Giving staff free rein to set their own salary might sound like an April Fool’s joke, but the concept is genuine. And when you look at the detail of how it works, it’s less outlandish that it seems.
There’s a lot more to it than plucking a number out of thin air and employers will need to have parameters in place to avoid scenarios where staff are requesting eye-watering salaries.
In fact, the concept could make a good degree of business sense given how it ties in with the issue of pay transparency, which is becoming increasingly important for employees and investors alike.
For employees to propose a salary that is ‘reasonable’ and ‘realistic’, they should be encouraged to reflect on various factors before submitting a request. This should include, but not be exclusive to:
• An assessment of their own performance over the past year;
• What they plan to achieve in the coming 12 months;
• The going rate for their occupation and sector;
• What their peers in the organisation are paid;
• What their employer can afford to pay them.
On this last point, it’s likely that employees will need to have a basic understanding of how their organisation works and the costs involved, which may require training if it’s not already part of their day-to-day-job. Being armed with this context means, in theory, people could conclude that their pay should go down as well as up, or stay the same.
Some companies will then ask their staff to put their proposal in writing, others might have a committee who you present to and some may suggest a more of an informal talk with your manager. All requests will then be reviewed by the HR or governance team who have final say over the decision.
Whilst there are checks and balances to the process, there are still some pitfalls which employers should be mindful of.
Firstly, employers must recognise that asking staff to assess their own performance is a subjective exercise and it’s easier to justify a pay rise in certain roles like sales, which have clear targets. Some workers will oversell themselves, others will undersell.
Another issue is that, traditionally, women have been more reluctant to ask for a pay rise than their male counterparts and this approach could result in them asking for less than they’re worth. However, if the reflection part of the process is thorough enough, it’s a risk which should be mitigated.
This type of policy has wide-ranging implications for payroll and reward professionals in organisations that are considering adopting it. These professionals will need to start by working out how often employees can set their pay, such as once a year or every quarter.
They will need to be prepared to support line managers who can expect to receive questions from their team about the organisation’s pay process. They will also be responsible for implementing any technology that allows staff to view the salaries of their colleagues. And most likely, payrollers will need to write a narrative which explains, to-date, how their organisation decides what its staff are paid and which behaviours they are looking to reward.
Giving employees the choice to set their own salary has gained the most traction among start-ups, where it’s helped to raise their profile in a competitive labour market. The policy is also much easier to implement in new businesses that are not affected by historical pay decisions that can compromise established companies. However, that’s not to say we won’t see the practice being adopted more widely in the future given the pressure businesses are under to operate more openly.
Cotton will be speaking at the Autumn Update conference, taking place on December 5th at the Hilton London Bankside. Tickets are available to buy via Jamie Thomas, from our delegates team, by calling 020 7940 4832 or email. Or, take a look at the event website here.