Setting salaries

Use this page to learn how to set a salary structure and ensure you reward staff with fair and competitive pay.

When setting salaries in your organisation, you’ll need to balance:

• affordability
• internal fairness (ie ensuring jobs with more responsibility are paid at a higher rate)
• external competitiveness (ie market rates).

You’ll also need to meet the:

• National Living Wage (NLW) for employees aged 23 or over
• National Minimum Wage (NMW) for employees aged under 23 and apprentices.

Many charities choose to pay the real living wage recommended by the Living Wage Foundation. This is different from the NLW, which is a legal minimum.

The Acas website states the current NLW and NMW.

A salary structure, or pay scale, is a system you can use to decide how much you pay employees.

It’s best practice to base a salary structure on:

• a formal job evaluation – a review of the relative importance of different jobs in an organisation
• the market rate of pay – the midpoint in an occupational pay range.

Job evaluations

The formality of your salary structure is likely to depend on the size of your organisation.

Very small organisations (for example, with fewer than 10 employees) may find it impractical to conduct a formal job evaluation. Instead, they could:

• determine a reasonable rate they can afford, which allows them to attract external recruits
• review job descriptions regularly, to ensure they stay up to date
• review salary levels each year, to ensure they continue to reflect market rates and be fair relative to other jobs in the organisation.

Once your organisation gets bigger, you are likely to need a form of job evaluation. For small organisations, a simple classification system, like the one below, may be sufficient.

Example job classification system

As organisations grow, they're more likely to need an ‘analytical’ job evaluation scheme, where the job is broken down into ‘factors’ and points are allocated to these factors.

Find out more about analytical job evaluation schemes from the Acas job evaluation handbook.

Benchmarking salaries

Benchmarking is the process of collecting salary data for similar roles in other organisations to establish the market rate.

It helps you offer fair and competitive salaries. If you set salaries below the market rate, you may find it difficult to recruit and retain staff.

There are several places you can go to check the average salary for a job role.

• NCVO trusted supplier CharityJob has a salary benchmarking tool you can use if you recruit through its portal.
• TPP publishes data from its Non-Profit Salary, Rewards and Retention Survey.
• ACEVO produces an annual Pay and Equalities Survey, the most comprehensive breakdown of the sector’s CEO remuneration packages.

More general tools you can use:

• Glassdoor focuses on crowdsourced data from employees who are working in the jobs now. They anonymously report their role, location and salary which is then factored into Glassdoor’s calculations.
• Indeed lets you search and compare more than 200 million salaries for free. You can search by job role or company.
• Reed lets you search by skill or industry. This is helpful where a job role is difficult to define.

Things to consider when benchmarking:

• Job titles in the charity sector vary. A particular job title in one organisation may have very different responsibilities to the same job title in another organisation.
• Alongside using these tools, consider looking at local job adverts for similar jobs in the same area as you, and checking with local contacts.
• Be aware that market rates do not give you the ‘answer’ – they're simply a guide and can sometimes be misleading. Where possible, you should use more than one salary survey or source of data.
• To attract and retain the best talent and protect your organisation’s reputation, it’s important to get this right. Don’t be afraid to get professional help if you need it.

Occasionally, you may find you need to set a salary at a higher level than indicated by your job evaluation and benchmarking, due to difficulties in recruiting. In this case, you could pay a basic salary, plus a separate market supplement. This helps explain why additional pay is being made and will remind you to review the market supplement against the market rate in the future.

You’ll need to consider whether you want to have single (‘spot’) rates of pay or to allow for salary progression. If the latter, decide what factors you’ll base salary progression on (eg length of service or performance). Consider all options and choose the most appropriate for your organisation.

If you decide to set salaries based on a scale (eg five points, each 3% apart), make it clear to staff that incremental salary progression each year is not guaranteed, but at the organisation’s discretion.

Some charities have performance-related pay schemes. Such schemes are intended to give most reward to those who contribute most. There are downsides of performance-related pay schemes – they can be time-consuming to operate and have the potential to cause more demotivation than motivation.

For further information, see the CIPD's guidance on performance-related pay.

You should consider developing a pay policy, so all staff and managers are clear about how pay is reviewed.

Your pay policy could include:

• a statement of intent, explaining the organisation’s commitment to an open and fair pay system
• the normal pay review date
• a statement that explains pay rates are reviewed annually without any obligation on the employer to increase them
• how jobs are evaluated
• who is responsible for setting and evaluating pay
• what salary progression, if any, exists
• the criteria for pay increases
• the process that staff can follow if they feel that their pay is unfair.

If you’re an NCVO member, you can download our editable sample pay policy.

• To find out more about the national minimum wage and other aspects of pay, read Acas’s guidance on pay and wages.
• Need help carrying out a salary review? Our trusted supplier WorkNest can help. NCVO members are entitled to a free call with WorkNest each year.