop pathways to support personal contribution and growth

7 Paying For Performance? There is a clear absence of a strong pay for performance correlation. The consensus from our research was that pay is not the most important factor in driving performance, that the highest paid are not the highest performers and that there is not a clear correlation between high pay and organisational performance. There is a clear correlation between high pay levels and enhanced organisational performance. The highest paid individuals relative to their peers are the best performers. Pay is the single most important factor in driving performance. 5 % 5 % 17% DISAGREE AGREE DISAGREE AGREE DISAGREE AGREE 48% 67% 78% Without significant incentive opportunity, your organisation would struggle to attract and retain key talent. Short Term Incentive Plans motivate employees to make a greater contribution than they otherwise would. An overhaul of incentive based reward is needed 8% 15 % 2 2 % DISAGREE AGREE DISAGREE AGREE DISAGREE AGREE 5 2 % 60% 5 8% Professionals believe that Incentives are important. Sixty percent of respondents believe that a significant incentive opportunity is needed to attract and retain talent. Despite popular debate on the effectiveness of incentives, short-term incentives are viewed as having a strong motivational impact. BUT a majority believe an overhaul is needed!

8 Keeping Pay in Perspective. Be warned, reward levers can also have a very negative impact if used inappropriately or badly designed. For example, much research has shown that when creative thought is required incentives can be detrimental to the process. Research has also suggested that there is no organisational benefit to be gained by over investing in reward as highlighted in Herzberg s model below. Factors Leading to Dissatisfaction. "Rewards can deliver a short-term boost - just as a jolt of caffeine can keep you cranking for a few more hours. But the effect wears off - and, worse, can reduce a person's longer-term motivation to continue the project." Factors Leading to Satisfaction. Daniel. H. Pink Dissatisfaction eliminated when optimal. No increase in satisfaction. Job satisfaction increases with optimisation. Poor remuneration Bad work conditions Lack of promotions Poor benefits Lack of job security Management & Org. support Recognition Personal and career growth Feedback Clear direction and objectives HERZBERG

9 Building a Best-Fit Salary Structure. CAUSE. Why we are here. CAPABILITY. What we need to be successful. CULTURE. The way we do things.

10 What s the Right Structure? Hierarchical Organisational Structure Flattened Grades. Broad Banding. Market Matching. + Pay the job + Relatively rigid structure; + Narrow pay ranges (±10% of mid point); + Retains granularity of grading; + Accommodates large number of grades/levels; + Minimum overlap in pay between grades; + Pay ceiling easily reached; + Limited adaptability to market; + Focus on control over salaries. + Pay the person + Consolidates a number of grades into broader salary bands; + Relatively flexible structure; + Broader pay ranges (±20-% of mid point); + Pay can increase with capabilities; + Allows adaptability to market movement; + Overlap in ranges paid to each band recognises individual contribution to organisation over hierarchy; + Emphasis on career development; + Pay levels rely heavily on market movements; + Pay the job & the person; + Requires adaptability to market; + Pay is determined on a job-by-job basis according to market rates and individual capabilities; + Ensures market competitiveness; + Works well for companies with small employee base; + Well suited to companies dealing with experts or knowledge workers.

11 Job Evaluation Systems. It is important to remember what JE is for and what it is not. + Is the process by which we define the relative worth and size of a position within an organisation + Involves assessing the position against various job factors which are considered to be common to all jobs in the organisation + Formal job sizing results in a total points score being assigned to the role + Important to remember, that job evaluation is concerned with the job and not the person + Can be used to develop a grading structure where a particular range of job size points equates to a company s specific grade + Does not set rates of pay, rather it allow a pay framework to be developed. Read across to the Award Bands/Levels? Sufficient magnification for your organisation? Ease of application and training/capability requirements? Remember, JE is about internal relativity only not comparison to market. Selection of an appropriate methodology is paramount, as you will not want to change methodologies later on!

12 Market Benchmarking. Survey Selection Specific Comparators + Mastertek s NSW Local Government Remuneration provides the a granular breakdown of NSW remuneration practices available, across 150+ roles across all typical council functions + Other market data sources are available! + Data should enable a comparison to be made to other similar-sized Councils, but predominantly your peer group should align with your target labour pool. Job Matching + Informed by a job mapping exercise we advocate role-by-role matching to survey positions based on PD content. + Aim is to make matches based on the general and core functions of the role, knowing that each organisations role may have subtle differences around the margins. + Remember, benchmarking should be independent of job evaluation outcomes. Target Positioning + Analysis should establish a range of remuneration evident in the market rather than a specific point (for example look at a spread from the lower quartile, to the median and the upper quartile). + Regardless then of your overall target positioning you ll be able to assess the ability of Council to meet the expectations of a range of candidates with differing skills and prior experience. Basis of Comparison + Comparisons should look at your remuneration arrangements across a range of aggregates from simple Base Salary through to Total Remuneration Package. + Comparing to multiple aggregates provides insights into the relative competitiveness of each of the package components.

13 Building a Best-Fit Salary Structure. + Below is an example of how the key inputs can be used to develop a best-fit salary structures. Market rates guide the development of salary ranges aligned to the natural job groupings informed by JE Each dot represents one of Council s unique roles Best fit structures are literally those that best fit the population of your organisation when combing JE and market benchmarking. Job evaluation outcomes provide the basis for grouping roles of similar internal job weight

14 Salary Progression Options. Skills & Capability Only. + Salary system re-designed to offer competitive rates of pay based on required skills and capabilities on a role-byrole basis. + Salary ranges provide facility to recognise personal growth. + Consideration could also be given to further use of broad banding principles. + Council may develop other programs to ensure effective recognition of performance and contribution. Skills & Annual Performance. + Progression may initially be based on skills acquisition and then become performance focussed, essentially dividing salary ranges into two parts. + Essential that the performance management arrangements are reviewed in order to provide confidence in the application of the system. + Clarification of whether performance related increases can be withdrawn if performance subsequently drops also required. Performance Only. + Salary progression within a range could be discretionary (rather than step based) and based on performance only. + Assumes that individuals are fully competent upon appointment and should be paid accordingly, with salary range offering upside for out-performance. + Given challenges identified with performance management this approach would be unlikely to achieve employee and TU buy-in until there is greater confidence in those arrangements. Merit-Matrix Review. + Uses a combination of inputs to review an individuals salary; typically, position in range/market and performance rating. + Matrix developed centrally based on available/committed budget and minimum salary increase commitments. + Ensures best performers/relatively lowest paid get larger increases

15 How to Get Started. We always recommend to commence the review process with a Leadership Workshop: Detailed salary system design including; benchmark job selection, job evaluations, market benchmarking, structure design, development of salary ranges, salary progression/review mechanisms and all related collateral such as policy documentation. + Discuss and confirm the organisation s underlying reward philosophies + Consider preferred salary structure design concepts + Agree philosophical approach to salary reviews/ progression + Explore utility of other reward programs. Gap analysis and cost modelling based on current state to identify potential costs of transition, requirement for new supporting systems to be developed (e.g. capability framework) and ongoing cost forecasts. Confirmation of final salary system design in context of cost analysis and scale of change. Formal and informal consultation processes with key stakeholders should be managed throughout the project to ensure acceptance of outcomes.

16 Connect. +61 (0) Mastertek Pty Ltd. We understand that the complexity involved in developing HR, performance and reward strategies can be daunting. The good news is that deciding where, when and how to start can be the hardest part confidence steams from momentum. Our experience means we can help you formulate a practical action plan to build that initial momentum and we d like to bring our expertise to the table in a complimentary, obligation-free workshop. Click on the icons or contact us using the details shown and we d LOVE to discuss the process and organise a time to get started.