Memory Nguwi

I read with interest the proposed new pay structure for civil servants as reported in the Sunday Mail of 8 January 2023. I have a few notable points to highlight.

Let me start with a few definitions. A grade groups jobs of equal value to an organization. A pay structure shows each grade’s minimum, midpoint and maximum salary. The difference between the grade minimum and maximum salary is called a grade pay range.

Both the range and progression are often expressed as a percentage. The difference between the grade midpoint salaries of adjustment grades is called grade pay progression.

The article reported that the civil service will not have a pay structure where individual employees will now progress within their grades based on academic qualifications, experience and seniority.

Before I define what challenges may arise, let me first define what progression means. Pay progression can happen within the same grade or by moving from one grade to another. Normally moving from one grade to another will be covered under the umbrella term promotion.

I suspect that the civil service commission was probably prompted to take this action because of the challenge of pay compression, which is common in government institutions across the globe.

What is pay compression? Pay compression is when salary differentials become insignificant to be equitable, leading to complaints from employees. Pay compression is a situation where there are insignificant or no salary differences for individuals in the same grade.

It is also present when there are no significant differences in salaries for individuals in adjacent grades. Sometimes pay compression is present when subordinates earn more than their bosses. Whenever pay compression is present, there is discontent around pay equity.

It may lead to staff turnover, especially in critical, high-value roles. When pay compression exists, it shows that the leaders in an organization have ignored performance, tenure, skill and experience when allocating salaries.

Once an organization does not follow pay structure principles when adjusting salaries for people at various levels, it leads to pay compression.

When leaders in an organization decide to give across-the-board pay increases, it can lead to pay compression. Sometimes unionized staff get higher increases than managers leading to them earning more than their managers. This is the worst form of pay compression. Pay compression can be experienced when new employees earn more than their more experienced colleagues in the same grade.

The core principles of a pay structure are that each grade will have a minimum, midpoint and maximum salary. There will be a salary difference between adjacent grades, referred to as progression.

The standard rule is that new and less experienced employees are paid close to the pay grade minimum. Competent and consistent performers are paid around the midpoint of the grade. Only exceptional rare talent will be paid close to the grade maximum. When these principles are ignored, it leads to pay compression.

So how do you address pay compression or ensure your organization does not experience pay compression? First, you must have a pay structure supported by a clear policy and procedure. You spell out how salary decisions are made and implemented in such a policy. One such key decision is that all new employees will start at a salary grade minimum unless there is a justifiable and verifiable reason why they should earn a salary close to the midpoint of the grade.

The other solution is that no employee should be paid outside their grade salary range for whatever reason. As you know, each grade will have a salary range in a pay structure. This salary range can be from as low as 15% to as high as 100%. The salary range is much lower in the public sector than in the private sector. Low salary range and progression can lead to pay compression.

Another way to deal with salary compression is to ensure that you factor in a merit component in all salary adjustments. That will bring salary differentials for people in the same grade based on performance.

One of the ways to deal with the effects of pay compression on your staff is to implement a separate performance-based pay system (based on once-off payments) to supplement the basic pay structure. Such a move will lessen the burden on those employees who feel they are unfairly treated on the basic salary.

The challenge with the proposed new pay structure
The idea of pay progression through grade advancement is noble. The problem is that it can lead to more problems. For example, research has consistently shown a weak relationship between academic qualification and job performance.

It does not necessarily follow that employees with higher academic qualifications will perform better on the job. Instead, performance should naturally flow from an individual’s knowledge acquired on the job or through academic studies. Rewarding academic qualifications is focusing on regarding inputs instead of results or outcomes.

This policy will benefit poor performers who happen to possess higher qualifications. This policy is likely to trigger the race for higher academic qualifications. Encouraging employees to get academic qualifications is good, but rewarding it could bring more challenges.

Recent scientific research shows zero relationships between job experience and performance. Again there is enough scientific evidence to show a very weak relationship between job experience and job performance.

It does not necessarily follow that a director with 15 years of experience will perform better than another director with 10 years of experience. The likely result is that young professionals will be discouraged by this system and probably exit early.

I also understand that the system will allow people to progress based on seniority. Seniority is “the fact or state of being older or higher in rank or status than someone else.” Research shows that age has zero relationships with performance. I would also assume that seniority could mean the role is graded in a higher grade.

Most job evaluation systems price jobs on the basis on minimum educational qualifications and experience in addition to other factors. The structure of how the academic qualifications and experience would be factored into the remuneration will be important if the civil service has a grading structure already, to some extent, the experience and academic qualifications are already catered for in the job evaluation process.

The most value-adding progression you can do within a given structure is that based on performance. I understand the challenges of documenting and assessing performance in organizations such as the civil service. I would still urge them to lean more towards performance-based progression instead of academic qualifications, experience and seniority.

The progression issue can be emotive, but I would have done it differently. If the civil service cant use performance assessments for the progression of employees within the grade, I would have opted to use once-off payments to reward the accumulation of academic and service milestones. The challenge with the proposed approach is that payroll costs will likely go up significantly with no corresponding value addition by the employees who progressed under this structure.

To deal with this issue, I would have opted for a process where, for attaining a Masters degree, an employee gets a once-off payment equivalent to three times their total monthly package or even five times. That is cheaper than adding the advancement cost to a basic salary. Once the advancement is added to the basic salary, it’s a fixed cost paid monthly regardless of whether the academic qualifications and service/experience accumulated add value.

With regard to ingrade advancement, I would use individual performance ratings. That way, you avoid rewarding erratic performance by some employees.

Under this arrangement, advancement will only happen if the individual consistently achieves a certain performance rating threshold for three consecutive assessment periods. I would then use the individual’s grade compa ratio and performance in the final calculations. Effectively you develop a merit table based on the compa ratio and individual rating.

This process ensures that only those adding value are rewarded through the process. Additionally, the biggest benefit of this approach is that you save payroll costs.
In its current format, the challenges will likely be more and put more payroll cost pressure on the treasury. It is better to push for performance at all levels, regardless of the challenges.

Given the size of the civil service and the fact that this process will push everyone at some stage to the top-of-the-grade maximum, it means more payroll costs. It is an accelerated drive towards higher employment costs. The sustainability of these costs will become an issue in the long run. Unlike performance-based progression, which only rewards top performers, the proposed system will allow people to earn more based on higher academic qualifications and accruing more service, pushing employees’ salaries towards the top.

There will be a race for academic qualifications to earn more. Service earnings are also guaranteed as people get more experience, pushing people to the top of the pay grade. The cost will be astronomical, especially in departments with low turnover.

Conclusion
Given the above challenges, I would have recommended performance-driven progression based on individual performance. In that case, only consistent, exceptional performers would get the in-grade progression.

Remember, in addition to other progressions, currently, there is also moving up within a grade based on salary adjustments linked to inflation and cost of living. However, across-the-board adjustments lead to more pay compression.

Grade advancement based on tenure, academic qualifications, and seniority are outdated practices.

Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant- Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm.Email:[email protected] or visit our websites https://www.thehumancapitalhub.com/ and www.ipcconsultants.com