For all employers, it is important to try and establish sustainable differentials between jobs - possibly by a process of job grading. The problem with differentials is that there is a dual perspective and the old joke is perhaps apposite: 'if I am paid more than you - that is a differential, but if you are paid more than me, that is a discrepancy.' A pay/benefits chart may also be helpful.

Unless there is a demonstrable process of job worth assessment, the 'seems about right ' method of determining a package may create problems. It may be difficult to substantiate differentials generated without, at least, an awareness of a number of factors. All employers should continually review their reward package which is determined by a number of factors.

1. The market rate - what other employers are paying for similar jobs in the locale. This can be determined from checking with the media, job centres, local employers' information exchange, industry wide information exchange, local, regional and national surveys, and even government statistics (although nationally based figures should be treated with some caution, simply due to the effect of compiling statistics based on estimates, or even guesses, from respondents). If the employer wishes to retain good employees it may be advisable to pay slightly over the market rate, but only those that merit a premium should be recruited (or at least retained).

2. The availability of suitable labour. If employees can be trained to perform particular jobs in-house, is the supply of trainable labour scarce or plentiful?

3. The availability of required skill levels. If labour cannot be trained, are the skills we need scarce or plentiful? The organisation attitude to both these points may also help with staff retention. Many employees value the opportunity to improve their personal skills and it is largely a fallacy that well-trained employees are more likely to leave. Most people will leave if they cannot exercise skills that they have or have acquired.

4. The particular requirements of the Organisation. Are our needs special so that we restrict the numbers who can apply? In such a case, a premium to the market rate will almost certainly need to be paid.

5. The particular requirements of the job. Are the needs of these jobs so special that the numbers who can apply are further restricted? A premium to attract suitable candidates may have to be offered.

6. Long-term developments within the Organisation. Are we looking for short-term 'peak cover', project-related work, or long-term employees? Although it could be argued that those wanted for shortterm contracts could be paid less, to obtain the skills we need a premium may be necessary. In any event, under the FIXED TERM contracts legislation, if such people are performing duties comparable to permanent personnel they are entitled (unless it can be objectively justified otherwise) to the same benefits as the latter.

A similar analysis should be carried out at least annually and possibly more often, in order to ensure that the perceived value 'package' on offer is maintained. Failure to do this may lead to the loss of a number of employees - probably those the employer least wishes to lose. If wages are reviewed annually the word 'review' tends to become synonymous with 'increase'. Employers believing in the value of recognition may find that granting small increases more often - and particularly if related to effort - can have a greater effect on morale than an annual review. It is generally accepted that the motivational benefit of a pay increase is eradicated within three months. Granting small increments tends to distort differentials however, unless a system of base salary (linked to a graded analysis of jobs) is used, with discretionary motivational payments paid on top (the latter being related more to the approach to the job by the job holder, rather than the value of the job itself).

Training Grades
Where performance increases with experience, newcomers could be put on a Training Grade - that is being paid, say 10–20% less than the actual rate for the job. As they become more proficient their payment can be increased until they achieve the required work rate or standard, and can command the full rate.

Long Service Pay
The principle whereby longer service employees are paid more than their shorter service colleagues, where experience has very little effect on output, must at least be challenged. Loyalty and/or long service may be better recognised by allocating increased holiday entitlement or other non-monetary benefits. Some commentators have suggested that when 'anti-ageism' legislation is introduced, long service payments and even additional benefits could be discriminatory. If such payments are to be made they may be best described as 'service related' and delineated as a separate payment, rather than as part of the salary, thus preserving the 'distinct' rate for the job.

Job Grading
The relationships (in financial and other reward terms) between various functions within an Organisation need to be supportable if arguments regarding differentials are to be avoided - or answered. Whilst a director may be able to satisfy him or herself as to the appropriateness of paying X more than Y, should there be a dispute, for example, regarding the principle of equal pay, some objective measure will be required to support such a 'gut feeling'. A degree of objectivity is required, to which end the person responsible for the task needs to be experienced in the operations required to be graded and to understand the grading scheme adopted.

The principles and practice of the scheme need to be explained to all involved, together with assurances that appeals will be held and examined impartially. Although a simple scheme such as paired comparisons (see below) does not require weighting of factors, most other schemes do incorporate this aspect and there needs to be general agreement regarding the various factors before implementation. Any weighting must be able to be justified.

Paired Comparisons

Paired comparisons, which is probably the simplest form of job grading, entails taking any two tasks and subjectively assessing which is 'worth more' than the other. A number of people can be asked their opinion to avoid favouritism or victimisation. The scores arrived at will not only indicate relative merit but also a crude relationship between the jobs which might allow some kind of differential to be applied - although this could be risky. It is essential that those asked to participate are knowledgeable concerning all the jobs.

Territory Payments
Sales representatives are often allocated a territory, with the undertaking that their earnings are in part or whole generated by commission on the value of the business or sales obtained from customers in their territory. However, a territory's potential can be changed by external forces, and/or demand can be altered by the development of new products so that it becomes virtually impossible for one person to service the territory adequately. To maximise sales the employer may wish to split the territory (or change its boundaries in some way) and/or allocate an additional member(s) of staff to exploit it more fully. The effect on the person originally servicing the area is that their income is cut, unless there is a clawback provision which in whole or part compensates them by, for example, increasing their salary (at least in part) to reward them for building up the territory. Alternatively, it might be thought advisable to retain the right to give (say) 6 months notice of a wish to change the whole basis of remuneration - although if this would lead to a reduction of income, the potential demotivational effect of this should not be underestimated.

Negotiation and Agreement
Unless the alteration envisaged above is handled with great care and with the agreement of both parties, it can lead to tribunal action.

The requirements of the NATIONAL MINIMUM WAGE also need to be observed. Thus, it may be difficult to comply with such requirements where an employee is paid only via commission. There might need to be a guaranteed minimum level of earnings.