Ian Hodson: How should HR be more involved in high pay decisions?

Recent press coverage of senior severance payments and reward packages of executive team members has highlighted the necessity for HR and, specifically, reward managers to ensure frameworks are in place that not only guide a business’s decision-making, but protect the organisation’s public image.

The reward manager’s role is to create a framework that can be flexible enough to support recruitment and retention, but be transparent to employees. More often than not, we see decisions taken spontaneously without the involvement of HR and without considering the longer-term impact. This can often be in the form of stepping outside frameworks such as pay bandings, which then restricts the employer’s ability to reward over the longer term.

There is also the impact on other employees to consider, not only in respect of equality, but also how a lack of consistency in decision-making can have a negative impact on motivation and productivity.

There is also a need to have HR expertise involved to ensure reward packages are flexible enough to be tailored to motivate individuals. This is where HR need to operate alongside senior managers to ensure objectives are aligned with strategic aims, with the right incentivisation scheme in place to acknowledge achievement. For some, this may be remuneration mechanisms, such as bonus schemes; for others, it may be investment in resources for the business area. More often, it is the ability to have recognition mechanisms in place to acknowledge achievements and exceptional performance.

Legislation changes around annual and lifetime allowance restrictions for pensions and changing tax brackets also mean there is a need for HR’s expertise in discussing pay decisions. It is quite easy to incur a tax liability through a significant change in base salary on a defined benefit (DB) pension scheme, which can be demotivating.

Organisations leave reward experts out of senior reward decision-making at their peril because this often risks not considering the wider options, and not appraising the wider risks.

Reward managers have the responsibility to build remuneration and recognition packages and processes that can meet the needs of the business without needing to step outside the processes that are put in the employee domain. Not abiding by these processes breaches the trust of the wider workforce when it becomes known that they have not been followed and damages the employee-employer relationship.

Ian Hodson is reward and benefits manager at the University of Lincoln.

He will be speaking at Employee Benefits Live on 25 September.