Balancing the Books
Having trouble keeping your paybill within budget? Here are a few options and ideas.
Step one is to make sure there is an appropriate amount in the budget in the first
place. That is not as easy as it sounds, especially if yours is an organisation that
budgets on a bottom-up basis and lets Finance add the growth assumptions. Demand
a formal role in the planning processes. After all, if you are the one responsible
for negotiating the annual pay review and for developing any additional reward elements,
you have a right to have been involved in setting the parameters. Sorry we can't
give you any more because Finance didn't put enough in the budget is not an argument
that will enhance your negotiating cred.
To influence the budgeting process you have to show that you know more than others
about the paybill and the factors influencing it. Have an agreed policy as to which
pay markets you are competing in and where you need to be placed in those markets
(not everyone can be above average). Be the one who knows how the markets are moving
by participating in surveys and salary clubs, buying relevant survey data and logging
key competitor job ads. Not only will this help you budget it will enable you to
counter all those assertions that everyone else pays more.
You also need to track pay costs on a systematic basis. Turnover, replacement salaries
and vacancy times all affect the year-end cost outfall. In some organisations you
will be able to use payroll data but more often you will need your own records -
but ensure Finance understands your figures or they will not believe you. Identify
a useful indicator of pay spread within ranges (average as a percentage of target
pay, for example) and monitor it regularly. Ensure you build this into the budgeting
process. If many staff are low in their ranges you need to budget for an appropriate
amount of progression up the range.
Getting back on track
Even good budgeting does not mean you will never have to manage costs down. What
can you do about it? In extremis you may need to go in for what the Civil Service
likes to call efficiency savings - ie, using fewer people or cheaper people. With
luck that will not involve redundancy but does mean that not every job has to be
replaced when someone leaves or is promoted. Parkinson's Law (Work expands to fill
the time available) is alive and well in many offices. There is often slack in the
current arrangements. Even when extra staff are required you may be able to get away
with a few new junior staff (rather than a whole new hierarchy) if you assign it
to one of your more effective managers. Treat every vacancy is a cost-saving opportunity.
The approaches you take to the annual review and to progression through the ranges
have a big effect on your room to manoeuvre when costs are tight. A three-year pay
deal is good for employee relations but inflexible. If negotiating annually, be careful
not to commit to too high a minimum increase; leave some flexibility. Most parts
of the Civil Service, for example, must submit an annual pay remit for approval.
This will normally include an allowance for what they term recyclables - money saved
because vacancies are rarely filled immediately and then usually by someone lower
in the pay scale than the leaver.
How do people move through the ranges? Under traditional incremental systems the
amount pre-committed to pay for increments can cost as much as the basic percentage
rise. Reducing increments as people climb through the ranges can prove useful (depending
on where staff sit in their ranges). If you reflect performance into pay try to pay
some of it as a non-consolidated amount - either all performance awards or just the
last performance award at the top of the scale. After the first year non-consolidated
payments are not then an additional cost. In general, bonuses or annual profit-share
are an effective way to flex costs with income.
This is a complex subject and I have only scratched the surface. What will be acceptable
or effective in one organisation will not be in another. The key lesson is to make
sure you really understand where your payroll costs lie and the pressures that work
on them. As well as raising your internal credibility it will help you identify a
wider range of options when money is tight.
Frank Hobson
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