Evaluation of reward remains a minority pursuit

REWARD MANAGEMENT

Evaluation of reward remains a minority pursuit

Only a third of organisations assess the impact that their reward practices have on their employees, according to this year’s Annual Reward Management Survey from the Chartered Institute of Personnel and Development.

This indicates that the vast majority of respondents (68%) in the 520-employer survey are not aware of whether their rewards are working or not.

• Voluntary sector and public sector organisations are the least likely to evaluate reward, with only 19% and 25% respectively doing so.
• Within the private sector, manufacturing-production firms (30%) and private services employers (40%) follow suit.
• Larger organisations are more likely to conduct an assessment of their reward practices than smaller ones. Half of organisations with more than 5,000 employees carry out this study, while just 29% of organisations with fewer than 50 people do the same.

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Charles Cotton, CIPD’s Reward Adviser, said: “These findings are stunning as organisations might have in place reward systems that actually do not enable them to fulfil their objectives. The result is they may waste their money, and that of shareholders and tax-payers.”

He added: “But even worse, organisations may find that by not targeting reward spend effectively, they could see their biggest asset - their top performers - leaving at a time when organisations should be doing everything possible to engage and retain the best to remain resilient through recession, and emerge strongly in the recovery.”

Criteria used

Among those employers who do assess the impact of their reward practices, the most common approach is to use people measures – employee resignation rates, staff surveys, vacancy rates, and performance management and appraisal data.

The business measure most cited is profit followed by productivity per employee. Other business measures used by those who assess their reward practices include:

• customer satisfaction (32%)
• sales growth (25%)
• sales per employee (20%)
• return on capital employed (17%)
• economic value added (14%).

Calculating remuneration spend

The CIPD found that an “alarming number” of UK organisations do not calculate how much they spend in total on remunerating staff (including base pay, variable pay, benefits and employer national insurance contributions). Almost half of the organisations surveyed (46%) fall into this category.

• The survey shows that voluntary sector organisations are the least aware of their total remuneration spend, with 56% not calculating the full costs of what they offer to staff.
• Within the private sector, manufacturing/production and private services organisations fair only slightly better, with 48% and 40% respectively not being aware.
• It is a similarly bleak forecast for public sector employers, with 47% not taking this necessary step.
• Smaller employers (with fewer than 50 employees) are more likely to, or able to, calculate their total remuneration spend than larger organisations. As many as 65% of these organisations calculate their overall remuneration expenditure, while only 56% of companies with more than 5,000 employees do the same.

And of the organisations that calculate the size of their total remuneration expenditure, the vast majority (83%) are unable to break it down into its constituent elements (salaries, variable pay and benefits).

Other key survey findings

• Just over half of organisations (54%) have carried out an equal pay review, and 33% are planning to do so in the next 12 months.
• Just over two-fifths of the organisations with bonus or incentive arrangements will be changing them this year, while one in ten will be introducing another bonus scheme. A further one in ten will be introducing a bonus scheme for the first time.
• Around three in ten (31%) of all respondents use recognition schemes (such as employee of the month).
• Just under a fifth (17%) use non-cash incentive schemes (such as sales incentives where the award has a monetary value, such as retail vouchers, but is not paid in cash).
• A total reward approach has been adopted by 20% of the sample, while a further 22% plan to take up this approach in 2009.

A final word

“It is a shame that our survey does not show that the tighter margins associated with the current recession are leading to greater scrutiny around pay and reward. This might have helped organisations avoid some of the job losses and redundancies we have seen recently.

If organisations do not have a complete handle on where their staff spending goes, it makes it far more difficult to prioritise investment in the measures that will retain and motivate talented individuals. Reward, if implemented correctly, can engage staff at a time when pay freezes and redundancies are prevalent, boosting the chances of the organisations coming out of the recession in good shape to benefit from the recovery.

The findings also bring the issue of transparency to the fore as shareholders and tax-payers are left unaware of where their money goes. This is especially striking at a time of economic uncertainty where everyone needs to pay the utmost attention to their finances. If employers are going to be effective in how they manage reward, then they need to invest in systems that allow them to capture this information.” - Charles Cotton, CIPD’s Reward Adviser.

Want to know more?

Title: Annual Reward Management Survey 2009, Chartered Institute of Personnel and Development.

Survey details: The CIPD’s eighth annual survey of UK reward management is based on responses received from 520 organisations, across all industrial sectors, employing around one million employees. The research was carried out between August and October 2008.

Availability: The 40-page survey is available for download in PDF format, free of charge, from the CIPD web site at www.cipd.co.uk/subjects/pay/general/_rwdsmry09.htm?IsSrchRes=1.

The Chartered Institute of Personnel and Development (CIPD) has more than 130,000 members and is the “leading professional institute for those involved in the management and development of people”. To find out more visit www.cipd.co.uk.