REWARD MANAGEMENT
CIPD reward management survey 2007
A competitive global environment, pressure to cut costs and an increasingly diverse and demanding set of customers means that it is more important than ever for reward specialists to ensure that their current policies are effective enough to meet the challenges presented by the current and future business context.
In simple terms, companies need to examine what they are rewarding and whether it adds value to the organisation, according to the latest annual reward survey by the Chartered Institute of Personnel and Development.
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Adopting an ”articulated” reward strategy, says the CIPD, will help organisations find success by aligning reward policy with business goals, communicating expectations and rewarding those individuals who exhibit the values, behaviours and performance required.
But it adds that this is more than a top-down process with organisations also needing to examine what is valued by existing and potential employees in order to enhance recruitment, retention and employee engagement.
Measuring effectiveness also essential
While a defined reward strategy is important, the CIPD says that this is not enough, with the measurement of the effectiveness of outcomes resulting from reward decisions also vital.
As Charles Cotton, the CIPD’s reward adviser explains: “Organisations could make the wrong decision and waste time and money on pay and benefits if they fail to measure the effectiveness of the reward strategy properly. HR and reward professionals should investigate measures, such as customer satisfaction and line manager feedback, to show the real value such packages can have on all areas of the business.”
Few with reward strategies
Despite this advice, however, it seems that the majority of UK companies do not possess a formal reward strategy and fail to measure the real contribution pay and benefit packages can add to business.
Overall the survey found that just a third of companies had a reward strategy and only 55% of these measure their effectiveness. On the upside, however, 40% of respondents did say that they planned to create a strategy in 2007.
As the CIPD points out, this situation has important implications for HR and reward specialists because employers are only too aware of how much they spend on pay and benefits and want to know that they are getting value for money.
To justify policies, reward practitioners need to show that their practices support the business and are producing positive results.
Line management involvement
Another major concern the CIPD survey highlighted was that few companies seem to be doing enough to educate and involve their line managers in policy determination and implementation so it is sometimes inevitable that communication of new policies is not performed effectively.
Poor communication is a theme that returns continually but no matter how ”best practice” the policy is, it will not succeed without a buy-in from those providing the message, quite often the line managers.
Key survey results
The CIPD results are based on survey returns received from 466 organisations across all sectors employing around one million employees.
Base pay management
Most commonly, companies are managing base pay with individual pay rates/ranges/spot rates and broadbands.
There was some variation by job level with individual rates/ranges/spot rates being most popular for senior managers with 44% of companies talking this approach.
In contrast, broadbands were used by around two-fifths of organisations for all levels of staff.
The next most common approaches were to use job families/career grades followed by narrow-graded pay structures then pay spines.
Job evaluation is still widely used by 55% of respondents particularly in the public sector and larger organisations.
Variable pay
Bonus and incentive schemes are widespread in the private sector with 88% of organisations operating at least one reward plan.
In contrast, just a fifth of voluntary sector and a third of public service organisations operated a cash-based bonus or incentive plan.
The majority of schemes are based on individual performance although business-driven and combined factors are also widespread.
Two-fifths of those with schemes plan to amend them in some way while 16% of those that do not have bonuses intend to introduce them.
Benefits
As a percentage of the pay bill, the median cost of providing pensions and other benefits is 15%, with the inter-quartile range (the difference between the upper and lower quartile values; it covers the middle 50% of values) between 10% and 25%.
Overall, around 35% of organisations said they intended to increase their benefit provisions while around 5% intended to reduce the value of what was on offer.
Childcare, bicycle loans and dental health were the most likely to be introduced while for those restricting coverage, cars and car allowances were most commonly mentioned.
Despite a continued interest, flexible benefits remain relatively rare with only 8% of organisations operating this arrangement although the proportion was larger, at 29%, in the largest companies.
Pensions
Final salary pension schemes remain the most common type in operation but apart from those in the public and voluntary sectors, the majority are closed to new employees and a significant minority are being wound up.
Of those making changes to their pension’s arrangements, the most common were to introduce salary sacrifice arrangements, introduce auto-enrolment and increase employer contributions.
Equal pay reviews
Around a fifth of organisations in both the public and private sector intend to carry out an equal pay review in 2007 with the voluntary sector lagging behind at 17%.
In 2006, 38% of public services organisations carried out a review while the proportion was fewer than 20% in the private and voluntary sectors.
Reward strategy goals
Just 35% of organisations had a written reward strategy while 41% said they had adopted a total reward approach.
The most common goal of those with a strategy, mentioned by 79%, was to support business goals while 67% said they wished to reward high performers and three-fifths wanted to recruit and retain top performing staff.
Want to know more?
Title: Reward Management Annual Survey Report 2007, 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 2006.
Sample size: Completed questionnaires were received from 466 organisations employing around one million employees.
Availability: To download the 40-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 and choose the heading “General” on the left of the page. Or click on the following link to download the PDF:
www.cipd.co.uk/NR/rdonlyres/08FE4AE7-7DD5-4185-9070-F34225A6EB0C/0/rewmansr0107.pdf
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 127,000 individual members. To find out more visit www.cipd.co.uk.