REWARDING PERFORMANCE
Half of UK private sector uses merit pay, says IRS
Reports of the demise of merit pay appear to have been exaggerated. Without doubt, it is still the most widely-used performance pay approach operated by large businesses in the UK. A new survey by the London-based pay analysts Industrial Relations Services found that more than half of the private sector companies uses individual performance-related base pay.
In spite of the damming high profile research casting doubt on the effectiveness of merit pay, 53.8% of survey respondents use this remuneration tool and 13.1% are considering using it. But the rapid spread of merit pay has abated. As IRS explains: It is also the third year running that the proportion of respondents using merit pay has fallen, from a high of seven in 10 employers in our 1997 survey.
What about the alternatives to merit pay?
The evidence from the 160-company survey suggests that many of the alternatives advocated by commentators remain minority pursuits in the UK. In summary, IRS finds:
Pay for competencies (used by 12.5% of respondents) is not yet a major feature of the UK reward landscape, but it is one of the most popular reward strategies planned for the coming year .
Only 5% of organisations use team-based pay, with a further 10% considering this approach.
Linking reward to the acquisition and use of skills was reported by 13.8% of survey respondents, but it seems unlikely to become a widespread reward practice .
Gainsharing — a formula-based bonus plan — is likely to remain very much at the margins of reward practice in the UK, ranked twelfth in terms of usage.
Reward practices in UK private sector employers
|
| Current | Planned |
| Merit pay | 53.8% | 13.1% |
| Market-linked pay | 45.6% | 6.9% |
| Incentive payments | 28.1% | 6.3% |
| Profit-sharing scheme | 20.0% | 4.4% |
| All-employee share scheme | 18.1% | 13.1% |
| Unconsolidated lump-sum | 16.3% | 7.5% |
| Skills-based pay | 13.8% | 9.4% |
| Competency-related pay | 12.5% | 20.0% |
| Broadbanding | 11.9% | 17.5% |
| Flexible benefits | 5.0% | 30.0% |
| Team-based pay | 5.0% | 10.0% |
| Gainsharing | 3.1% | 1.3% |
Sample size = 160 private sector organisations.
Source: Industrial Relations Services.
Survey details
Title: Pay prospects for 2001 — a survey of the private sector , Pay and Benefits Bulletin 507, November 2000.
Methodology: the data was gathered by a postal questionnaire mailed to 2,500 IRS subscribers and 1,000 non-subscribers during September 2000. The response rate was 4.5%.
Sample size: the survey is based on the views of senior remuneration, industrial relations and personnel managers in 160 private sector companies in the UK.
Business sectors: more than half of respondents were in services and a third were in manufacturing. There was a particularly large response from general services (25.6% of participants), followed by finance (9.4%), engineering and metals (9.4%) and retail (9.3%). Almost half of organisations surveyed employ between 100 and 999 employees, while nearly two-fifths employ 1,000 or more.
Availability: contact the subscriptions department at Industrial Relations Services, tel: 020 7354 6742, or for editorial enquiries email jeremy.baugh@irseclipse.co.uk.
Want to know more? The IRS web site is at www.irseclipse.co.uk