PUBLIC SECTOR
Public sector yet to initiate reward savings that could spare jobs
Public sector organisations have failed to implement effective measures to reduce reward spend, despite a potential risk to jobs, according to new research from global management consultancy, Hay Group.
With the government imposing cuts of around 20% across the public sector and wages accounting for up to 80% of budgets, reward packages are a critical area of focus for achieving cost savings. However, the research warns that serious action on reducing the public sector total pay bill is yet to be taken. Salary cuts, pay freezes and compulsory leave must be considered.
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Mark Thompson at Hay Group comments: “Public sector leaders need to take more significant steps to reduce people costs within their organisations if they are to contribute to the deficit reduction and avoid job losses.”
He added: “Headcount cuts are not the only option, but with the public sector ‘jobs at risk’ figure expected to reach 330,000, it is both worrying and surprising that more organisations are not looking at the full range of alternatives.”
The heart of the problem
The Hay Group research finds that public sector organisations have made “some small efficiencies” in their reward programmes. However, to bring spending under control, leaders must “tackle the real issue of employee reward expenditure”.
Among the organisations interviewed in the course of Hay Group’s study:
None of the organisations plan to impose a salary cut.
Only 1% will force unpaid leave
Just 2% intend to implement shorter working hours.
Only 21% have plans to freeze automatic annual pay increments.
Therefore, in the other 79% of cases, organisations may actually see their wage bill rise this year.
The government has cut redundancy costs in the civil service. While 29% have already made changes or will change, over half (59%) have no plans to change redundancy pay.
Thompson said: “Public sector leaders should take the opportunity afforded by budget cuts to make changes. They should consider some of the strategies successfully adopted by the private sector, including pay freezes or reduced working weeks. Better still, they should combine such short-term measures with a longer-term view and make the pay system more flexible and performance related. At the moment, we are seeing neither.”
He added: “However, in making cost savings, organisations must strike a difficult balance – between introducing strong efficiency measures, maintaining the morale of the retained workforce and ensuring the future competitiveness of the sector.”
The performance trap
Public sector organisations have been quicker to halt performance-related payments. Over a quarter (26%) are considering, will or have imposed freezes on performance dependent rewards.
Thompson said: “Public sector leaders must think again. Financial recognition for specific achievements fulfills a dual purpose. It can drive results in the organisation’s focus areas – for example cost saving – whilst also helping to galvanise a workforce that is feeling stretched and insecure, delivering a far greater return than automatic marginal rises in base salary.”
A final word
“Public sector leaders need to take more significant steps to reduce people costs within their organisations if they are to contribute to the deficit reduction and avoid job losses. Headcount cuts are not the only option, but with the public sector ‘jobs at risk’ figure expected to reach 330,000, it is both worrying and surprising that more organisations are not looking at the full range of alternatives.” - Mark Thompson, Hay Group
Want to know more?
Title: Public Sector Employment Conditions, Hay Group, August 2011.
Sample: Hay Group’s study was conducted amongst pay and reward professionals from 85 public sector organisations, including central government, local councils, universities, police, healthcare and third sector.
Availability: For further information tel: +44 (0) 207 856 7200 or email: GB_reward_information@haygroup.com.
Hay Group is a “global management consulting firm that works with leaders to transform strategy into reality". It says “We develop talent, organise people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organisations realise their potential.” Hay Group has over 2,600 employees working in 85 offices in 47 countries. For more details visit www.haygroup.com/uk.