REWARD MANAGEMENT
Reward strategy still a minority pursuit, says CIPD
Despite all the attention given to the importance of having a reward strategy in recent years, there is still only a minority of companies that have one in place, according to the most recent annual reward management survey from the Chartered Institute of Personnel and Development.
Published in February 2008, the survey looks at all aspects of reward management from basic salaries to variable pay, pensions to equal pay audits and pay communication to the “greening” of reward.
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It shows that just a third of firms said they had a reward strategy, although a further one-quarter intend to create one in the future.
Among the other notable findings of the survey are that more and more organisations are focusing on attaching reward to some measure of performance or achievement. In particular, companies are now more likely to link salary rises to the achievement of individual success, rather than providing the same across-the-board increase to everyone. And this trend is not confined to the private sector with the finding that a focus on performance is affecting the public and voluntary sectors as well.
Pensions, communications and the environment
Other areas highlighted by the CIPD were the continued move away from final-salary pensions, communications and the effect of environmental concerns. Private sector employers continue to look for alternatives to final salary pension plans, for example, with a few actively exploring the opportunity of transferring their commitments to third parties.
The CIPD notes that such moves will need careful communication and the survey looks at this aspect of HR practice in more detail finding that organisations are attempting to create a “joined-up approach” in order to improve the messages they provide and create a positive employer brand. This even stretches as far as providing a “greener” message alongside the creation of formal environmental policies.
Despite this, few companies have actually examined whether their reward policies and practices actually support any environmental aims specified.
What the survey covers
The survey includes chapters examining the following areas:
strategic and holistic reward
base pay
variable pay
pensions and benefits
equal pay reviews
pay communication
the greening of reward
reward consultants.
Key survey results
The CIPD results are based on survey returns received from 603 organisations across all sectors, employing around two million people in total.
Base pay management
As in last year’s survey, most commonly, companies are managing base pay with individual pay rates/ranges/spot rates and broadbands.
There was some variation by job level - individual rates/ranges/spot rates were most popular for senior managers, with 46% of respondents taking this approach.
In contrast, broadbands were used by around 25% to 30% of organisations for all levels of staff.
The next most common approaches were to use job families/career grades followed by pay spines then narrow-graded pay structures.
The most important factors used when attaching salary levels to grades are market rates, followed by ability to pay and job evaluation. Job evaluation is more important in the public and voluntary sectors.
The most common approach to progressing along a pay grade is to use a number of factors (76%), such as individual performance and length of service.
Variable pay
As many as 70% of survey respondents used some form of variable pay, with a median number of two and an average 3.68 schemes per employer.
Of those with a scheme, the most popular arrangement is an individually-based plan (60%), followed by a plan driven by business results such as profit (51%) and a combination of measures (50%).
Around two-fifths of respondents said they planned to amend their present bonus and incentive arrangements or introduce new schemes, with private sector service firms most likely to do so.
Recognition schemes
Over a third of employers operate recognition and non-cash incentive schemes.
Private sector and large employers are more likely to have such schemes.
Share schemes
Just under a half of private sector respondents have a share arrangement or other long-term incentive arrangement for some or all employees.
The most common type of schemes cover executive share options, followed by share incentive plans (SIPs) and company share option schemes. Save as you earn (SAYE) schemes seem to be falling in popularity, while restricted and performance share plans are becoming more common.
Benefits
Overall, around 39% of organisations said they intended to increase their benefit provisions, while around 2% intended to reduce the value of what was on offer and 16% did not know. The remainder said their provision will stay the same.
The top three employer-provided benefits included 25 days’ or more paid leave, training and career development and free beverages, although there was some variation by company size.
The most popular form of flexible benefits is flexible working, with 60% offering it to their employees, followed by voluntary benefits.
Just over half of respondents said that they plan to make changes to their benefits provision in 2008. Most commonly, changes include the introduction of childcare vouchers, bicycle loans and formal mentoring.
Equal pay reviews
The number of companies carrying out equal pay reviews has stepped up compared with last year. Just over a half of firms have carried one out or are planning to do so.
By sector, 82% of public services organisations had carried out, or intend to do so, compared with 44% of manufacturing firms, 48% of private sector service companies and 56% of those in the voluntary sector.
Pay communication
Communications have changed from a “soft” area of reward to something that is now regarded as important in creating a strong employer brand.
Less than two-fifths of employers have a discernable employer brand that differentiates it as a workplace. Those with an employer brand are not convinced that their reward practices are aligned with it, however.
HR and line managers are the parties most involved in delivering messages around pay.
The greening of reward
Just under a half of the survey respondents has a formal environmental policy.
In contrast, only 38% have reviewed their existing reward and employment conditions’ policies and practices to ensure they are environmentally friendly.
Reward consultants
Between 2004 and 2007, 65% of respondents reported an increase in the amount of reward work in their organisation, while only 24% took on extra staff. To help deal with the extra work, 47% have turned to using reward consultants
Most often, however, those used have been recruitment consultants, with job evaluation and executive remuneration and pensions next most utilised.
A final word
“Changes to pay and reward packages can often leave employees confused, demotivated and in the dark about what they need to do to achieve reward and recognition. Line managers can play a key role in delivering messages around pay, but they need to be coached and developed on how to communicate messages around pay increases and benefits more effectively.” - Charles Cotton, CIPD’s employment conditions and reward adviser.
Want to know more?
Title: Reward Management Annual Survey Report 2008, Chartered Institute of Personnel and Development.
Methodology: Questionnaires were sent to reward specialists and people managers in the private, public and voluntary sectors in late 2007.
Sample size: Completed questionnaires were received from 603 organisations employing around one million people.
Availability: To download the 37-page report, free of charge, in PDF format visit the “Pay and reward” section of the Chartered Institute’s site at www.cipd.co.uk in the subject dropdown menu.
The Chartered Institute of Personnel and Development (CIPD) is the professional body for those involved in the management and development of people and has over 120,000 individual members. To find out more visit www.cipd.co.uk.