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NOTE: There were 3 speakers identified in this transcript. 

0:00:05 - Helen
Hello and welcome to the HR edit, the podcast from South East Employers taking a look at those common and often tricky HR questions. Today I'm joined by Chelsea and Sarah and we're going to be discussing market supplements. So, Chelsea, would you mind starting off by telling us what are market supplements? 

0:00:22 - Chelsea
Of course yeah. So market supplements are payments that are made in addition to basic salary to a particular job or jobs and basically they're paid to bring the cash remuneration of that job up to a level that's comparable with the wider labour market. So other organisations outside of the one that you're in they're usually set as a fixed annual amount and that's then paid either in monthly instalments or potentially as a lump sum at defined intervals. So it's paid as an allowance on top of base salary. They tend to be used as attractors, so they can help to improve recruitment into jobs which are maybe hard to fill. But they're also retainers. So people in those jobs where you'd have a problem if they left because you'd find it hard to fill, then you might pay them a market supplement to encourage them to stay with you. 

They're not something that's consolidated into basic salary, so they are kept very separate and as such they can be increased, decreased or removed as well. So they're not a permanent payment by any means. So they should be subject to regular review. They usually decided for no more than two or three years and then should be looked at again after that to see if they're still necessary and indeed what the relationship is between the base pay and the market, because things can have changed over time. So, and the other key point about market supplements is that they attach to a job, not to a person. So if the person moves within the same organisation and the job they move to doesn't attract a market supplement, then they wouldn't take the market supplement with them. 

0:02:18 - Sarah
That's really interesting, Chelsea. I see a lot of it on our SC Jobs website. When people are adding jobs, you know there's a base salary of this with a market supplement of this. I hadn't appreciated they were an annual thing. So when you compare them to something like a golden handshake, is a golden handshake a one off and a market supplement a regular payment. 

0:02:37 - Chelsea
That's right. So yes, a golden handshake would be an incentive to join a company and you would normally receive it after you've been in post for a certain amount of time pre-agreed amount of time. But market supplements are literally an addition to bring pay up, so that's why they're paid sort of continuously for an agreed period. 

0:03:00 - Sarah
Why would then an employee decide to have a market supplement rather than raise that base level of salary? 

0:03:09 - Chelsea
So it's not an employee's choice whether they get a market supplement or an increase to their base pay. It's the employer's decision to apply a market supplement to a particular post. But the reason why you wouldn't just increase base pay in this circumstance is because lots of organisations, and particularly local authorities, use job evaluation to establish the relative worth of each job within the organisation. So that places each job within a grading structure. So the grade and the grading structure that you've got outlines the maximum amount that you can pay for that particular job. 

So whether maybe you're an IT professional, a social worker, an accountant, if you've got the same level of responsibility, same level of skills and knowledge and the same level of sort of accountability, if you like then, and decision making and things, then you'll pay the same regardless of your profession. 

So if you were to say, have a problem recruiting, say, social workers, and think, oh, I'll increase the pay for social workers, you've then got a problem, because other people on the same grade would then say, well, my base pay needs to be increased as well, and you're then stepping outside of your grading structure. So but it's it really use it where the pay within your grading structure isn't enough to attract the right people that you need, or even perhaps, as I said, to keep hold of them once you've brought them in, because if there are skill shortages in a particular market, then the people that you need might be able to get higher salaries elsewhere. So, if you can match that salary without upsetting your own internal paying grading structure, so and there's obviously stepping outside of your grade structure because you're a risk in terms of equal pay claims as well. So so that's why you wouldn't, but that's why you use these as as an add on rather than just increasing base pay. 

0:05:21 - Helen
So, Chelsea, when would you use market supplements? 

0:05:25 - Chelsea
So normally you would look at them as a possibility where you've got some evidence that either there's a problem recruiting or retaining people into a particular job or maybe a team. So if, for example, you've repeatedly advertised the same job, you're not attracting suitable candidates, or candidates are coming for interview and then withdrawing before they start, or even if people start and then leave quickly, or if you've got very high turnover rate in a team maybe it's higher than your organisational normal Then in that case you might want to look at whether a market supplement is the is the part of the cause for that and whether you need one. But of course you also have to think about whether money is actually the problem. It might be other factors. So it could be things like job design, maybe too much pressure or stress in the job, it could be problems with working hours and how much flexibility you can offer people. Could be things like working conditions, the volume of work, even the management style, sometimes what training and development opportunities are available and whether there's opportunities for career advancement. So all of those things can affect how attractive a job is to somebody and also how long somebody's prepared to stay in a particular job or particular organisation. 

So sometimes if you identify a problem and you need to look for the sort of root causes of it, but if making changes in those areas can sometimes deliver improved recruitment and retention without the need for an additional payment, but sometimes it is purely almost about the money and you just need to pay the same as everyone else is paying to get these people in. So things like reasons for leaving exit interviews can be a really good indicator as to whether there are potentially factors at play other than pay. So it's always worth looking at those if you're looking to potentially bring in a market supplement. So Chelsea. 

0:07:40 - Sarah
Moving on from that, then how would you decide the amount you need to pay as a market supplement? 

0:07:46 - Chelsea
So to decide that you need to find evidence of what the market rate for this particular job is outside of your organisation. So there's various information sources available and which one you need will depend on the type of job which one's appropriate. But there are published salary surveys. So, for example, some recruitment agents offer salary surveys for jobs that recruit across a lot of different organisations Job adverts themselves, even simply just looking on Indeed or something, for similar jobs either within your region or nationally. And there's also bespoke pay benchmarking data that you can pay for. Or you know our organisational intelligence subscribers will have access to Cendex, which is our pay benchmarking data. So sometimes you'll have paid for data which you can use. 

But the thing with the data is you need to be able to check that. You're comparing apples with apples. So is the job that you're looking at roughly the same level of responsibility? Does it need the same level of qualification and experience, things like that? So you know, a job title alone is not going to be a good kind of match factor, but if you're looking at the actual content of the job or the level of responsibility, then that can be quite useful. 

You also need to think about whether you're looking locally or nationally, or both. So if for particularly for maybe lower paid jobs you might want to look not just for the same job, but jobs which have the same entry requirements as the job that you have For example, what does supermarket workers earn locally where you are? Because you might be competing for the same people to work for you, even though the job is different. So what you need to look for really depends on the type of job that you're struggling with. But essentially, what you're trying to do is establish the size of the gap between what you're paying and what the people that you want can get if they go elsewhere, and that gap is then the value of the market supplement, or a proportion thereof, depending on what your, what your, decision is. 

0:10:09 - Sarah
Yeah, that makes sense actually, when you say about it being a market supplement and then you know, supplementary to their basic pay. What I hadn't considered is, you know, looking for the same kind of entry level workers. You said about supermarket workers and if you're going for an entry level job then absolutely you need to look around at that. But you mentioned our OIS service, our organisational Intelligence Service, and we do a big chunk of what we're doing at the moment is pay benchmarking, isn't it? For those reasons, I think recruitment's a pretty tricky area at the moment, certainly in local government, and I know that we are doing a lot more work towards that. Ruth, our new CX, is going to do a lot of work towards that. So, yeah, a lot of benchmarking done here at SE, a lot of data gathering as well. 

0:10:52 - Helen
So, cChelsea, once you've assessed the data to establish any value gap, is there any risk associated with paying the market supplement? 

0:10:58 - Chelsea
Yes, they can be risky sometimes and that's one of the reasons why they're kept very clearly separate from basic pay. As I mentioned earlier, there can be a risk of equal pay claims because you're paying potentially paying people who are in the same grade differently. But they can also be quite divisive and can cause conflict within teams because, for example, if a certain level of professional is in shortage, then so you pay a market supplement. It might be the case that their manager actually that erodes the gap between them and their manager, but maybe their manager's role is not a shortage level. So you can end up with certain jobs within teams being paid market supplements, others not. So that can be quite divisive. 

Similarly, if you're paying a supplement because you've got recruitment problems and you think great, will advertise the job with a market supplement and you bring someone new in and pay them the market supplement, how's the employee who's been with you for several years going to feel that they're not getting the benefit of that supplement, so that might make them want to leave. So you then have to pay another supplement to get somebody else in to replace them, and so on and so forth. So when you introduce a market supplement, you often have to introduce it for everybody who holds that same job. If you've got more than one person in the same job, it can potentially get expensive, so you need to factor that in when you're thinking about whether to add or offer a market supplement. 

And, as I mentioned earlier, there's also the risk that pay isn't the root cause of the problem, in which case applying a market supplement isn't necessarily going to fix your recruitment or retention issues. But what it might do is potentially act almost like a golden handcuff, so somebody might come in, accept the supplement, then find that they're not happy with the conditions or managerial style or training, development opportunities or whatever, but then they can't go anywhere else because they can't earn the same going somewhere else. So you might end up with people who are potentially disengaged but staying just for the money. So that's why you really need to look at the whole thing in the round and make a really clear assessment of what you need and what's causing the problems. 

0:13:35 - Sarah
So that all sounds a bit scary. And I know a lot of people are probably thinking oh great, they sounded great until you talked about the risks. Please tell us if there's any way you can mitigate those risks, Chelsea. 

0:13:46 - Chelsea
Yes, there are risks. Of course. The key really is gathering good evidence, recording that evidence and basing your decisions about what to pay, who to pay and how long to pay it for on that evidence. So it's all really clear. So, as well as the market pay data that we talked about earlier, the salary surveys and things, you should also gather and keep evidence of your recruitment or retention difficulties. So that might be things like advertising schedules, short lists, turnover data, exit interview data, all that kind of stuff, and then, once you've decided to put a supplement in, you need to regularly review it. So, basically, you go back through the data gathering exercise, get all of that same data all over again just to confirm that there is still a recruitment and retention issue and what the current level of market pay is. So if your base salaries have changed in the meantime, it might be that that gap's got smaller, it might have stayed the same, it might have got bigger. So you might need to adjust the amount that you're paying or even remove the supplement if you know a skill shortage problem has sort of resolved itself in some way. So if you've got good data and you've got good records of that data and then you regularly review and potentially make changes. If the data shows that that's necessary, then that's all potential evidence to defend a potentially equal pay claim, so that's quite useful. 

The other thing you can do is you potentially could have the problem that one manager shouts louder than another. So it's a good idea to do some organisation-wide audits to say, okay, let's look at recruitment success rates and turnover in each team. Are there any teams where the market supplements are? Are there any other teams that are experiencing similar rates of turnover or lack of recruitment success? Have we looked at where the market supplements are needed in that area as well? So it's a good idea to look across and make sure that you're consistently applying evidence-seeking full market supplements as well. 

So they can be a really, really useful tool and they're particularly helpful in areas where professions are recruited across the public and private sector, because obviously there could well be a difference in salary and it enables the public sector to potentially catch up. But there are also some other areas where they're really important to retain skills that we really need in the public sector and ensure that we can attract the right people in. So they can be really useful. But you do need to have really good evidence for both their introduction and their continuation. And then you must review those really regularly and make it clear to people that this isn't an of right allowance, that it attaches to that particular job, that it has an expiry date and that it could be changed or withdrawn at any point. So there are ways to mitigate the risks and make them workable. 

0:17:22 - Helen
Thank you for joining us, Chelsea, and thank you as always, Sarah. If you are a member of South East Employers and have any questions or queries related to market supplements, you can always contact us at advice at seamp.co.uk, or for any other topics of HR advice, you can also visit the HR edit webpage at www.seamp.co.uk/theHRedit for any resources related to any of our episodes, including recommended actions before seeking market supplements and suggestions of evidence resources to support market supplement introduction or continuation. Be sure to subscribe to the podcast on Apple Podcasts, Spotify or wherever you get your podcast, and visit the SEE website at www.seemp.co.uk for more information on how the South East Employers team can help support you with anything HR related. Thank you for listening and see you next time. 

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