How to navigate pay progression in a small organisation

Managing pay progression in a small organisation can feel like a balancing act. Typically with limited budgets, fewer hierarchies and tight margins, often there isn’t a clear path for salary increases. However, offering fair and motivating pay progression is essential for retaining your best people, rewarding good performance, and keeping your staff engaged and motivated. How do you take a practical approach that is fair and still sustainable for the organisation?

Why pay progression matters in small organisations

Whether you’re a charity or a small independent, the process of increasing an employee’s pay is not just about the financial reward. Here are just a few reasons why pay progression is essential:

• Helps retain talent – when employees are paid fairly, the risk of leaving to find better-paid roles elsewhere is reduced.
• Motivates and can improve performance – when pay is linked to performance it can encourage staff to strive to do their best.
• Builds trust between managers and staff if transparent and fair pay policies are in place.
• Helps attract good talent – and stay competitive when attracting recruits.

What to consider

It’s always a good idea to consider a salary audit before looking at pay increases. This involves evaluating the salary levels across the organisation to determine whether pay is fair across the business and ensuring all benefits are equal. Once an internal salary audit is completed, it is useful to conduct an industry benchmarking exercise to ensure that roles are in line with market rates. You can find tools on the internet to help you if you don’t have an in-house resource. 

Other points to consider include:

• Budget and the organisation’s capacity to be able to offer potential pay increases without impacting its financial viability.
• Examine the job roles and levels within the organisation. If there are flat team structures then pay progression may need to focus on staff development and their responsibilities, as opposed to being linked with promotions.
• If pay is linked to performance, then clear and measurable criteria need to be set. This will prevent ambiguity and bias, by ensuring the process is fair and transparent.
• Be mindful of employment law and the rules around equal pay in the Equality Act 2010. You must ensure that any pay progression does not unintentionally discriminate.

How to create a framework for pay progression

Many clients come to us with varied or no formal pay structure across their businesses. This leads to low motivation and resentment between employees. We advise and guide them through the following steps in the first instance.

1. Create a simple, clear pay structure. This should reflect the size of the organisation and its resources. It needs to include defined salary bands for each role / job level (including some flexibility for skills growth). You can refer back to the industry salary benchmarking to make sure that the bands are realistic and more importantly, competitive in the market.
2. If the organisation has a flatter structure, link pay to performance. This includes clear objectives in line with the business goals and should be underpinned by regular performance reviews to assess performance fairly. Managers will need to be trained to give constructive feedback and understand that targets should be fair and realistic.
3. Be open and transparent. Employees should be clear on how pay progression works within the organisation. This means communicating clearly, explaining the rationale behind any decisions (particularly where pay increases may not be possible).
4. Monitor and review. This process should evolve with your business, meaning that salary bands should be regularly benchmarked against market rates. Employee surveys can be useful in gaining feedback on the process and developing a structure that has employee buy-in.

Other alternatives if budgets are tight

In organisations where pay progression is not possible due to budget constraints it’s worth considering alternatives that are of value to staff.

• Help to develop their skills. Providing employee training, courses or qualifications to enhance their career growth can be extremely motivating. It also demonstrates the business’s commitment to supporting and developing employees.
• Offer additional challenges. Employees could be offered the chance to take on extra projects or learn new skills in an area they have not previously worked in before. All of this helps with their development and can boost motivation.
• Recognise and reward staff. This could be through a bonus scheme, additional annual leave or employee awards. At Bespoke HR we have a ‘six-month superstar’ award for those employees as voted for by their colleagues. We also reward long-service, offer free lunches and shout about staff wins in our weekly staff email.

Remember that pay progression is not always just about salary increases, but about recognising and rewarding the value that staff bring to your business.