Annual survey report 2010
Reward management
Contents
Summary of key findings
3
Strategic reward
6
Base pay
8
Bonuses, incentives and recognition
16
Pensions and benefits
21
Reward measurement
24
Total reward issues
25
Conclusions and implications
29
Background to the survey
32
Reward management    1
Summary of key findings The ninth annual survey of UK reward management is based on responses received from 729 organisations, across all industrial sectors. The main aims of the research are to provide readers with a benchmarking and information resource in respect of current and emerging practice in UK reward management.
Strategic reward
Bonuses, incentives and recognition
• Just over a third of respondents report having a
• Cash-based bonus and incentive schemes are
reward strategy. A further three in ten plan to
widespread in the private sectors. The most common
create one in 2010.
types are individual-based schemes and ones driven by
• A total reward approach has been adopted by one-
third of the sample, while a further two in ten plan to take this approach up in 2010. • One in twelve respondents have abandoned their
reward strategy and one in twenty have ditched their total reward approach.
business results, such as profit or customer service. • The most popular reasons for having a bonus are to enhance the connection between pay and performance, to motivate employees and reward high-performers. • Around two-fifths of all respondents use employee recognition schemes, while three in ten use non-
Base pay • Overall, the most common approaches to managing
cash incentives. • Just under half of private sector employers have
base pay are to use individual pay rates/ranges/
a long-term incentive scheme and/or employee
spot rates and broadbands. For setting salary levels
share plan. The most common arrangements are
the most important methods are to use market
executive share options, share incentive plans and
rates (not using a job evaluation database), market
executive restricted/performance share plans.
rates (supported by a job evaluation database) and an ability to pay. For managing pay progression,
Pensions and benefits
the most common approach is to use individual
• Virtually all respondents have an employee pension
performance (either solely or, more typically, in
plan. The most common types of arrangement
combination with other factors, such as competency).
are final salary schemes, group personal pensions
• The key factors influencing the size of this year’s
and stakeholders with an employer contribution.
annual pay review are ability to pay, inflation and
However, outside the public and voluntary sectors,
movement in market rates.
most of the final salary pension schemes are
• Some reward specialists will be busy in 2010
amending the way that their organisations structure pay, attaching salaries to these structures and
now closed to new entrants, while a significant proportion are closed to future accrual as well. • Just under one-fifth of employers are planning
managing pay progression. However, there is less
changes to their pension arrangements in 2010,
change planned for 2010 than there was for 2009.
with the most popular options being to introduce
• In 2010, half of respondents predict that their salary
salary-sacrifice arrangements, increase employee
spend will increase, two-fifths believe that it will
contributions and amend the existing final salary
stay the same, one in seven forecast that it will fall, while one in ten don’t know.
pension scheme. • In 2010, two-fifths of respondents predict that their employee benefit spend will remain the same, onethird say that it will increase, one in ten predict that it will fall, while the remainder don’t know. Reward management 3
Reward priorities in 2010 • The total reward issues predicted to be key for 2010
are: ensure alignment with the business strategy; ensuring reward is market competitive; cost minimisation; and ensure reward is internally fair.
Table 1: Summary of key findings
Reward approaches
Pay structures
Factors used to determine salary levels
Factors used to manage pay progression
Key factors predicted to influence the size of 2010 pay review
Types of bonus and incentive plans
4 Reward management
Percentage of respondents using
Written reward strategy
35
Adopted a total reward approach
33
Individual pay rates/ranges/spot salaries
36
Broadbands
26
Pay spines
18
Job families/career grades
16
Narrow-graded pay structures
11
Linked to market rates (not using a job evaluation database)
40
Linked to market rates (using a job evaluation database)
31
Ability to pay
25
Owner’s/managing director’s views
13
Collective agreement
11
Individual performance
68
Market rates
48
Competency
38
Organisational performance
34
Skills
32
Employee potential/value/retention
32
Ability to pay
78
Inflation
39
Movement in market rates
37
Recruitment and retention issues
33
The going rate of pay awards elsewhere
28
Level of government funding/pay guidelines
13
Union/staff pressures
11
Employers with cash-bonus or incentive plans
71
Individual-based
58
Scheme driven by business results
47
Combination
44
Team-based
21
Ad hoc/project-based
11
Department/site based
11
Employers with recognition schemes
40
Employers with non-cash incentive schemes
30
Private sector long-term incentives
46
Table 1: Summary of key findings (continued)
Reward approaches Types of long-term incentives
Reward management changes planned for 2010
Total reward priorities for 2010
Salary spend predictions for 2010
Benefit spend predictions for 2010
Percentage of respondents using
Executive share option scheme
37
Share incentive plan
31
Executive restricted/performance share plan
26
Company share option plan
24
Save as you earn
21
Amend the existing bonus and incentive arrangements
33
Introduce a reward strategy
31
Change pension arrangements
22
Introduce total rewards
21
Increase the pay award differential
19
Amend existing recognition/non-cash incentives arrangements
17
Pay progression
15
Pay structure
15
Introduce a new job evaluation scheme
14
Way pay levels are determined
12
Factors determining the annual pay review
12
Introduce a recognition/non-cash incentive arrangement for the first time
12
Increase the bonus differential
11
Introduce another new bonus scheme
9
Introduce a bonus for the first time
9
Change an existing job evaluation scheme
7
Ensure alignment with the business strategy
52
Ensuring reward is market competitive
51
Ensure reward is internally fair
44
Cost minimisation
44
Increase
53
Decrease
15
Stay the same
21
Don’t know
11
Increase
34
Decrease
9
Stay the same
40
Don’t know
16
Reward management 5
Strategic reward Having a strategic approach towards reward is back after the recent economic turbulence.
Table 2 shows that 35% of our respondents have
We have also asked employers to indicate whether
adopted a reward strategy, while a further 31% intend
they do not have a reward strategy (57%) or, for the
to adopt one in 2010. It also reveals that 33% of
first time, whether they don’t now but did once (8%).
employers have adopted a total reward approach while
Manufacturing firms (11%) and public sector
another 21% plan to do so this year.
employers (9%) are more likely to have once had a reward strategy that they have since abandoned.
Compared with last year, we have seen a jump in the
Similarly, 5% of respondents report discarding their
proportion of employers adopting a strategic approach
total reward approach. Interestingly, it is voluntary
to reward. In 2008, 26% of respondents claimed to
sector employers (9%) and public sector organisations
have a reward strategy while 20% said that they had
(8%) that have been more likely to have dumped their
adopted a total reward approach. Even the
total reward approach than employers in the private
percentages of respondents planning to introduce a
sector. As this is the first time that we have asked
reward strategy and/or total reward are up on 2008:
these questions, we are unable to say whether the
24% and 22% respectively.
default rate for reward strategy and total reward is high, low or normal. However, these figures do
So what’s happening? This increase may be due to:
suggest that some employers are prepared to abandon
sampling or that more employers have adopted them as
their strategic approach if they think that it no longer
they perceive that the economic situation is starting to
adds value to the organisation.
stabilise. As Table 2 shows, the proportion of private sector employers with a reward strategy are almost back to the levels seen in 2007, the last year of the economic boom, and 2006. In the voluntary sector, the proportion of employers with a strategy has almost returned to levels seen in 2006. However, the proportion of employers with a reward strategy in the public sector has increased to an even higher level than in 2007. Regarding total reward, Table 4 shows that the decline in this approach since 2006 has been reversed.
6 Reward management
Table 2: Prevalence of reward strategies and total reward approaches (%)
With a reward strategy
Adopting a reward strategy
With a total reward approach
Adopting a total reward approach
35
31
33
21
Manufacturing and production
30
29
30
18
Private sector services
36
29
37
23
Voluntary sector
36
32
26
22
Public services
39
40
29
21
0–9
22
43
44
14
10–49
32
23
32
23
50–249
25
26
24
16
250–999
31
31
34
26
1,000–4,999
54
45
47
22
5,000+
60
38
39
31
All By sector
By size (employee numbers)
Table 3: The fall and rise of reward strategy (%)
2006
2007
2008
2009
35
33
26
35
Manufacturing and production
35
31
26
30
Private sector services
38
39
29
36
Voluntary sector
38
25
22
36
Public services
26
28
24
39
2006
2007
2008
2009
41
29
20
35
Manufacturing and production
42
28
17
30
Private sector services
45
36
27
37
Voluntary sector
40
21
16
26
Public services
34
17
11
29
All By sector
Table 4: The fall and rise of total reward (%)
All By sector
Reward management 7
Base pay The recession has impacted on base pay practices in 2009 and is set to influence the pay outlook in 2010.
Pay structures and levels Tables 5 and 6 examine how our survey respondents
extent, voluntary sector organisations, are far more
manage their pay structures. The most common
likely to use pay spines/increments, which provide for a
approach is to use individual pay rates/ranges and spot
greater degree of control and certainty. When it comes
salaries. However, there are variations by sector and
to occupation, senior managers are far more likely to
occupation. Public sector employers and, to a lesser
be on individual pay rates/ranges/spot salaries.
Table 5: Pay structure management, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Individual pay rates/ranges/spot salaries
36
41
44
28
11
Broadband pay structures
26
28
29
21
18
Pay spines/increments
18
6
4
35
66
Job family/career grade structures
16
15
19
12
8
Narrow-graded pay structures
11
14
10
7
14
Senior management
Middle/ first-line management
Technical/ professional
Clerical/ manual
Individual pay rates/ranges/spot salaries
52
33
31
27
Broadband pay structures
25
30
27
24
Job family/career grade structures
12
15
18
17
Pay spines/increments
12
18
21
19
7
10
11
18
Table 6: Pay structure management, by occupation (%)
Narrow-graded pay structures
8    Reward management
Table 7 shows that the most important factors used by
Pay progression
employers when attaching salary levels to these grades
The most popular criterion used by our sample in
are market rates (not using a job evaluation database),
progressing someone along their pay scale is to use
followed by market rates (using a job evaluation
individual performance. Table 8 shows that there are
database) and ability to pay. There are variations by
variations towards pay progression by sector. For
sector, with market rates being more important among
instance, public service employers are more likely to
private sector firms, while collective bargaining is more
take into account length of service than private sector
important in the public sector employers. By
services firms. Also, employee potential, value or
occupation, clerical and manual staff are more likely to
retention is far more important as a factor in pay
be covered by collective bargaining (16%) than senior
progression in both of the private sectors compared
managers (5%), while the views of the owner or
with the voluntary and public services sectors.
managing director is more of an influence for senior staff (21%) than clerical and manual workers (10%).
Table 9 shows the variations by occupation, with
By size, the views of the owners or managing director
senior managers far more likely to have their
is more of an issue in micro, small and medium-sized
progression linked to individual performance than
organisations than in large ones, while the opposite is
clerical/manual employees.
broadly true for job evaluation.
Table 7: Most important factor used to determine salary rates/ranges/mid-points, by sectorm (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Market rates (not using a job evaluation database)
40
38
47
38
24
Market rates (using a job evaluation database)
31
34
30
35
30
Ability to pay
25
25
24
34
23
Owner’s/managing director’s views
13
14
19
1
5
Collective bargaining
11
10
5
4
39
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Individual performance
68
73
77
43
50
Market rates
48
51
59
39
17
Competency
38
42
43
25
23
Organisational performance
34
39
44
14
8
Skills
32
37
39
16
15
Employee potential/value/ retention
32
37
43
13
4
Length of service
15
8
8
20
46
Team profit/performance
12
14
14
7
4
Table 8: Pay progression criteria, by sector (%)
Reward management 9
Table 10 reveals the most common ways of
Table 11 shows the most common combination
progressing an employee along their pay band by
approach used, by sector and occupation. Given that
occupation. It shows that linking pay progression
the most popular approaches are used in no more than
solely to individual performance is the most common
8% of cases, this indicates that there is no one
of the various approaches.
particular set of combinations that dominate a particular sector, suggesting ‘best fit’ practice rather
However, instead of relying on just one factor to
than a ‘best practice’ approach to pay progression.
progress their employees along their pay grades, 77% of respondents use a combination of factors, such as
Pay awards
market rates or skills, a progression method that we
Against a backdrop of economic decline, Table 12
term as a combination approach.
reveals that just over half of private sector service firms have not increased pay for some or all of their employees in 2009, compared with just under a half of
Table 9: Pay progression criteria, by occupation (%)
Senior management
Middle/ first-line management
Technical/ professional
Clerical/ manual
Individual performance
76
70
67
58
Market rates
48
48
49
47
Competency
37
38
40
36
Organisational performance
44
34
29
28
Skills
30
31
36
31
Employee potential/value/retention
36
34
34
24
Team profit/performance
13
15
10
9
Length of service
12
15
16
17
Factors used
Table 10: The most common pay progression methods, by occupation
Senior management
Middle/first-line management
Technical/ professional
Clerical/manual
Individual performance only (15%)
Individual performance only (13%)
Individual performance only (12%)
Individual performance only (11%)
Organisational performance only (5%)
Length of service only (7%)
Length of service only (7%)
Length of service only (7%)
Market rates only (4%)
Market rates only (5%)
Individual performance, Market rates only (7%) competency, skills, market rates and employee potential (6%)
Individual performance, Individual performance, competency, skills, competency, skills and market rates and market rates (5%) employee potential (4%) Percentage of respondents in brackets
10 Reward management
Individual performance and market rates (4%)
Individual performance and market rates (5%)
manufacturing and production firms. This contrasts
senior managers and above have been slightly less
with the public and voluntary sectors, where most
likely to have received a salary increase (45%)
employers have awarded a pay rise. By occupation,
compared with clerical and manual workers (50%).
Table 11: The most common combinations of factors used in a combination approach, by occupation
Middle/first-line Senior management management
Technical/ professional
Clerical/manual
Manufacturing Individual and production performance, competency, skills, market rates and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (8%)
Individual performance and market rates (4%)
Private sector services
Individual performance, competency, skills, market rates, organisational performance and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (8%)
Individual performance and market rates (7%)
Voluntary sector
Individual performance and market rates (3%)
Individual performance and competency (3%)
Individual Individual performance, market performance and rates and employee competency (3%) potential (3%)
Public services
Individual performance and market rates (4%)
Individual performance and length of service (4%)
Individual performance and length of service (4%)
Individual performance and length of service (6%)
Percentage of respondents in brackets
Table 12: Pay decisions, by sector and size (%)
Pay increase
Pay cut
Pay freeze
Pay deferral
48
4
41
11
Manufacturing and production
37
6
48
12
Private sector services
39
5
53
10
Voluntary sector
68
–
22
10
Public services
80
1
9
13
0–9
50
12
35
4
10–49
44
5
43
12
50–249
40
5
49
11
250–999
54
4
36
9
1,000–4,999
57
2
33
11
5,000+
58
1
32
19
All By sector
By size (employee numbers)
Reward management 11
Table 13: Elements of the overall pay increase, by sector (%)
Across-the-board increases
Pay progression increases
Manufacturing and production
66
63
Private sector services
51
66
Voluntary sector
85
56
Public services
92
61
Table 13 indicates that the overall pay increase is often
The biggest difference is around the rate of inflation,
made up of two elements, an across-the-board increase
which respondents in 2008 tended to overestimate in
(or a flat rate increase linked to the cost of living) and a
importance, and ability to pay, which they have tended
pay progression increase (such as a performance-related
to underestimate. The gap around inflation may be
pay rise). For instance, in manufacturing and production
due to the Retail Prices Index (RPI) measure (which is
66% of respondents say that their pay award consists of
traditionally the measure used to inform the annual
an across-the-board rise while 63% say it consists of
pay review) being relatively high in 2008, driven by
pay progression increases.
energy, fuel and food costs, while in 2009 it was negative, driven by falling housing and energy costs
Of those private sector service firms that did make an
and the temporary VAT reduction. The gap around
award, they were more likely to give a pay progression
ability to pay may be that in 2009 many respondents
increase than an across-the-board rise. This may reflect
simply did not have the cash to increase salaries so
the state of the economy in 2009 in that such firms
ability to pay has become more of an issue.
did not have to increase wages in line with the cost of living as inflation was negative, or that they could not
Table 14 also highlights variations by sector. For
afford to award all staff a flat rate increase because of
instance, in the private service sector recruitment and
falling revenue. It may also reflect their reward
retention has been more of an issue than was
philosophy and they prefer to reward progression,
originally predicted, indicating that even during the
which allows them to better reflect individual
recession some firms have had an eye on the coming
contribution rather than give a cost-of-living rise that
recovery and the people who they need to attract and
spreads the pay budget around indiscriminately.
keep to ensure that they take advantage of the growth in the economy. In the public sector staff and union
Overall, in 2009, the median pay award made by those
pressures have turned out to be less of an issue in
employers who did increase salaries was 2.5%,
2009 than was originally predicted, which could reflect
ranging from 2% (lower quartile) to 3% (upper
that many employees in this sector have enjoyed
quartile). By sector, those private sector employers that
above-inflation rises over this period.
were able to afford a pay increase gave higher rises (manufacturing and production (3%) and private
Table 15 shows what our respondents predict will be
services sector (2.5%)) than the not-for-profit sectors
the most important factors in the determination of the
(voluntary (2%) and public services (2.05%)).
annual pay review in 2010. For instance, compared with Table 14, it shows that in 2010 movement in
Table 14 shows the three factors that were predicted in
market rates and recruitment and retention factors are
2008 to be the most influential in 2009 in determining
likely to become more of an issue for private sector
the size of the overall pay review budget (taking into
employers, presumably an indication of confidence
account both individual base-pay progression and, if
among our sample in the outlook for 2010. In the
applicable, general or cost-of-living pay rises) compared
public and voluntary sectors, the factors that were
with what respondents in 2009 have said has been the
important in 2009 are likely to carry through into 2010.
most influential. The 2009 data is in italics.
12    Reward management
Table 14: The most important factors for employers when determining their annual pay review, by sector, 2009 (predicted in 2008 for 2009 versus actual)
Manufacturing and production
Private sector services
Voluntary sector
Public services
Ability to pay (52%; 83%)
Ability to pay (67%; 82%)
Inflation (46%; 53%)
Level of government funding/pay guidelines (62%; 61%)
Inflation (63%; 45%)
Movement in market rates (46%; 39%)
The ‘going rate’ of pay Union/staff pressures awards elsewhere (27%; (38%; 24%) 27%)
Movement in market rates (37%; 33%)
Inflation (54%; 33%)
Ability to pay (67%; 86%)
Inflation (41%; 31%)
Recruitment and retention issues (23%; 17%)
The ‘going rate’ of pay awards elsewhere (23%; 17%)
The ‘going rate’ of pay Recruitment and awards elsewhere (28%; retention issues (22%; 32%) 31%) Recruitment and retention issues (29%; 26%)
The ‘going rate’ of pay Movement in market awards elsewhere (29%; rates (20%; 27%) 30%)
Ability to pay (37%; 53%)
Percentage of respondents in brackets; 2009 actual data in italics
Table 15: The most important factors for employers when determining their annual pay review, by sector, 2010
Manufacturing and production
Private sector services
Voluntary sector
Public services
Ability to pay (83%)
Ability to pay (81%)
Ability to pay (88%)
Level of government funding/pay guidelines (60%)
Inflation (45%)
Movement in market rates (47%)
Inflation (48%)
Ability to pay (54%)
Movement in market rates (44%)
Recruitment and retention issues (42%)
The ‘going rate’ of pay Inflation (34%) awards elsewhere (31%)
Recruitment and retention issues (34%)
Inflation (34%)
Movement in market rates (25%)
The ‘going rate’ of pay The ‘going rate’ of pay Recruitment and awards elsewhere (31%) awards elsewhere (31%) retention issues (20%)
Union/staff pressures (28%) Recruitment and retention issues (15%)
Percentage of respondents in brackets
Reward management 13
Table 16 shows the proportion of respondents who
Table 17 reveals what respondents predict will happen
report that their salary spend has increased, decreased
to their total salary spend in 2010. It shows that public
or remained the same since 2008. Against a backdrop
sector employers are more likely to predict a decrease
of economic contraction, Table 16 reveals that three in
to their salary pay bill, possibly a reflection of political
ten employers in both of the private sectors have seen
concerns about the cost of public sector salaries.
the amount of money they spend on salaries drop in, or during, 2009.
Table 16: How the salary spend has changed since 2008, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Increased
61
56
53
75
85
Decreased
24
31
30
10
4
Stayed the same
10
9
12
8
7
5
3
5
8
9
Don’t know
Table 17: How the salary spend is predicted to change in 2010, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Increased
53
53
56
49
51
Decreased
15
16
13
12
18
Stayed the same
21
22
21
25
17
Don’t know
11
10
10
14
13
14 Reward management
Changes planned
in 2009. For instance in 2009, 29% were planning to
The most popular reward change for private sector
change the way the pay structure is organised; in
employers in 2010 is to increase the pay award
2010 just 15% are planning to do likewise. Similarly,
differentiation between employees, possibly as a
the proportion planning changes to pay progression
reflection of tight pay budgets and a desire to reward
has fallen from 30% to 15% and the percentage
those who have contributed most a greater proportion
amending the way that pay levels are determined have
of the overall pay rise. By contrast, the public and
dropped from 23% to 12%. That less change is
voluntary sectors are more likely to be amending their
predicted for 2010 may be because HR is trying to get
pay structures and progression arrangements.
more value out of their existing systems rather than changing them wholesale.
The overall proportion of employers planning changes in 2010 is down on the number that planned changes
Table 18: Organisations planning to change their pay arrangements in 2010, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Increase the pay award differentiation between ‘normal’ and ‘high-performing’ staff
19
19
21
15
13
Changing the way that employees progress within their pay ranges
15
13
14
20
15
Changing the way the pay structure is organised
15
13
14
26
15
Introducing a new job evaluation scheme
14
15
11
18
15
Changing the way that pay rates/ ranges/mid-points are attached to the pay structure
12
10
12
18
13
Changing the factors that determine the size of the pay review
12
13
13
16
7
7
6
7
5
11
Changing the existing job evaluation scheme
Reward management 15
Bonuses, incentives and recognition Employers in 2010 will be busy reviewing existing bonus, incentive and recognition plans to ensure that they meet the needs of the business as the economy, hopefully, improves.
Short-term bonuses and incentives
Table 21 reveals the key objectives behind the use of
The use of variable pay is a popular method of reward,
cash-based bonus and incentive schemes. It shows that
with 71% of our respondents using it. Table 19 shows
the most popular objective in both parts of the private
the variations by sector and size, with these
sector and among public services is to enhance the pay–
arrangements being far more common in both parts of
performance connection. In the voluntary sector, by
the private sector. Interestingly, the voluntary sector
contrast, the most important objective is to encourage
has a low incidence of incentives of any kind.
high productivity. Another significant variation by sector is that public service employers are more likely to use a
The most common arrangement for those using a
cash bonus to reward performance through a non-
bonus scheme is an individually based plan (such as
consolidated pay award. This is probably due to the
commission), followed by a plan driven by business
inflexibility of pay structures to reward individuals at the
results (such as customer satisfaction) and then a
top of their grade, especially high-performers, and/or a
combination scheme (which takes into account both
desire to move more of the pay increase from a fixed
individual and collective performance), according to
cost to a variable cost.
Table 20.
Table 19: Use of cash-based bonus/incentive plans, recognition schemes and non-cash incentive plans, by sector and size (%)
Cash-based bonus or incentive plan
Recognition scheme
Non-cash incentive plan
71
40
30
Manufacturing and production
83
39
23
Private sector services
86
41
38
Voluntary sector
25
23
16
Public services
44
59
33
0–9
67
22
13
10–49
69
28
23
50–249
68
30
23
250–999
73
44
29
1,000–4,999
75
55
44
5,000+
71
72
48
All By sector
By size (employee numbers)
16 Reward management
Table 20: Types of cash-based or incentive plans on offer, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Individual-based
58
50
57
78
83
Schemes driven by business results
47
52
50
30
13
Combination
44
50
48
13
17
Team-based
21
17
23
9
32
Ad hoc/project-based
11
10
10
4
21
Departmental/site-based
11
13
11
9
6
1
3
1
–
–
Type of plan
Gainsharing
Table 21: Key objectives behind cash-based bonus and incentive schemes, by sector (%)
Manufacturing and production
Private sector services
Voluntary sector
Public services
Enhance pay– Enhance pay– Encourage high performance connection performance connection productivity (44%) (52%) (40%)
Enhance pay– performance connection (51%)
Motivate employees (32%)
Motivate employees (38%)
Reward high-performers (39%)
Reward performance through a nonconsolidated pay award (47%)
Encourage high productivity (30%)
Reward high-performers (31%)
Enhance pay– Reward high-performers performance connection (36%) (35%)
Reward high-performers (28%)
Encourage high productivity (31%)
Recruit and retain highperformers (30%)
Motivate employees (28%)
Improve financial results (25%)
Improve financial results (31%)
Reward performance through a nonconsolidated pay award (30%)
Encourage high productivity (23%)
Support business goals (24%)
Recruit and retain highperformers (25%)
Motivate employees (26%)
Recruit and retain highperformers (23%)
Reward performance through a nonconsolidated pay award (21%)
Support business goals (23%)
Improve financial results (17%)
Support business goals (23%)
Reward management 17
Table 22: Bonus and incentive reviews and changes planned in 2010, by sector (%)
Manufacturing and production
Private sector services
Voluntary sector
Public services
Examine existing bonus arrangements
47
57
25
31
Amend existing bonus plans
40
48
16
27
Increase the bonus differentiation between ‘normal’ and ‘high-performing’ staff
17
22
6
12
Examine the case for introducing a bonus for the first time
9
11
19
10
Introduce another new scheme
8
13
4
10
Examine the case for removing a bonus or incentive arrangement
10
10
11
11
Remove an existing bonus or incentive scheme
7
11
7
11
Introduce a bonus for the first time
5
7
11
8
Deferring cash into long-term vehicles
5
7
–
2
Against a backdrop of tight reward budgets, Table 22
sales incentive where the award has a monetary value,
reveals that a large proportion of those employers with
such as a travel package, but is not paid in cash). This
bonus schemes plan to review or amend them in 2010
is a significant increase on the proportion using them
to ensure that they align to the organisation’s objectives,
in 2008, when 31% used recognition schemes and
with a lot of respondents with existing plans amending
17% used non-cash incentive plans.
them this year, such as changing the measures, coverage or targets. Within the private sector, a
By sector, the proportion of employers using
significant proportion of firms will be increasing the
recognition schemes has risen from 26% to 39% in
bonus differential between ‘normal’ and ‘high-
manufacturing and production, 14% to 23% in the
performing’ employees, presumably to ensure what little
voluntary sector and from 35% to 59% in the public
financial rewards they have go to those who have
sector. Those using non-cash incentives has jumped
contributed the most. As Table 18 shows, a similar
from 24% to 38% in the private services sector, from
proportion is also planning to increase the differential
8% to 16% in the voluntary sector and from 17% to
when it comes to 2010 salary awards.
33% in the public sector.
Due to the low coverage of bonus plans in the
Part of the increase over the year in the use of these
voluntary sector, a significant proportion of these
low-cost plans may be attributable to the state of the
employers are looking to introduce a bonus scheme for
economy and many employers having a tight budget
the first time, or examine the case for introducing a
from which to reward and recognise individual and
scheme for the first time.
team contribution.
Recognition and non-cash incentive schemes
Like cash bonus and incentive plans, many employers
Table 19 shows that 41% of employers operate a
will be reviewing existing non-cash incentive and
recognition scheme (such as employee of the month),
recognition arrangements in 2010, according to Table
while 30% have a non-cash incentive plan (such as
23. Interestingly, while private sector employers are
18 Reward management
Table 23: Non-cash incentive and recognition reviews and changes in 2010, by sector (%)
Manufacturing and production
Private sector services
Voluntary sector
Public services
Examine existing non-cash incentive and recognition arrangements
24
30
23
34
Examine the case for introducing recognition and non-cash incentive plans for the first time
17
18
23
16
Amend existing recognition and non-cash incentive arrangements
12
20
11
25
Introduce a recognition or a noncash incentive scheme for the first time
13
12
11
12
Increase the recognition/non-cash differentiation between ‘normal’ and ‘high-performing’ staff
7
9
8
8
Introduce another recognition or a non-cash incentive scheme
7
7
6
11
Remove an existing recognition or a non-cash incentive scheme
5
3
1
11
Examine the case for removing a recognition or non-cash incentive plan
2
3
5
5
more likely to increase the bonus differential between
executive front, the proportion of manufacturing and
‘normal’ and ‘high-performing’ workers, they are less
production firms with a restricted/performance share
likely to do this for recognition and incentive
plan has risen from 25% to 35%.
schemes. Possibly employers believe such rewards should be awarded in a more egalitarian manner than
Table 25 shows the changes to executive long-term
cash bonuses.
incentive plans (LTIPs) between 2008 and 2009. It shows that a similar proportion of employers have increased
Share schemes
the number of individuals who participate and the size
Just under half (46%) of private sector respondents
of the potential award as have done the opposite. The
have some sort of employee share plan or other long-
only significant difference is that employers have been
term incentive arrangements. Table 24 shows the most
far more likely to have increased the LTIP performance
common arrangements.
requirements than have reduced them, which should please the shareholders if not the executives.
Overall, the proportion of employers offering a share plan has increased slightly from 43% in 2008 to 46%. However, there are significant changes within this figure. On the all-employee front, the percentage of private service sector firms offering a save as you earn (SAYE) plan has dropped from 33% to 23% while the percentage offering a company share option plan (CSOP) has fallen from 32% to 26% in the manufacturing and production sector. While on the
Reward management 19
Table 24: Common types of long-term incentives, by sector (%)
Manufacturing and production
Private sector services
Executive share option schemes
33
40
Share incentive plans (SIPs)
38
27
Company share option plans (CSOPs)
26
23
Save as you earn (SAYE)
17
23
Executive restricted/performance share plan
35
20
Executive deferred annual cash-based bonus
14
16
Other
7
14
Executive deferred/co-investment share plan
5
5
‘Phantom’ share scheme
3
7
Share appreciation rights (SARs)/Equity-settled SARs
3
2
Enterprise management incentives (EMIs)
4
6
Scheme
Table 25: Changes to executive long-term incentive plans, 2008 to 2009 (%)
Reduced the number of individuals who participate
18
Increased the number of individuals who participate
18
Increased the performance requirements
15
Reduced the size of the potential award
14
Increased the size of the potential award
10
Reduced the performance requirements
1
20 Reward management
Pensions and benefits While pension provision remains a common employee benefit, there have been significant changes in the types of scheme offered. Overall, the benefit spend has been less responsive to the economic downturn than the salary spend.
Virtually all of our sample (95%) provides their
pension arrangements. That said, other forms of
employees with access to a pension scheme. Table 26
defined contribution (DC), such as stakeholder (no
shows that final salary schemes are the most common
employer contribution) and trust-based schemes, have
type of pension provision, followed by group personal
also seen a decline, suggesting a shift in the type of
pension (GPP) schemes. Since last year, the proportion
DC provision. The concept of risk-sharing in pension
of employers with final salary pension schemes has
provision remains a minority interest, with just under
fallen from 52% to 46%, while the percentage of
1% of employers using a hybrid pension scheme.
those with group personal pensions has increased from 34% to 41%.
Within private sector services, the proportion of employers with group personal pensions has also risen
Among manufacturing and production firms the
from 45% to 53%, while the proportion of those with
proportion of employers with final salary pension
stakeholder with no employer contribution has fallen
schemes has dropped from 50% to 43%, while the
from 24% to 19%. We can speculate that automatic
percentage with group personal pensions has
pension enrolment from 2012 onwards and the
increased from 38% to 45%, indicating that such
national employment savings trust (NEST) are
employers may be switching away from expensive final
encouraging some employers to shift to pension
salary pension schemes to lower-cost group personal
arrangements that exempt them from NEST.
Table 26: Pension provision, by sector (%)
Total
Manufacturing and production
Voluntary sector
Public services
Final salary scheme
46
43
32
52
89
Group personal pension (GPP)
41
Stakeholder pension (with employer contribution)
32
45
53
34
9
29
34
45
17
Defined-contribution (DC) plan
26
37
29
15
10
Stakeholder pension (no employer contribution)
16
16
19
9
10
Contribution to personal pension
8
7
10
7
8
Career-average scheme
5
4
2
7
12
Group self-invested personal pension (SIPP)
3
3
5
–
1
Hybrid
1
2
–
1
1
Type of arrangement
Private sector services
Reward management 21
Further analysis of final salary pension schemes shows
Interestingly, employers (especially those in the private
that while most public sector employers still have them
services sector) are now more likely to close their final
open to new employees, they are now mostly closed
salary pension arrangements to existing employees
to new entrants or future accrual in the private sector
than new employees (9%), suggesting the end of
(Table 27). Interestingly, despite the media hype, we
traditional final salary pension arrangements in the
have not seen a large increase in the proportion of
private sector.
employers that have closed their final salary schemes to existing employees between 2008 and 2009. This
Benefit spend
may be because many employers that are planning
By sector, Table 28 indicates how the employee benefit
such a move were still going through staff
spend, including pensions, has changed between 2008
consultations at the time of the survey and we can
and 2009. Given the state of the economy over the
expect an increase in schemes closed to future accrual
past 12 months, we find that around one in five
in 2010.
private sector employers have cut back on their benefit spend since 2008. This compares with three in ten
Changes planned for 2010
private sector employers who reported that their salary
Around one-fifth of employers (22%) will be amending
spend was smaller during this period, indicating that
their existing pension arrangements this year. By sector,
the benefit spend is less responsive to economic
voluntary sector organisations (26%) are more likely to
changes than the salary spend. Another interesting
be making changes, followed by manufacturing and
find is the high proportion of respondents, especially in
production firms (24%), private sector service firms
the public sector, who just didn’t know what had
(22%) and public sector employers (14%).
happened to their benefit spend over this period, indicating that unlike the salary spend, the benefit
Among those changing their existing arrangements,
spend is a grey area for such employers.
the most common amendment is to introduce salary sacrifice (33%), followed by increasing employee
Looking ahead to the next 12 months, employers in the
contributions (23%), increasing employer contributions
private sector are more likely to predict that the benefit
(20%), amending the existing final salary pension
spend will remain constant than increase or decrease,
scheme (19%), closing the final salary scheme to
while the opposite is true in the voluntary and public
existing members (16%) and introducing automatic
sectors, according to Table 29. Interestingly, while
workplace pension enrolment (15%).
public sector employers were more likely to predict a
Table 27: Final salary pension arrangements, by sector (%)
All
Manufacturing and production
Open to all
37
19
Closed to new employees but not future accruals
43
51
Closed to new employees and future accruals
14
20
6
10
Wind up
22    Reward management
Private sector services
Voluntary sector
Public services
9
40
81
62
44
15
22
10
3
6
6
1
Table 28: How benefit spend has changed between 2008 and 2009, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Increased
40
39
40
48
39
Decreased
16
21
19
5
5
Stayed the same
28
31
30
27
21
Don’t know
15
9
11
19
36
Table 29: How benefit spend is predicted to change in 2010, by sector (%)
All
Manufacturing and production
Private sector services
Voluntary sector
Public services
Increased
34
31
33
44
36
Decreased
9
11
11
4
7
Stayed the same
40
43
45
37
24
Don’t know
16
15
12
15
33
Table 30: The benefit spend as a proportion of payroll, 2008–10, by sector (%)
2008
2009
Lower quartile
4
4
4
Median
9
10
10
15
15
16
Upper quartile
2010
shrink in the size of their salary spend over this period,
Table 30 shows the size of benefit spend as a
they are less likely to predict that this will happen for
percentage of the payroll in 2008, 2009 and what is
the benefit spend. Also of note is that while the future
predicted for 2010. By 2010, the inter-quartile range
of benefit spend is less of a grey issue for public and
for the benefit spend in both manufacturing and
voluntary sector employers, it is more of a grey area for
production and private sector services is estimated to
private sector respondents, with an increase in the
range from 5% to 17% with the median pitched at
proportion of them answering ‘don’t know’.
10%, for the voluntary sector the range is 3% to 15% with an 8% median, and for the public sector the range is 2% to 23% with a 12% median.
Reward management 23
Reward measurement This year’s survey finds only a minority of employers know the size of their total remuneration spend.
Just under half (49%) of respondents claim that they
However, while many employers know the size of their
calculate the size of their total remuneration spend (that
total pay and benefit spend, most are unable to break it
is pay, benefits and other financial rewards, plus
down into its constituent parts. When we asked for
National Insurance Contributions).
these employers to break down their total remuneration expenditure into fixed pay, variable pay and benefits as
By sector, public service employers (55%) are more likely
a percentage of their annual turnover or revenue,
to calculate this, followed by private sector service firms
around 80% were unable to.
(51%), manufacturing and production firms (48%) and voluntary sector organisations (38%). Smaller employers
Of the 20% that are able to give a breakdown, Table 31
are more likely to, or be able to, calculate their total
reveals the mean findings by sector. It shows that in the
remuneration expenditure than larger organisations. While
public, private and voluntary service sectors the total
67% of firms with organisations with fewer than ten staff
remuneration spend represents more than two-thirds of
calculate their total remuneration spend, only 50% of
organisation turnover or income. By contrast, in the
employers with more than 5,000 staff do likewise.
capital and physical-resource intensive manufacturing and production sector, total remuneration accounts for
Compared with 2008, there has been a drop in the
a lower proportion (48%) of organisational turnover.
proportion of respondents who calculate the size of their total remuneration spend from 54% to 49%. The
It is surprising that in the depths of a recession so many
most significant drops are in private sector services
employers do not know the size of their total
(60% to 51%) and the voluntary sector (44% to 38%).
remuneration spend and of those that do, most are
Possible explanations for this decline may be due to
unable to express this as a percentage of their total
sampling, that some respondents thought that their
revenue or income. Having such data to hand allows
employer did calculate the size but now realise
employers to work out how much they need to increase
otherwise, that for some reason a number of employers
income, or reduce labour costs, so as to maintain or
have simply stopped calculating the size of their total
increase profits.
remuneration spend and that it has become harder to calculate this total.
Table 31: Elements of total remuneration expressed as a percentage of organisation turnover, by sector (%)
Fixed pay Variable pay Benefits
24 Reward management
Manufacturing and production
Private sector services
Voluntary sector
Public services
30
52
58
69
6
8
–
3
12
13
11
16
Total reward issues The total reward priorities of employers reflect the state of the economy in 2009 and what is predicted to happen in 2010.
This year we asked respondents what were the key total
2009 and the belief among individual firms that as the
reward issues that they had focused on in 2009 and
economy picks up reward will need to be competitive if
what issues they predicted they would be facing in
they are not to lose key talent. This assumption is also
2010. Figure 1 reveals that cost minimisation, followed
supported by the increase in the importance given to
by ensuring alignment with the business strategy and
rewarding talent by our private sector sample and a
ensuring reward is market competitive were the three
drop in the proportion of employers regarding cost
most common reward priorities in 2009.
minimisation as a key priority in 2010.
Figures 2, 3, 4 and 5 show the differences by sector.
Within the public sectors, cost minimisation is predicted
Unsurprisingly, given the state of the economy, cost
to grow in importance, but possibly less than one may
minimisation has been more of an issue in the private
have expected given the spending constraints predicted
sector than the public or voluntary sector. By contrast,
for the public sector. Given a lack of money for
possibly as a consequence of political and media
employee reward, ensuring employee reward engages
concerns over paying women less than men, ensuring
employees will become more of a priority in 2010.
pay is internally fair is more of an issue in the public and voluntary sectors. Similarly, pay transparency is more of
Other less common total reward priorities for 2010
an issue in the public (32%) and voluntary (21%)
include: decreasing pay at risk (2%); tax planning (5%);
sectors than in manufacturing and production (9%) and
increasing pay at risk (5%); reward administration (6%);
private services (8%).
rewarding innovation (7%); evaluating return on reward investment (8%); executive reward (10%); developing
In 2010, the three key reward priorities in order of
line manager buy-in to reward (10%).
preference are predicted to be ensuring alignment with the business strategy, followed by ensuring reward is market competitive and then cost minimisation and ensuring reward engages employees in equal place. We can speculate that the jump in the priority given to ensuring that reward is market competitive may be a reflection of pay freezes and cuts in the private sector in
Reward management    25
re
ig
al
Co st
isa
in im
m
nm tio n bu en re w t s in w ar es it d ss ht is m tra he ar En te ke su gy tc re om re w pe ar em tit d pl ive i si oy A n ee lig te rn an n p al En d ay ly su bu w fa rin sin it ir g h e re in s s w pe div ar rfo idu d en rm al, ga an ge ce se m pl oy ee s Pe En ns su io n re To co al t st ig a lr s nm ew en a r tw d iss ith ue th s e HR st ra te Re gy w ar di ng ta le nt
rin g
su
En
En su re
ig
al
st
Co in
m
im isa n tio m g n bu en re w t s in w ar es it d ss ht is m tra he ar En te ke su gy tc re om re w pe ar em tit d pl ive i si oy A n ee lig te rn an n p al En d ay ly su bu w fa rin sin it ir g h e re in s s w pe div ar rfo idu d en rm al, ga an ge ce se m pl oy ee s Pe En ns su io n re To co al t st ig a lr s nm ew en a r tw d iss ith ue th s e HR st ra te Re gy w ar di ng ta le nt rin
su
En
su
En
Figure 1: Key reward priorities in 2009 and 2010, percentage of respondents – all.
% 60
50 51
% 60
50 52 2009
48
44
48 44
56 51
46
40
30
20
26 Reward management
43 44
40 39
44 44
39 38
41
30 32 30
25
20
35
22
29
17
2010
51
39
28 21
19
23
2009
21
26
19
10
0
Figure 2: Key reward priorities in 2009 and 2010, percentage of respondents – manufacturing and production
53 2010
45 40 34 27 28
23
10
0
re
ig
al
Co st
isa
in im
m
nm tio n bu en re w t s in w ar es it d ss ht is m tra he ar En te ke su gy tc re om re w pe ar em tit d pl ive i s oy A in ee lig te rn an n p al En d ay ly su bu w fa rin sin it ir g es h in re sp d w ar er ivid d fo u en rm al, ga an ge ce se m pl oy ee s Pe En ns su io n re To co al ta st ig lr s nm ew en a rd tw iss ith ue th s e HR st ra te Re gy w ar di ng ta le nt
rin g
su
En
En su re
ig
al
st
Co in
m
im isa n tio m g n bu en re w t s in w ar es it d ss ht is m tra he ar En te ke su gy tc re om re w pe ar em tit d pl ive i s oy A in ee lig te rn an n p al En d ay ly su bu w fa rin sin it ir g es h in re sp d w ar er ivid d fo u en rm al, ga an ge ce se m pl oy ee s Pe En ns su io n re To co al ta st ig lr s nm ew en a rd tw iss ith ue th s e HR st ra te Re gy w ar di ng ta le nt rin
su
En
su
En
Figure 3: Key reward priorities in 2009 and 2010, percentage of respondents – private sector services
% 60 57
50 50
50 49
42
33
30
10 53 56
43
40
% 60
51
2009
46 39
30 31
20 21
40 41 32
29 31 30
23
27 25
2010
42 45 46 38 28
23 27
20
2009
21
16
10
0
Figure 4: Key reward priorities in 2009 and 2010, percentage of respondents – voluntary sector
61 52 2010
46 42 38 30 26
20
17
5
0
Reward management 27
re
ig
al
st
Co in
m
im isa n tio m g n bu en re w t s in w ar es it d ss ht is m tra he ar En te ke su gy tc re om re w pe ar em tit d pl ive i si oy A n ee lig te rn an n p al En d ay ly su bu w fa rin sin it ir g h e re in s s w pe div ar rfo idu d en rm al, ga an ge ce se m pl oy ee s Pe En ns su io n re To co al t st ig a lr s nm ew en a r tw d iss ith ue th s e HR st ra te Re gy w ar di ng ta le nt rin
su
En
su
En
Figure 5: Key reward priorities in 2009 and 2010, percentage of respondents – public services
% 60 52 2009
50 48
40 40 44 36
30
20
28 Reward management
38 38 34
28 29 29 30 33
2010
50 44 36 32
26 27
16
10
0
Conclusions and implications CIPD Performance and Reward Adviser Charles Cotton gives his personal views on some of the implications from this and other research for reward and HR professionals.
Our survey shows that the longest economic recession
their pay freeze reflected the state of the economy and
since the Second World War is having an impact on
how much their organisation had available to spend on
UK reward practices. Within the private sector, this
their increase. Those who were dissatisfied with the
research reveals widespread use of pay freezes and, in
decision felt this way because it did not keep pace with
some instances, pay cuts as employers have tried to
inflation or reflect their individual performance.
avoid big job losses. This suggests that employers who will have to freeze There are a number of reasons why employers have been
pay in 2010 need to pay attention to managing pay
able to keep a lid on pay rises during 2009. The first is
expectations among their employees. They need to be
that the measure of inflation traditionally used to inform
able to communicate the business rationale for the
the annual salary review, the Retail Prices Index (RPI), has
decision if they are to gain their acceptance. However,
been negative for most of 2009. This has meant that
they’ll also need to give employees a vision of a better
while many employees may not have seen their pay
future resulting from this decision and that all
increase, or only received low increases, negative inflation
employees, not just the workers, are expected to
has meant that their wage packet has gone further.
tighten their belts. Again, our pay attitude survey found that leaders had accepted this and have been
Two other key factors determining the size of the pay
more likely to see a pay freeze (47% compared with
review are the going rate of pay awards elsewhere and
38%) or a pay cut (8% compared with 4%).
movement in market rates. Employers who waited a few months before making a pay decision were able to
Those private sector employers that were able to afford
give zero increases, as that is what other firms had been
a pay award uplifted salaries by between 2.5% and
doing, while those that were using market-based pay
3%. Unsurprisingly, our 2009 Employee Pay Attitude
approaches found many market rates had not changed
survey found those private sector employees who were
and so their own rates did not require uprating.
lucky enough to receive a pay rise were far more appreciative of their increase (a net appreciation score of
Finally, ability to pay was another crucial factor. Most
69%) than public sector workers, who got an increase
employers reported that they simply did not have the
typically worth 2% (a net appreciation score of 48%).
money to fund a pay rise when their revenues were falling. Another indicator of the impact of the recession is Pay freezes and employee acceptance
what has happened to the salary spend over the past
Our 2009 Employee Pay Attitude survey found that 51%
12 months, with around three in ten employers
of private sector employees had seen their pay frozen, yet
reporting their fixed pay spend has fallen as the
while employees were dissatisfied with this pay decision,
recession hit. Unfortunately, as our 2009 Employee Pay
the difference between those who were satisfied and
Attitude survey has found, those who have lost their
dissatisfied was –19%, compared with –36% in the public
job in the past 12 months have usually had to take a
sector. Those who accepted the pay decision believed that
25% pay cut to price themselves back into work.
Reward management 29
Private sector pay in 2010
However, despite most public sector workers seeing
Looking forward to 2010, employers report that if they
their pay go up in 2009, many were not as
do make a pay rise in 2010 they are more likely to
appreciative as those private sector workers who got a
differentiate the pay award between high and normal
pay increase. The most common reason given for pay
performers. A similar percentage is also planning to do
dissatisfaction was that the increase did not keep with
the same for bonuses.
the rate of inflation. Given that RPI was negative for most of 2009, either public sector workers started
Reassuringly, respondents to our 2009 Employee Pay
using a different measure of inflation to judge their
Attitude survey were reasonably confident in their
pay rise, such as the Consumer Prices Index (CPI), or
employers’ ability to assess their individual (a net
they were looking back over a longer period over
satisfaction score of 22%) and their team’s (a net
which they perceive that their pay did not keep pace
satisfaction score of 21%) performance. However,
with RPI. And while they did well in 2009, they believe
while employees may feel that their employer is able to
that this did not make up for 2007 and 2008 when
differentiate between star and good performers, what
they did less well when compared with inflation and
impact this has when they realise that they are not
private sector pay awards.
regarded as star material remains to be seen. Again, if employers are going to increase the differential, they
Another interesting finding from the 2009 Employee
need to be able to justify this to employees if they’re
Pay Attitude survey is that most public sector workers
going to gain acceptance of this change and not lead
are expecting a pay rise in 2010 that is the same or at
to a collapse in self-worth among the good performers
least higher than the one they enjoyed in 2009.
and a disintegration of employee engagement.
However, many public sector workers, such as NHS employees, police officers and Scottish school teachers,
According to our winter Labour Market Outlook survey
are covered by multi-year deals, some of which were
report, 35% of employers believe that they will
front-loaded, so their 2010 pay award will be lower
increase pay in 2010, while 14% predict that they will
than their 2009 pay increase. Those that are covered
freeze it and 2% plan to cut it (49% report that it’s
by long-term pay deals that are due to expire in 2010,
too soon to say). Of those 35% who are predicting an
or are under annual pay agreements, may come in for
increase, the median award is 1.5%.
a shock if they believe that their 2010 pay rise will be higher than 2009’s.
However, if inflation rises over this period, and the RPI measure is expected to be between 2.6% and 3% in
Rather like the private sector, public sector employers
the first half of the year, then employees who have had
will need to focus on employee reward communication
a pay freeze or a 1.5% increase will feel worse off
over the next few years to better manage staff pay
financially and may be less likely to accept the pay
expectations by articulating what values, attitudes,
decision. Whether this feeling impacts on their decisions
performances and behaviours they require and how
to stay with their employer may depend on the state of
they will reward and recognise given that budgets will
the jobs market, but economic growth is expected to be
be constrained.
small during 2010. If this is the case then employees may be more accepting of their pay awards.
Another key source of grievance for the public sector workers regarding their pay award is that it did not
Public sector pay
reflect their performance, according to the 2009
While the private sector was buffeted by the economic
Employee Pay Attitude survey. Yet this report reveals
downturn in 2009, the public sector largely escaped.
that linking pay and performance is not widespread in
Most public sector employers made a pay award – a
the public sector. However, this may be a good thing
flat rate increase, or a pay progression rise, or both –
as the pay attitude survey finds that most public sector
while between 2008 and 2009, just 4% of public
employees don’t believe that their employer is able to
sector employers reported that the amount of money
assess/measure good performance. If reward is going
they spent was on fixed pay had fallen.
to recognise an element of individual or collective
30 Reward management
performance, then public sector organisations are
attractive, especially with the end of contracting out
going to have to revamp their existing systems so that
for DC. The proportion of employers offering access to
employees believe that their performance will be
a pension but not contributing to it has also declined,
rewarded or recognised by their employer.
despite the tough financial year in 2009. This increase may be due to employers wishing to sort out their
Reward changes planned for 2010
pension arrangements prior to automatic workplace
Interestingly, the number of employers planning
pension enrolment from 2012, or a concern that with
changes to their base pay systems has fallen,
the probable end of default retirement that they will
compared with previous years, with fewer employers
need to help their staff build up a pension pot on
planning to amend their pay structures or change the
which they can retire.
way they attach salaries to them. This may indicate that employers are trying to do more with existing
While around 30% of private sector employers
arrangements, which may reflect the state of the
reported that their salary spend fell in 2009, only
economy and that the organisation doesn’t have the
around 20% said this was also happening to their
time or resources to embark on widespread changes.
benefit spend, while 30% reported that it had
The sector planning most base pay change in 2010 is
remained the same. This suggests that the benefit
the voluntary sector.
spend has been less adaptable to economic decline. Part of the reason for benefit-spend inflexibility may
By contrast, when it comes to variable pay, it is the
have been because many firms have had to pump
private sector that is planning most change, with 48%
extra money into their pension funds so as to meet
of private sector service firms and 40% of
their obligations. However, this may not be the
manufacturing and production employers planning to
explanation for all employers, so HR should review
amend their existing bonus programme, such as raising
their current benefit spend to ensure that it does not
targets or adding new ones.
become a millstone around the firm’s neck.
When it comes to non-cash incentives and recognition,
Overall, while cost minimisation has been the most
it is public sector employers who are more likely to be
significant reward issue for employers in 2009, private
making changes in this area, perhaps a reflection of
sector firms believe that it will decline in importance.
future pay budgets being tighter in that sector and
Instead, ensuring reward remains market competitive,
employers looking at other ways to drive employee
that employees find the rewards engaging and rewarding
engagement.
talent will grow in relevance, indicating that they believe that the economy will improve in 2010, or at the very
Pensions and benefits
least, it will not get any worse. We can only hope.
2009 has seen a decline in the proportion of employers with final salary pension schemes to just below half. However, in the private sector, many of these schemes are closed to new employees. Looking to 2010, more private sector respondents are planning to close final salary pension plans to existing staff than are closing them to new employees, indicating that from now on we will see a shift from schemes that are just closed to new employees to closed to all employees and raising issues around how this change is communicated. Within defined contribution (DC) pensions, employees are switching away from trust to contract-based arrangements as trust-based schemes become less
Reward management 31
Background to the survey
This is the ninth annual survey of reward management
The following figures give breakdowns of the
by the CIPD. The main aims of the survey are to:
respondents to this survey by organisational size and by sector.
• inform the work of the Institute on reward
management
If you need further information or have any suggestions
• provide readers with an information and
for next year’s survey, please contact Charles Cotton at
benchmarking resource in respect of the changing
c.cotton@cipd.co.uk
face of UK reward management. The research was carried out between August and October 2009 and questionnaires were sent to reward specialists and people managers in the public, private and voluntary sectors. Replies were received from 729 organisations; this is up on the 520 employers who responded in 2008.
Table 32: Participants by sector
Sector
Percentage of respondents
Manufacturing and production
27
Private sector services
46
Voluntary sector
13
Public services
15
Table 33: Participant breakdown, by sector and size (%)
Manufacturing and production
Private sector services
1
2
1
1
10–49
10
14
12
6
50–249
44
40
46
8
250–999
28
23
26
26
1,000–4,999
14
13
15
36
3
8
–
24
Number of staff 1–9
5,000+
32 Reward management
Voluntary sector
Public services
We explore leading-edge people management and development issues through our research. Our aim is to share knowledge, increase learning and understanding, and help our members
We produce many resources on reward management including guides, books, practical tools, surveys and research reports. We also organise a number of conferences, events and training courses. Please visit www.cipd.co.uk to find out more.
Chartered Institute of Personnel and Development 151 The Broadway London SW19 1JQ Tel: 020 8612 6200 Fax: 020 8612 6201 Email: cipd@cipd.co.uk Website: www.cipd.co.uk Incorporated by Royal Charter Registered charity no.1079797
Issued: February 2010 Reference: 5125 Š Chartered Institute of Personnel and Development 2010
make informed decisions about improving practice in their organisations.