Pay Systems and Pay Structures



Pay Systems and Pay Structures

Introduction

The issue of local pay is becoming of increasing importance too in the public sector, where the Government is pressing for greater variation in pay scales to target limited resources more effectively on those areas facing particular labour market problems. Much of the economic research reviewed below is designed to establish the level of local pay differences in the private sector arguing that these rates have been set in free labour markets.

Employers' approaches to local pay variation

Research funded by the Office of Manpower Economics (OME) Research and carried out by Incomes Data Services in 20031 looked at how local pay works in a number of private sector employers that have a wide spread of operating units across the UK (for example in banking, retail, and distribution). The key findings are:

* Most large companies with a network of branches operate within nationally determined pay structures.

* Local pay bargaining is not common among national employers, and those with local bargaining tend to see only minimal variation in pay outcomes.

* It is common for organisations to have relatively complex pay systems incorporating two or more mechanisms to enable them to respond to short and long term local market pressures.

* Within national structures there is often scope to pay more to employees in some areas through the use of allowances or regional/zonal pay bands.

* The criteria by which pay could be varied at local level tends to be very closely controlled from the centre.

* In most of the companies, employees typically remain on national pay rates, with only a minority receiving premium payments paid for specific locations.

In 2008, OME followed up this research by commissioning IDS to see how regional pay structures and processes had developed over the past five years2. It found no evidence that companies have become more and more sophisticated in their approach to pay variation. If anything, the overall trend has been towards making schemes less complex. Overall, it might be concluded that the appetite for making regional changes has diminished somewhat, although this may change. Although there are some tactical changes to allowances in London and a reduced number of pay zones among some retailers, overall there is no significant strategic new direction. One notable development, however, is that a some retailers and fast food companies have reduced the number of zones with which they operate under the impact of the rise in the National Minimum Wage.

Different staff groups are often treated differently to deal with different workforce characteristics. For example, managers may be recruited in national labour markets and be required to be mobile, while clerical staff are recruited in local markets and are largely immobile.

Employers therefore consider the impact of geographical allowances on mobility, and decisions have to be taken about whether allowances could discourage mobility if staff were to lose the payments on moving. Approaches to this problem vary, and in some cases staff moving at the employer's request retain the extra payments; in other cases ...