PPMA 2013 Annual Seminar - Segmenting Talent and Reward - Daniel Hibbert

Segmenting talent and reward

PPMA Conference - 2013

Daniel Hibbert

MERCER

Agenda

Page

Why are new reward models needed? 2

Segmentation of talent and reward 7

Getting value from reward 10

Four practical ideas for changes 15

Questions and discussion 21

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Why are new reward models needed?

3

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Characteristics of local government reward

Strengths

• Equal pay compliance

• A high degree of transparency

• Strong governance and processes

Weaknesses

• Too many job titles and grades

• Negotiated, not designed

• No link between pay and performance

• Little connection between pay and talent management

• Poor and inconsistent communication

• These findings are based on PPMA Sponsored research at Hertfordshire County Council and the Wigan Metropolitan Borough Council

4

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The role of equal pay in reward management

• Gender pay gaps in local government relate to:

– Large numbers of women in lower paid jobs

– In places limited numbers of women in senior roles

• Equal pay compliance is a baseline: it should not be the sole objective of any reward system

• Varying reward solely by job evaluation and tenure is:

– Incompatible with developing a flexible, responsive and high-performing organisation, and

– May be just as risky as alternative approaches to managing pay

“It is a truism, better repeated than left unsaid, that not every difference in pay between men and women is proof of unlawful sex discrimination.”

Lord Justice Mummery – Haq v the Audit Commission - December 2012

5

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Pay is negotiated, not designed

This is typical local authority pay and grading structure:

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Green Book Grades

% P

ay

Ra

ng

e

0

50

100

150

200

250

300

Nu

mb

er o

f NJC

/Ha

y Po

ints

% Pay Range

NJC/Hay points

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Why “one size fits all” cannot work

7

• Local authorities increasingly have to deal with different:

– Service delivery models

– Types of jobs

– Employee aspirations (including generational differences)

– Employment markets and talent flows

• New models are needed to ensure that local authorities get value for money for their expenditure on reward

• These models will be different for different local authorities and for different segments of the workforce within the same authority

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Segmentation of talent and reward

8

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Alternative talent and reward models

Loyalty model

Market model

Career model

Dynamic

model

Specialist skills need to be developed internally and long-term loyalty is required by the employer

Skills are readily available in the external market and long-term career opportunities with the employer are limited

Long-term career opportunities are available for those who develop within the career path

The job is flexible/ broadly defined and the capabilities of the individual job holder are critical to the value created in the role

Talent characteristics

9

Incremental pay spine, with pay back-loaded so higher levels of pay become available with service

A single rate of pay aligned with the external market

A pay system that fits with the career path to support the development of individual through the career path

Pay reflects both the external market and is varied by reference to the capabilities of the individual

Reward approach

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The Market Model

Contrasting the market model with a career model

The Dynamic Model

Minimum salary

Developing Range

High Performing - Consolidated

High Performing -

Non-Consolidated

50

55

60

65

70

Ba

se

sa

lary

£'0

00

10

Additional salary paid to consistently strong performers

Individuals who are still developing into their role may

be paid in this range

Paid to exceptional performers, and not

consolidated into Base Salary

Minimum salary

Developing Range

21

22

23

24

25

Ba

se

sa

lary

£'0

00

The Rate for the Job paid

for the expected

standard of performance

Individuals who are developing

may be paid in this lower range

The Rate for the Job paid for the

expected standard of

performance

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Getting value from reward

11

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Element of Employment Value Proposition

Overall market positioning

Lag Compete Differentiate

Pay and benefits

Base pay

Profit sharing and incentives

Pension

Other benefits

Wellbeing policies and practices

Development opportunities

The nature of work (working environment, job satisfaction, etc.)

Private Sector

Local Government Private

Sector

Private Sector

Local Government

Private Sector

Private Sector

Private Sector

Private Sector

12

Local Government

Local Government

Local Government

Local Government

Local Government

A Total Reward approach

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Why communication matters

% of employees satisfied with their rewards

Source: Mercer’s ‘What’s Working’ study

National Norm

Communication rated good

How satisfaction changes if:

Communication rated poor

61%

71%

33% 27%

61%

52%

% of employees committed to their

organisation

• Mercer research shows a clear correlation between

– Communication and employees’ satisfaction with reward, and

– Communication and commitment

13

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Performance must be part of that communication

Business performance expectations

Poor individual performanceP

erfo

rman

ce

Time

• A candid performance discussion must take place prior to the cross-over point where individual performance moving from “Strong” to “Poor”

• Individual performance must keep pace with increasing and changing business performance expectations

Strong individual performance

14

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What is good practice in communication?

1. Total Reward statements

3. A “talent conversation”:

– In which the line manager provides feedback on both in-year performance and long-term development, and

– Can relate this to the reward system

2. A reward system that is clearly linked to talent development and performance

• This conversation cannot take place if the pay system has no connection with talent management and performance

• Without this reward systems cannot provide value for money

• Communication is not just about Total Reward statements and policies. There are three critical components:

15

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Four practical ideas for changes

16

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Four practical ideas for changes that can be made

• We have identified four practical and easily implementable actions that can be taken

• These are:

1. Rationalising grading structures to enable efficiencies and de-layering;

2. Making performance a part of reward communications

3. Useing the Career Model for jobs in clear career paths

4. Adopting the Dynamic Model of reward for Senior Manager pay

• These changes are a first step towards moving to modern and more flexible reward structures

MERCER 18

1. Rationalising grading structures

• Existing grades combined into broader Levels

• Current grades become Pay Zones within these Levels to retain control of costs

• A standardised Job Catalogue used to limited the number of different jobs

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

£' B

ase S

ala

ry

Zone 5

Zone 4

Zone 3

Zone 2

Zone 1

Min

MERCER 19

2. Making performance a part of reward communications

• Ensure that performance has potential pay consequences for all employees

• Reward employees at the top of pay ranges with non-consolidated pay

Progressing through pay

ranges

At the top of the pay ranges

4 Outstanding1% Non-

consolidated

3Above required standard

2 Required standard

1 Needs improvement

Unsatisfactory

Performance Outcome

No additional payments

No increment

Increment

MERCER 20

3. Aligning pay with career development

Newly defined Capability Levels

SCP Point

£

35 29,236

36 30,011

37 30,851

38 31,754

39 32,800

40 33,661

41 34,549

42 35,430

43 36,313

44 37,206

Sen

ior

So

cial

Wo

rker

(G

rad

e 10

)

Current approach

Advanced 2

1% Non-consolidated

1% Non-consolidated

So

cial

Wo

rker

(G

rad

e 9)

Advanced 1

Established

Developing

• Create linked grades to enable employees to progress based on their personal development

• Movement between levels within linked grades should be based on individual competence, assessed against role-specific criteria

• At higher levels progression should also be based on business need

Ca

ree

r de

velo

pm

en

t

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4. Adopting the Dynamic Model of reward for senior managers

21

Senior Manager

roles circa 2005

High job complexity/

flexibility

Low job complexity/

flexibility

Pay determined by job size

Pay determined by individual

capability

Senior Manager

roles circa 2015

Senior Manager

roles 2013

• Individual capability needs to become part of pay determination for more flexible and complex roles

• This requires a Dynamic Model of talent management and reward which varies pay for different levels of individual capability

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Questions and discussion

22

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Daniel Hibbert PrincipalMercer Tower PlaceLondon, EC3R 5BU

+44 (0) 20 7178 5520 +44 (0) 7557 031371daniel.hibbert@mercer.com

Contact details

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