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How do you justify leadership salaries to employees?

The debate over executive salaries, like the recent controversy at Nat West, raises questions about how organisations determine pay scales.

Recently there was some controversy as share holders questioned the £1.2 million. Salary for the new boss of Nat West. The issue was not so much the size of the salary but that it was the same as his much more experienced predecessor. In response the board pointed out that the salary was set following a bench marking exercise within the industry.

When recruiting an organisation asks HR to undertake a bench marking exercise to establish the level the salary should be set at to attract suitable candidates. The successful candidate then seeks to negotiate a higher salary based on their extensive relevant experience. Happens all the time. But could it work the other way, the successful candidate is offered a lower starting salary due to their limited experience at this level but with the understanding the salary will rise over the next 2 to 3 years to the level advertised. It’s common practise in many organisations for salaries to be set with in a range.

So is bench marking totally irrelevant when those in demand can name their price? Is bench marking the way that organisations manage the expectations of the majority? How does an organisation take account of the level of experience of a candidate/post holder? To what extent should employees be able to negotiate their salary level? What about bonus schemes  how do they  fit with a commitment to equal pay?

Most employees only know what other people within the same organisation are being paid when they see the posts advertised. The same is true when it comes to what someone is earning doing the same job in a different organisation. But they want to know. However people can be on the same salary range  but on a different point within it. (Perhaps due to experience, exceptional performance or superior negotiation skills.) Sometimes the salary range is so wide there can be a very big difference in what two people doing the same job get paid! Then there are bonuses, two jobs of equal value, on the same salary scale but one earns twice as much because of the bonus scheme. A bonus scheme which only applies to certain jobs.

In reality employees don’t know what the person sitting at the next desk earns never mind what their boss earns or what senior managers are paid. And most organisations think this is a good thing because even when people are happy with what they are paid if they learn someone else is paid more for the same or similar work they become very dissatisfied.

Fairness requires transparency, equal pay for work of equal value is impossible if one sector has a generous bonus scheme not open to another. Individual negotiations can’t be permitted to undermine the organisations pay structure. Bench marking shouldn’t be just about establishing the going rate but take account of bonus schemes, benefit packages  and perks.

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