Is the end nigh for automatic progression pay?

In the Spending Round 2013 the government announced that departments will be putting in place plans to end automatic time-served progression pay in the Civil Service by 2015-16.

Substantial reform to progression pay will be also taken forward for teachers, the health service, prisons and police. In 2014 we have already seen strikes by NHS workers unhappy that Ministers in England and Northern Ireland have awarded NHS staff a 1% increase, but only for those without automatic progression-in-the-job rises.

How does automatic progression pay work?

The Government is committed to ending what it sees as an anomaly whereby public sector workers can earn an annual increment of anything between 1% and 4% depending on the type of pay-spine or incremental scale, plus an annual award to reflect a cost of living (or to use the jargon a ‘revalorisation’). Meaning the total annual pay award is actually 1% plus the value of the increment.

However, for many public sector workers in the public sector, particularly for those in the civil service arena, the annual increment is not a ‘gimme’. Incremental awards are more often than not, linked to performance and only available up to a certain point in the pay range, often deemed to be the market or target rate for the job. Beyond this point pay awards are typically subject to more rigorous performance assessments and are often non-consolidated. Bottom line here is that incremental awards are more often than not only moving individuals towards the market-rate for the role they perform and do not represent a double-whammy pay rise.

"Real-terms average weekly income across the working population is down 4.4% between 2010 and 2013. Compared to 15% less for the NHS"

The Office for National Statistics

Is this the end of pay progression?

But does the Government’s publicly stated policy position on abolishing time served incremental progression mean an end to pay progression as we know it? In the Government’s eyes the villain of the peace is the pay spine with fixed increments which allow individuals to accumulate increments year-after-year until they reach the top of the spine for their grade – at which point they typically only qualify for non-consolidated awards. So for those organisations where pay is linked to pay spines where progression is only linked to performance in the most cursory fashion i.e. all ‘satisfactory’ performers, will receive an annual increment, the end could well be nigh!

Yet, pay progression remains an important part of the reward equation and moving to a system which does not facilitate progression is likely to impact greatly on recruitment, retention and motivation. Even in the private sector most organisations reward policies will reflect some element of pay progression, albeit with stronger links to corporate and individual performance – balanced score card anyone?

So what is the answer?

We have worked with a number of public sector organisations over the past 12 months to re-design pay management arrangements to ensure those arrangements do not fall foul of Government policy whilst at the same time facilitating pay progression within pay ranges which are designed around pay-zones.

This allows annual pay awards to be adjusted based on an individual’s position in the zone and their level of performance thereby allowing flexibility to reward high performers at a differential rate and vary that award between consolidated and non-consolidated pay. Are these zones just pay-spines in a hidden guise? No, because within each zone there are no fixed points.

What are the advantages of this type of arrangement?

Apart from the obvious that it satisfies Government criteria – HMT are unlikely to reject the business case – it ensures that pay progression still remains a key feature of the pay system. However, it is important to remember that whilst this approach will allow you to retain pay progression as a feature of your pay system, it will shine a very sharp light on your performance management arrangements. Not least because it is based on differentiated individual pay awards on relative levels of performance.

In short, not only does it require a strong dose of performance moderation, it also assumes that you can define those relative levels of performance. And as one reward guru once said: don’t put the pay cart in front of the performance horse!

This article is filed under: Pay scales Job evaluation Pay progression