cipd 2013 reward management survey
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InterestTRANSCRIPT
Annual survey report 2013
REWARDMANAGEMENT
2013
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REFLECTIONS ON THE LAST 100 YEARS
This year the CIPD celebrates its centenary. How
has reward changed over the intervening years?
Disappointingly, back then, we did not collect
information on how employers determined
salary levels, structured pay or determined pay
progression. Or perhaps we did, but we did not
think that the findings would be useful and so
threw away the results after a number of years.
Hindsight can be a wonderful thing.
In 1913 the average annual earnings for the
UK was around £51 (Change in Distribution of
National Income, Bowley 1920, p13). Today, many
people can earn that amount in a day, but why
people earn that has changed, just as how it is
delivered by employers.
Back then labour had traditionally been seen as
just one element of production, a cost that had
to be minimised and managed. Tasks, such as
sweeping and scavenging or engine cleaning,
were often manual and repetitive. However, ideas
around labour management and development
were beginning to change. Some industrialists
were becoming concerned about the plight of their
employees, for moral, social or political reasons.
The recent Boer War had shown that many urban
volunteers were unable to meet the army’s physical
requirements and there was a concern about the
impact of this on Imperial security.
In addition, the UK state was introducing a
system of national insurance to protect workers
if they became unemployed, sick or old. Over the
intervening years, many employers supplemented
these benefits with occupational sick pay and
workplace pensions. For instance, the August
1921 issue of Welfare Work, the predecessor to
People Management, has an interesting case
study on why Cadbury Bros. decided to go beyond
what was required by the 1906 Workmen’s
Compensation Act.
Benefits developed further, as employers used
them to meet moral concerns, recognise employee
status or found that they could be more cost-
effective than pay. This concern about employee
betterment, or welfare, was one of the drivers
behind the creation of the Welfare Workers’
Association, though at the time there was more of
a focus on the plight of women and girls.
From the US, scientific management was
encouraging a rational approach to people
management, including reward. While scientific
management did not emphasise the human in HR,
it did stress that workers were important resources
and that it made business sense to reward them
well for their physical and mental exertions,
something that was taken up by Henry Ford at
his Model T factory when he increased the hourly
rate to $5 an hour and introduced a wide range
of benefits for his employees. Writing around that
time, Conan Doyle refers in his Sherlock Holmes
book, The Valley of Fear, to this idea when one of
the characters says: ‘That’s paying for brains, you see
– the American business principle.’
A rational way of managing people resulted in
various reward policies and practices to ensure
To mark the CIPD’s centenary, Charles Cotton, CIPD Performance and Reward Adviser, shares his thoughts on a century of reward management.
REWARDING TIMES?
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CIPD is 100 in 2013!In 1913, some extraordinary and enlightened people came together to form what is now the CIPD. Lots of things have changed over the last 100 years, but one thing remains the same: our commitment to support and lead an HR profession that can help people and organisations be the best they can be.
Find out more about our centenary celebrations at cipd.co.uk/100
a common approach, though sometimes these
policies were not often thought to be rational
by many in the organisation. Partly, this was
because the reward policies and practices did
not support the business strategy or people
management ambitions of the organisation, often
because the economic, demographic, political and
technological contexts in which they had been
developed had changed. Also, it was because
so-called best practice was often not built on an
evidence base or what suited the organisation but
simply on what other competitor organisations
were doing at that time. Instead, reward could
often be characterised as a series of ad hoc
compromises, which – while they made tactical
sense – often led to strategic disaster.
The current economic difficulties have thrown
into sharp relief not just what people get
paid, but whether it is fair, from a multitude
of stakeholder perspectives, resulting in a
challenging balancing act for reward. The
development of social media has further increased
reward transparency, both nationally and
internationally, though not always understanding.
How to value jobs and contribution can be
challenging, yet in these complex and changing
times the challenges are even greater; however,
evaluating and pricing tasks and achievements has
never been more important in today’s turbulent
and ambiguous environment. Again, the desire
to act now puts pressure onto reward systems
to react swiftly but also potentially encourages
short-term thinking.
As the demands from employees, the business and
new technology become more complex, reward
has become more sophisticated. If you want
to reward or recognise individual or collective
success, you now have a variety of options in
the toolbox, from merit awards and bonuses to
events held in foreign climes and duvet days.
The challenge is to integrate these options into
a holistic approach that is aligned with both the
business and employee needs.
Today, then, the challenge for employers is to
create reward systems that are not only resilient
to pressure and are agile enough to adapt to
changing contexts, but are also fair, transparent,
are able to balance the needs of stakeholders,
reflect the true value of roles as well as individual
and collective achievements, are aligned to
organisational purpose and are supported by
an evidence base. It will be interesting to see
how far we have come when we celebrate our
125th anniversary.
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CONTENTS
Foreword 4
Summary of key findings 7
Base and variable pay policies 11
Employee share schemes and long-term incentive plans 25
Employee benefits 29
Pensions 42
Conclusions and implications for reward management 53
Background to the report 57
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FOREWORD
Welcome to the twelfth edition of the CIPD’s
annual Reward Management survey. As ever, we
endeavour to provide useful insights into reward
trends and developments and highlight possible
implications for policy and practice.
For me, one of the standout findings from this
year’s survey is that employers would like to see
a switch in focus from fixed pay towards variable
pay. Currently, while 32% of employers report
that all of their total pay spend is on fixed pay
and another 32% say that the split between fixed
and variable pay is 90:10, when asked about their
ideal split, these proportions fall to 23% and 26%
respectively. Instead, employers are more likely to
report that an 80:20 or a 70:30 split between fixed
and variable pay as their ideal, especially in the
private sector.
Perhaps this result is not so surprising. It can be
argued that during these difficult times employers
are looking for flexibility in how they reward
their staff so as to ensure that those who add
most value are rewarded for their contributions
– assuming that they are able to identify those
individuals in the first place. Variable pay also
has the advantage that, in theory, it only pays
out when there is something to pay out and
should help align organisational reward practices
with the business strategy as well as assisting to
communicate what behaviours, skills, values and
attitudes the organisation values and how it will
reward and recognise these. It can also attract and
retain those employees who want to see their pay
linked to their contribution.
If I were a benefits manager I’d be concerned by
the implications of this finding. I’d be worried
my employer could be looking to divert resources
from the benefit budget to help facilitate a shift
towards variable pay. Yet, our survey does not
find this. In fact, it shows the opposite. Employers
want to shift the pay/benefit split towards greater
use of benefits, not less. So, on the one hand,
employers want to increase the variable element
of total pay and, on the other hand, they want
to reduce the pay element of total reward and
increase the emphasis on benefits.
How can we explain this seemingly ambigous
finding? One explanation may be that employers
would like to scale back on their employee
numbers and so be able to afford to boost variable
pay and benefits from the headcount savings.
However, our research does not indicate that this
account is likely. Another possible reason is that
employers do not have a reward strategy and this
is why they are pursuing conflicting objectives.
Alternatively, respondents perceive that they can
get a greater return on investment from their
reward spend from variable pay and benefits.
While benefits can be seen as another fixed cost,
they can be less costly than pay as employers often
get cheaper deals from bulk purchasing than
employees could themselves.
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2013If more money is being directed to the gifted
and talented, we could speculate that the role
of benefits needs to increase so as to maintain
engagement among those staff deemed to be
good but not key value creators. Or, if more
emphasis is going to be placed on variable pay,
benefits would have to be expanded to counteract
the possibility that employees could feel more
insecure as their pay becomes more uncertain.
Finally, we could conjecture that while employers
see advantages of increasing the amount of pay
at risk, they are concerned that this could lead
to more of a transactional relationship between
employees and their organisation, that is, ‘you do
x we’ll give you y’. Collective benefits are a way of
reminding employees that they are part of a social
endeavour. Whatever the reasons, employers may
see benefits as the new salary, fixed costs with
advantages.
It would be remiss of me not to mention that
this is the CIPD’s centenary year. However, we’re
not the only organisation, or individual, with an
anniversary in 2013. The London Underground
is celebrating being in existence for 150 years.
The creation of the London Underground helped
increase the pool of available skills and labour for
employers by allowing more people to come and
work in the capital. London grew and employers
were able to do more as they tapped into this
growing pool of skills, knowledge and experience
and, of course, London has not been the only
UK city to benefit from a suburban rail network.
However, this development has led to challenges
regarding how to utilise this talent as well as
rewarding and recognising their contributions.
On the back of the development of ‘rapid’ mass
transit, we have seen the creation of the interest-
free loans for rail season tickets and other benefits
related to commuting and travel.
Other organisations celebrating anniversaries
are the Financial Times (125 years) and the New
Statesman (100 years). Over time, both of these
publications have commented on how work has
changed in terms of what we do, where, why and
when. If anything, the world of work has changed
even more rapidly in the past few decades, but
this has also thrown up challenges for us as to how
we price jobs as tasks become more fluid. How we
reward and recognise relevant knowledge, skills
and experiences has also become more difficult
in this environment as they quickly become
outdated. In addition, there are a multitude
of stakeholders and reference points to judge
whether a particular reward decision is fair or not,
more so with the growth of social media.
Our Wimbledon neighbour, the Lawn Tennis
Association, was founded 125 years ago and since
then employers have become more interested in
the physical and, increasingly, the mental well-
being of their employees as the focus has switched
from seeing employees as just an element of
production to a source of competitive advantage.
As our survey shows, there are now a multitude of
interventions, such as staff canteens, time off to
compete in sporting events, employee assistance
programmes, workplace financial education/advice,
company chaplains, gym membership, on-site
massages, company choirs and welfare loans. To a
certain extent, these offerings echo aspects of the
welfare capitalism of Henry Ford, who was born
150 years ago, which aimed to improve the lot of
the employee (though it can also be argued that
it was also aimed at removing the rationale for
organised labour), as well as the establishment
of the CIPD as the Welfare Workers’ Association
in 1913. Of course, the positive impact of such
employer well-being benefits will be reduced if
employees feel obliged to spend more time at work
during this period of economic uncertainty and less
time keeping physically and mentally healthy.
Another body with something to celebrate
is the National Association of Pension Funds,
clocking in 90 years. Over this period the world of
occupational pensions has changed dramatically,
as human longevity has increased. As the
workforce ages and automatic pension enrolment
in the workplace is gradually introduced,
employers are reviewing the role of pensions in
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particular and reward more generally in terms
of how they attract, retain, engage and exit
employees, both within the organisation and
between roles. While organisations are changing
how they reward and develop an older workforce,
they must also consider their existing value
proposition and how they may need to adapt
it for the employees of tomorrow. With more
financial demands, forward-looking employers
will regard reward more holistically, viewing it
more of a vehicle to help employees create and
manage wealth as well as offering assistance
for individuals in hardship. While the changes in
treatment of tax relief on pension contributions
have created an element of uncertainty around
retirement planning, the creation of a flat-rate
pension should encourage more people to save
more knowing that they will not be penalised by
the state for doing so.
Finally, Doctor Who is celebrating its fiftieth
anniversary as a TV programme. One of the main
themes of the programme is technology and
science. Reward has come a long way from the
days of ink-filled paper ledgers and comptometers
to spreadsheets and integrated human resource
information systems. Yet while we are better
at generating and storing HR data, we do not
appear to be particularly advanced in analysing
that information in a way that is useful for the
business. Few employers are able to calculate
the cost of their compensation and benefit
programmes, let alone be able to express this as a
proportion of revenue, profit or economic value
added. Of course, the danger with HR analytics
and big data is that we focus on the volume of
the data and how we collect and store it, rather
than on the complexity of the data that we are
manipulating and why we’re analysing it in the
first place.
As ever, I would like to thank all those reward and
HR professionals that took the time to complete
this year’s survey, at a time when they have so
many competing demands, those practitioners
who helped develop the questionnaire, those
individuals who volunteered to be case studies
and the researchers from the Universities of
Bedfordshire, London Met and Sydney.
Charles Cotton
CIPD Performance and Reward Adviser
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SUMMARY OF KEY FINDINGS
The twelfth annual survey of UK reward management is based on responses received from 444 organisations, across private, public and third sectors. The main aim of the research is to provide readers with a benchmarking and information resource in respect of current and emerging practice in UK reward management.
Base and variable pay policies• Just under half of all employers questioned
use individual arrangements or spot salaries
to manage base pay for management, other
employees or both. Other common forms of base
pay structures include narrow-graded pay grades,
pay spines and broad-banded pay structures.
• Just over two in five of respondents consider
market rates (underpinned by job evaluation)
the most important factor in determining
salary levels for management, other employees
or both, while just under two in five consider
the organisation’s ability to pay the most
important factor.
• The most common criteria to manage
individual base pay progression are individual
performance (used by around seven in ten
respondents), followed by competencies (just
over two-thirds) and market rates (just under
two-thirds). The least common criteria for pay
progression is length of service.
• The top three factors determining the size of
the 2012 pay review for all employees were
the organisation’s ability to pay, the ‘going
rate’ of competitors’ pay rises and movement
in market rates. Inflation was also ranked
as a top three factor for non-management
employee pay reviews.
• Over half of organisations operate one or
more performance-related reward, incentive
or recognition scheme. Individual bonuses and
merit pay rises are the most common individual
performance-related schemes, while the most
common group performance-related schemes
are goal-sharing and profit-sharing.
• In 2013, around half of respondents forecast
that their organisation’s total spend on base
and variable pay will increase; one-third predict
it will stay the same and over one in ten
foresee it will decrease. Pay rises are the most
common driver of increasing total spend on
base and variable pay, while employing fewer
staff is the most common driver of decreasing
total spend on pay.
• The most common actual splits between total
spend on fixed pay and variable pay are 90%
fixed/10% variable. This ratio is the same as
the most common ideal split between total
spend on fixed pay and variable pay of 90%
fixed/10% variable.
Employee share schemes and long-term incentive plans (LTIs)• Over a quarter of respondent organisations
offer employee share schemes and LTIs.
• The most common broad-based schemes are
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company share option plans, while the most
common executive schemes are executive share
options.
• Over three-quarters of organisations offering
employee share schemes or LTIs predict that
their total spend will stay the same in 2013,
while three in twenty predict an increase in
spend and one in ten a decrease in spend.
• Employing more staff and increasing scheme
eligibility are given as the most common reasons
for increasing total spend on shares schemes and
LTIs, while reductions in average awards and
reducing scheme eligibility are given as the most
common reasons for decreasing total spend on
shares schemes and LTIs.
Employee benefits• The six most common benefits provided
to all employees are: paid bereavement
leave; pension scheme; training and career
development; over 25 days’ annual leave
(excluding public holidays); death in service/life
assurance; and Christmas lunch/party.
• One-fifth of organisations use flexible benefits
schemes and a further one in twenty will
introduce flexible benefits in 2013. Three
in twenty organisations offer voluntary/
affinity benefits, with a further one in thirty
introducing them in 2013.
• Three in twenty organisations currently issue
total reward statements to employees, with
another one in ten planning to introduce them
in 2013.
• While seven in ten respondents agree
that a transparent approach to employee
benefits policies and practices exists in their
organisations, around one in four agree that
their organisation prefers a more secretive
approach.
• In 2013, over half of respondents predict
their organisation’s total spend on employee
benefits will stay the same; three in ten
forecast it will increase and around three in
twenty think it will decrease.
• Increases in the costs of benefits is the most
common driver of increasing total spend on
employee benefits, while reductions in money
available for the benefits budget is the most
common driver of decreasing total benefits
spend.
• The most common actual split between total
spend on employee pay and benefits is 90%
pay/10% benefits and this is also the most
common ideal split.
Pensions• Nine out of ten organisations currently offer to
contribute to an employee pension scheme. The
most common type of pension offered to all
employees is a defined contribution (DC) scheme
followed by a defined benefit (DB) plan.
• Just over one-third of organisations questioned
automatically enrol employees into an
existing DC pension scheme. Over one-third of
organisations with DC pension schemes have
over 70% employees as members, while one-
fifth have between 10% and 30% as members.
• The average (mean) contribution rates to open
DC pensions are 7.9% employer contribution
and 5% employee contribution.
• Just under half of respondents say their
organisation is intending, or is required, to
make changes to its pension arrangements
or to introduce a pension for the first time in
the next 12 months, with the most common
change being to comply with auto-enrolment
requirements.
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2013Table 1: Summary of findings
Reward approaches
Percentage of respondents
using
Base pay structures Individual rates/ranges/spot salaries 49.0
Narrow-graded 37.2
Pay spines/service-related 31.5
Job family 30.4
Broad-banded 29.3
Base pay determination Market rates (with JE) 42.5
Ability to pay 39.5
Market rates (without JE) 21.9
Collective bargaining 16.4
Base pay progression criteria Individual performance 71.5
Competencies 64.7
Market rates 64.2
Employee potential/value/retention 51.3
Skills 57.6
Length of service 31.1
Base pay review factors Ability to pay 78.8
Going rate 45.9
Movement in market rates 44.9
Inflation 42.4
Recruitment/retention issues 40.0
Government funding/pay guidelines 34.4
Union/staff pressures 27.1
Living Wage pressures 24.0
Shareholder views 19.8
National Minimum Wage pressures 18.8
Employers offering a performance-related reward scheme
55.2
Individual performance-related schemes
Individual bonuses 59.8*
Merit pay rises 56.4*
Combination schemes 49.4*
Sales commissions 36.5*
Individual non-monetary recognition awards 35.3*
Ad hoc/project-based schemes 19.5*
Other individual-based cash incentives 17.4*
Group performance-related schemes Goal-sharing 50.3*
Profit-sharing 39.7*
Group- or team-based non-monetary recognition
35.1*
Group- or team-based non-monetary incentives
21.2*
Gain-sharing 11.9*
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Table 1: Summary of findings (continued)
Reward approaches
Percentage of respondents
using
Employers offering LTIs 25.5
Top six long-term incentives Executive share option schemes 40.6*
Company share option plan (CSOP) 35.6*
Share incentive plan (SIP) 32.7*
Save as you earn (SAYE) 25.7*
Executive deferred annual cash-based bonus 22.8*
Executive restricted/performance share plan 20.8*
Top six universal benefits Paid bereavement leave 92.9
Pension scheme 83.8
Training and career development 82.9
25+ days’ annual leave (excl. public hols) 73.0
Death in service/life assurance 68.7
Christmas party/lunch 66.9
Employers providing total reward statements
15.0
Employers offering voluntary/ affinity benefits
15.5
Employers offering flexible benefits 20.3
Employers contributing to a pension scheme
90.5
Open pension schemes Defined contribution 55.2*
Defined benefit 28.1*
Contribution to personal pension 24.9*
Hybrid/other 7.0*
Membership levels of open DC pension schemes
10–30% 20.1
31–50% 21.0
51–70% 23.2
Over 70% 35.7
Organisations auto-enrolling members to DC pension schemes
34.3
Average employer contribution to main DC pension schemes
7.9% of salary
Average employee contribution to main DC pension schemes
5.0% of salary
Employers predicting change to pension schemes
48.0
Top six changes to pension schemes Comply with auto-enrolment requirements 90.0+
Increase employee DB contributions 13.3+
Introduce salary sacrifice 12.4+
Reduce the value of the DB plan 7.1+
Increase employee DC contributions 6.7+
Amend the DC default investment options 5.7+* % of respondents operating a performance-related/long-term incentive scheme/pension scheme+ % of respondents predicting pension changes
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BASE AND VARIABLE PAY POLICIES
Our findings show organisations responding to multiple contextual factors in their reward management choices. Economic conditions continue to drive pay decisions for many. In the private sector, market competition and employee value are also key drivers, while in the public sector more traditional forms of reward management prevail.
Base pay structuresTable 2 shows that individual base pay
arrangements dominate as the most popular
methods of managing base pay, with just under
half of organisations using individual rates or spot
salaries. In previous surveys we have observed that
the incidence of narrow-graded pay structures
has been lower than we might have anticipated;
however, this year there is a sharp increase in
the number of survey organisations managing
base pay this way. This result may, in part, be
due to sampling differences year on year (see
‘Background to the report’) but clearly indicates
that narrow-grading is still very much a part of the
reward system in organisations across all sectors.
There is a marked difference in approach to base
pay management between sectors (Figure 1).
Manufacturing/production and private sector
services both clearly favour the individualised
approach, whereas public services remain wedded
to pay spine/seniority systems, which are largely
absent from the private sector. In the voluntary,
community and not-for-profit sector, the results
are split: individualised pay and pay spines are the
most common approaches, likely to be a reflection
of the heterogeneous nature of this sector.
Differences between base pay management
for different employee groups are not as
marked. While narrow-grading is used by nearly
a third of organisations for non-managerial
employees and a quarter use broad-banding for
management/professionals, individual rates/spot
salaries are the most common for both groups.
Flexible, individualised approaches to base pay
management are clearly a key feature of reward
management in the UK.
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Table 2: Base pay structures (% of respondents)
Individual rates/spot
salariesNarrow-graded
Pay spines/ service-related Job family
Broad- banded
All* 49.0 37.2 31.5 30.4 29.3
2012* 47.2 29.0 28.5 24.5 27.0
2011* 52.6 21.0 29.8 27.6 34.9
By sector*
Manufacturing and production
60.0 48.2 17.6 43.5 40.0
Private sector services 63.5 38.8 14.7 34.7 33.5
Public services 23.8 32.4 68.6 17.1 21.9
Voluntary, community and not-for-profit
39.5 28.4 33.3 24.7 18.5
By employee category
Management/professional 44.3 25.5 23.2 25.2 25.2
Other employees 32.9 32.2 29.9 23.6 17.1*% of respondents selecting for either employee category or both employee categories
Manufacturing and production Private sector Voluntary and not-for-profit Public services
70
60
50
40
30
20
10
0Individual Narrow graded Pay spines Job family Broad-banded
Figure 1: Base pay structures, by sector (% of respondents)
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2013Table 3: Base pay determination (% of respondents)
Market rates(using JE)
Abilityto pay
Market rates (not using JE)
Collective bargaining
All* 42.5 39.5 21.9 16.4
2012* 37.5 42.7 31.0 24.0
By sector*
Manufacturing and production
44.0 38.1 28.6 22.6
Private sector services 42.9 43.5 31.0 5.4
Public services 34.3 31.4 6.7 40.0
Voluntary, community and not-for-profit
50.6 43.2 16.0 2.5
By employee category
Management/professional 40.2 31.7 19.2 8.9
Other employees 33.1 34.7 15.5 16.7*% of respondents selecting for either employee category or both employee categories
Figure 2: Pay determination in 2012 and 2013 (% of respondents)
2013 2012
50
40
30
20
10
0Market rates
(using JE)Ability to pay Market rates
(not using JE)Collective bargaining
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Pay progressionThe criteria organisations use to progress
individuals within a pay grade/scale are shown in
Table 4. Individual performance continues to be
the most common method of pay progression,
although rates have fallen slightly in 2013. In
contrast, the incidence of competency-based
progression has risen dramatically; indeed, all
criteria other than individual performance have
increased this year. We might speculate that as
performance outputs are more difficult to achieve
in tough economic times, organisations have placed
more emphasis on inputs in the form of employees’
competencies and skills. Market rates and employee
potential/retention have also increased slightly,
perhaps indicating a return to a more competitive
approach to base pay progression.
Table 4 also shows the breakdown of pay
progression criteria by sector and employee
category. Individual performance and market rates
dominate in the private sector, whereas length
of service is largely a public sector phenomenon.
Figure 3 illustrates the differences in approach
to pay progression for management and
professionals compared with other employees.
Length of service is the only criteria used more
commonly for non-managerial staff than
management/professionals.
Table 4: Base pay progression (% of respondents)
Individual performance Competencies
Market rates Skills
Employee potential/
value/ retention
Length of service
All* 71.5 64.7 64.2 57.6 51.3 31.1
2012* 78.6 49.4 56.8 44.1 48.0 28.7
2011* 74.0 50.2 62.6 44.2 45.7 24.5
By sector*
Manufacturing and production
88.0 71.1 84.3 74.7 69.9 26.5
Private sector services 86.3 73.2 74.4 67.3 73.8 17.3
Public services 45.0 51.0 33.0 36.0 19.0 60.0
Voluntary, community and not-for-profit
55.4 56.8 60.8 45.9 23.0 28.4
By employee category
Management/professional
69.4 61.0 60.1 51.8 50.4 25.9
Other employees 57.3 52.9 53.3 50.9 36.2 28.8*% of respondents selecting for either employee category or both employee categories
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Table 5 shows the most common combination
of factors used by our respondent organisations
in pay progression by sector. While there are
clear differences in approach between private
sector employers and those in the public and
third sectors, the treatment of employee groups
within sectors is fairly consistent. The preferred
combination of individual performance,
competencies, skills, market rate and employee
potential/value/retention is dominant across
employee groups in both private sector categories.
Table 5: Most common combinations of factors used to determine base pay progression (% respondents)
Management and professional Other employees
Manufacturing and production Competencies, skills, individual performance, market rates, employee potential (22.9%)
Competencies, skills, individual performance, market rates, employee potential (10.3%)
Private sector services Competencies, skills, individual performance, market rates, employee potential (29.3%)
Competencies, skills, individual performance, market rates, employee potential (20.0%)
Public services Competencies, individual performance (6.1%)
Individual performance, length of service (5.3%)
Voluntary, community and not-for-profit
Competencies, skills, individual performance, market rates, employee potential (6.9%)
Competencies, skills, individual performance, market rates (5.6%)
*% of respondents selecting for either employee category or both employee categories
Management/professional Other employees
70
60
50
40
30
20
10
0Individual
performanceCompetencies Market rates Skills
Employee value/
retentionLength
of service
Figure 3: Pay progression criteria, by employee category (% of respondents)
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2012 pay reviewsTable 6 shows that the top three factors
determining the size of the 2012 pay review for
all employees were the organisation’s ability to
pay, the ‘going rate’ of competitors’ pay rises and
movement in market rates. This clearly indicates
that organisations continue to walk the line
between awarding pay rises to keep competitive
with the market while ultimately being constrained
by what is affordable. Inflation was also ranked as
a top three factor for non-management employee
pay reviews, presumably as cost of living changes
are more crucial for those on lower incomes. There
are other differences between the two employee
groups. Recruitment and retention issues are,
as would be expected, more of a factor for the
management/professional ‘talent’ group. Whereas
Living Wage and National Minimum Wage
concerns feature more for other, presumably less
well paid, employees. It is also noteworthy that
last year the Living Wage was seen as slightly more
of a factor than the National Minimum Wage in
determining the size of the base pay review. By
sector, government funding is more of an issue
among public services and voluntary, community
and not-for-profit employers.
2013 pay reviewsFor the first time this year the survey asked
respondents about pay reviews for the
forthcoming year in open-text format in an
attempt to better understand the subtleties of pay
review decisions. Interestingly, most respondents
identified largely similar factors to the ones
provided in 2012. As in 2012, it is likely to be
internal assessment of ability to pay which will
determine 2013’s pay review outcomes. However,
we do see a more nuanced picture. Alongside
the terms ‘ability to pay’ and ‘affordability’ we
also have ‘profitability’, ‘company performance’,
‘budgetary restrictions’, ‘funding streams’,
government funding, ‘management of costs’,
‘level of savings made’ and even ‘staying in
business’, which remind us that there are a
multitude of sub-factors which determine an
organisation’s ability to pay before we even begin
to consider the interplay between main factors.
There are strong links between different sets of
factors, however. Ability to pay is often coupled
with other concerns; we see a balancing act as
organisations respond to competing pressures, as
the following responses indicate:
Table 6: Factors determining size of base pay reviews in 2012 (% respondents)
All grades* Management/professionals Other employees
Ability to pay 78.8 Ability to pay 73.6 Ability to pay 68.7
Going rate 45.9 Going rate 41.9 Inflation 37.6
Movement in market rates 44.9 Movement in market rates 41.2 Going rate 34.5
Inflation 42.4 Recruitment and retention 37.8 Movement in market rates 34.5
Recruitment/retention issues 40.0 Inflation 37.6 Government funding 30.0
Government funding 34.4 Government funding 32.4 Recruitment and retention 27.9
Union/staff pressures 27.1 Union/staff pressures 18.7 Union/staff pressures 24.1
Living Wage pressures 24.0 Shareholder views 17.6 Living Wage pressures 20.9
Shareholder views 19.8 Living Wage pressures 15.8 National Minimum Wage 17.1
National Minimum Wage 18.8 National Minimum Wage 11.5 Shareholder views 14.2*% of respondents selecting for either employee category or both employee categories
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2013‘Benchmarking and the ability for the organisation
to pay any increases whilst remaining profitable.’
(Large manufacturing and production company)
‘Company performance dictates total funds
available, which will be prioritised to groups
where recruitment and retention is problematic.’
(Private sector services SME)
‘Union buy-in to below-inflation wage rises at a
time when costs are rising and revenue growth is
slowing, the aim being to keep people in jobs until
an upturn is felt and we can increase wage rises
accordingly.’ (Large public services organisation)
‘Organisational surplus/profit balanced with
organisational management and working conditions
improvements – “we can’t pay much more but we’ve
improved how the organisation manages you”.’
(Voluntary, community and not-for-profit SME)
‘Government pay guidance and the ability of the
organisation to convince stakeholders to operate
these as flexibly as possible.’ (Large public services
organisation)
Overall, the picture gained from these answers is a
complex one. Organisations are clearly feeling the
push and pull of a number of competing factors
while being heavily constrained by company
performance or government funding issues.
Performance-related reward, incentive and recognitionOver half of all organisations in our survey
operate one or more performance-related reward,
incentive or recognition scheme (Table 7). This
figure is much reduced from last year, which could
be due to sampling differences; the 2013 survey
has a greater representation of public services
and voluntary, community and not-for-profit
organisations than in 2012, where performance-
related reward (PRR) is less common. However,
a closer look at Table 7 reveals that, other than
manufacturing/production, all sectors, sizes
and ownership types have seen a reduction in
incidence of PRR schemes. In speculating on why
this might be, one suggestion is that organisations
continuing to feel the effects of economic
downturn are putting certain schemes on hold or
shelving them altogether. This view is supported
Table 7: Organisations operating performance-related reward, incentive and recognition schemes (% of respondents)
2013 all 55.2
2012 all 65.3
By sector* 2012 2013
Manufacturing and production 62.8 66.7
Private sector services 76.9 71.9
Public services 55.6 41.0
Voluntary, community, not-for profit 37.5 25.9
Multiple sectors 73.3 N/A
By size
SME (<250) 59.2 43.5
Large (250–9,999) 68.3 62.0
Very large (10,000+) 91.7 74.3
By geographic ownership
Mainly UK-owned organisation 56.7 47.9
Division of mainly UK-owned organisation 85.2 75.0
Division of internationally owned organisation 80.3 74.3*% of respondents selecting for either employee category or both employee categories
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to some extent by respondents to our question
about PRR effectiveness (see below), some of
whom mention reviewing their performance-
related schemes in light of economic conditions,
particularly merit pay/PRP schemes that increase
base pay, for example:
‘We have not been able to make a pay award
since 2009 and are intending to move away from a
PRP system.’ (Large voluntary, community, not-for-
profit organisation)
However, the arguments for variable pay (for
example bonuses and commissions that have to be
re-earned) would suggest that these schemes are
well suited to conditions where general base pay
increases are unaffordable; the organisation only
pays out when performance has been achieved.
The apparent decrease in operation of even these
schemes may well indicate that the economic
climate is biting deeper than ever.
Tables 8 and 9 and Figure 4 show the proportion
of different types of performance-related scheme
in operation. Individual bonuses remain the
most common form of individual PRR scheme,
but incidence has dropped this year compared
with 2011 and 2012. Suggestions that this may
have any connection to the bad press associated
with ‘bonus culture’ are speculative, but this may
be an area to watch in future survey rounds.
Merit pay as a proportion of all PRR schemes has
remained the same, while combination schemes
have increased substantially. Again, this shift from
individual variable pay towards schemes where
the award depends on a mix of individual, group
and/or organisational performance may indicate
unwillingness to risk paying out unless overall
organisational performance is strong.
There are clear sectoral differences in approach
to individual PRR; combination schemes are
most common in manufacturing/production
Table 8: Individual performance-related reward schemes (% of respondents operating a PRR scheme)
Ind
ivid
ual
bo
nu
ses
Mer
it p
ay r
ises
Co
mb
inat
ion
sch
emes
Ind
ivid
ual
no
n-m
on
etar
y re
cog
nit
ion
aw
ard
s
Sale
s co
mm
issi
on
s
Ad
ho
c/p
roje
ct-b
ased
sc
hem
es
Oth
er in
div
idu
al-b
ased
cas
h
ince
nti
ves
All* 59.8 56.4 49.4 35.3 36.5 19.5 17.4
2012* 66.8 56.5 40.1 33.9 37.3 17.8 25.7
2011* 65.2 60.8 35.4 33.1 40.9 22.1 20.4
By sector*
Manufacturing and production
51.8 57.1 66.1 37.5 35.7 25.0 10.7
Private sector services 69.7 55.7 51.6 34.4 53.3 18.9 23.8
Public services 48.8 51.2 32.6 37.2 4.7 14.0 14.0
Voluntary, community and not-for-profit
45.0 70.0 25.0 30.0 5.0 20.0 5.0
By employee category
Management/professional 58.8 54.6 47.5 31.9 29.8 17.2 13.0
Other employees 46.0 50.2 40.0 37.7 25.6 14.0 15.3
*% of respondents selecting for either employee category or both employee categories
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2013companies, whereas private sector services use
individual bonuses to a greater extent than other
sectors. Sales commissions are most common in
private sector services, where the type of work is
best suited to this form of performance-related
incentive. Merit pay rises are most common in the
third sector, where incentive schemes are rarely
used. Among public services organisations using
PRR, both merit pay and individual bonuses are
used most often.
We also see a difference in approach depending
on employee category. Management and
professionals are more likely to receive financial
performance-based rewards of nearly every type
than other employees. This could indicate a more
‘talent management’ oriented approach to this
group, while non-monetary recognition is perhaps
more suited to the broad base of employees.
Group-based performance-related reward schemes
remain less common than individual-based schemes,
reflecting the largely individualised nature of UK
reward management. However, our results have
shown another increase this year in nearly all group-
based schemes, perhaps indicating a shift in approach
back towards more collective reward systems. Again,
we will await future surveys to determine if this
apparent trend continues.
Once again, goal-sharing (group bonuses based on
group/team achievement of specific objectives) is
the most common form of group PRR, especially
in private sector companies. The public and third
sectors are far more likely to use non-monetary
recognition and incentive schemes. The difference
in approach between employee groups can also
be seen here; once again, management and
professionals are more likely to be included in
monetary schemes, while other employees are more
likely to be included in non-monetary schemes.
2011 2012
70
60
50
40
30
20
10
0Individualbonuses
Meritpay rises
Combinationschemes
2013
Individual non-monetary
Salescommissions
Ad hoc Otherindividual
Figure 4: Individual performance-related schemes in past three years (% of respondents operating a PRR scheme)
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Most effective performance-related schemesThis year, survey respondents were asked which
performance-related reward, recognition
and incentive schemes in operation in their
organisations were most effective and why. They
provided responses in open-text answers so we
could gain a deeper understanding of all the
factors in play.
Many responses centred on individual bonus
schemes, particularly flexible, discretionary bonuses
as well as those based on achievement of specific
performance targets. The next most cited schemes
were merit pay rises. One respondent from a large
manufacturing and production company said
their merit pay scheme was ‘the most effective
in terms of matching contribution with reward’.
Sales commission schemes were also mentioned
frequently by respondents; supporting comments
largely related to the direct link between behaviour
and results. Combination schemes appear to be
among the most effective, as one respondent
from a large public services organisation put it,
because they ‘enable a clear line of sight between
organisation, team and individual performance’.
Group- and team-based schemes such as goal-
sharing were cited less often as effective schemes,
especially given the relatively high incidence of
such schemes (Table 9). However, profit-sharing
was thought by a proportion of respondents
to be the most effective scheme, popular with
employees and providing the ‘engagement factor’.
Non-monetary recognition schemes also feature
strongly among responses and these schemes seem
to be providing a useful reward mechanism during
difficult economic times:
‘In the current climate our recognition scheme
non-monetary awards are proving the most
effective because they are enabling us to
recognise success, improve morale and provide
some genuine personal reward for our staff in a
period when there are limited pay uplifts and no
performance bonus awards.’ (Large public services
organisation)
However, one quite surprising aspect of the
responses to this question was the relatively high
proportion of respondents who either said none of
their performance-related schemes were effective
or that it was impossible to tell as there was little
or no evaluation of such schemes. One respondent
Table 9: Group performance-related reward schemes (% of respondents operating a PRR scheme)
Goal- sharing
Profit- sharing
Group or team-based
non-monetary recognition
Group or team-based
non-monetary incentives
Gain- sharing
All* 50.3 39.7 35.1 21.2 11.9
2012* 47.9 38.1 26.8 18.6 21.6
2011* 14.9 21.0 18.2 8.3 7.2
By sector*
Manufacturing and production
52.4 47.6 28.6 16.7 11.9
Private sector services 55.3 44.7 27.1 16.5 15.3
Public services 35.3 11.8 76.5 47.1 0.0
Voluntary, community and not-for-profit
14.3 0.0 71.4 42.9 0.0
By employee category
Management/professional 48.2 39.0 31.2 19.1 12.1
Other employees 42.6 38.0 37.2 21.7 5.4*% of respondents selecting for either employee category or both employee categories
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2013found their organisation’s scheme ‘demotivational’;
another said theirs had a ‘tendency to encourage
narrow/short-term behaviour’. It seems reward
practitioners are as split as academics on the topic of
performance-related reward effectiveness.
Total spend on fixed and variable pay When it comes to the proportions of total spend on
fixed and variable pay in our survey organisations,
the most common split is 90% fixed/10% variable
or 100% fixed pay (Table 10). Predictably perhaps,
we do see some marked sectoral variation in
results. Public services and the voluntary sector are
far more likely to have 100% spend on fixed pay
than private sector organisations, where the split is
more commonly 90% fixed/10% variable. Looking
at Table 11, however, the most favoured ideal split
between total spend on fixed pay and variable pay
would be 90% fixed/10% variable overall. In fact, in
general respondents in all sectors would like to see
a lower proportion of total spend on fixed pay and
more on variable pay.
Table 10: Actual proportions of total spend on fixed and variable pay (% of respondents)
AllManufacturing and production
Private sector services Public services
Voluntary, community and not-for-profit
100% variable 0.3 1.4 0.0 0.0 0.0
10% fixed/90% variable 0.5 0.0 1.4 0.0 0.0
20% fixed/80% variable 1.4 1.4 2.7 0.0 0.0
30% fixed/70% variable 1.9 1.4 2.1 1.3 3.0
40% fixed/60% variable 0.5 1.4 0.7 0.0 0.0
50% fixed/50% variable 2.5 4.2 4.1 0.0 0.0
60% fixed/40% variable 3.6 1.4 5.5 3.8 1.5
70% fixed/30% variable 8.5 2.8 10.3 10.0 9.1
80% fixed/20% variable 17.6 25.0 19.9 11.3 12.1
90% fixed/10% variable 31.6 45.8 32.2 27.5 19.7
100% fixed 31.6 15.3 21.2 46.3 54.5
Table 11: Ideal proportions of total spend on fixed and variable pay (% of respondents)
AllManufacturing and production
Private sector services Public services
Voluntary, community and not-for-profit
100% variable 1.2 1.5 1.5 0.0 1.7
10% fixed/90% variable 0.9 0.0 2.2 0.0 0.0
20% fixed/80% variable 0.6 1.5 0.7 0.0 0.0
30% fixed/70% variable 1.8 1.5 2.9 0.0 1.7
40% fixed/60% variable 1.8 2.9 1.5 2.9 0.0
50% fixed/50% variable 3.0 7.4 2.2 1.4 1.7
60% fixed/40% variable 3.6 2.9 5.8 2.9 0.0
70% fixed/30% variable 14.1 10.3 19.0 13.0 8.5
80% fixed/20% variable 23.7 22.1 26.3 18.8 25.4
90% fixed/10% variable 26.4 35.3 21.9 30.4 22.0
100% fixed 22.8 14.7 16.1 30.4 39.0
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This is an interesting finding, indicating that ‘new
pay’ thinking on strategic reward advocating
higher proportions of variable pay has, to a limited
extent, been adopted within organisations which
ideally would like to shift further towards variable
pay. However, there does seem to be a limit here;
Tables 10 and 11 show clearly that while the actual
figures at the bottom of Table 10 all shift towards
higher ideal proportions of variable pay in Table
11, there is relatively little change past the 70%
fixed/30% variable mark, indicating that while
respondents would in general prefer more variable
pay, at present they would be unwilling to move to
reward structures where variable pay is in greater
proportion than fixed pay.
Base and variable pay – predictions for 2013Table 12 and Figure 5 reveal respondents’
predictions for changes to base and variable
pay spend in 2013. Just over half of respondents
predict their organisation’s total spend on base
and variable pay will increase, whereas 34.9%
predict it will stay the same and 12.2% predict it
will decrease in the next year. Manufacturing and
production, SMEs, divisions of UK companies and
private (publicly traded) organisations are more
likely to predict increasing total spend. Of those
organisations predicting a decrease of total spend,
very large, mainly UK-owned, public sector services
organisations are the most common. Presumably,
this result is down to large government-funded
organisations being required to cut spending,
including pay budgets.
Table 12: Prediction for changes to total spend on base and variable pay in 2013 (% of respondents)
Increasespend
Staythe same
Decreasespend
All 52.9 34.9 12.2
By sector
Manufacturing and production
63.2 27.6 9.2
Private sector services 57.3 35.1 7.6
Public services 35.2 38.1 26.7
Voluntary, community and not-for-profit
55.6 38.3 6.2
By size
SME (<250) 56.0 38.2 5.8
Large (250–9,999) 52.8 32.4 14.8
Very large (10,000+) 37.1 34.3 28.6
By geographic ownership
Mainly UK-owned organisation
51.4 35.8 12.8
Division of mainly UK-owned organisation
65.0 30.0 5.0
Division of internationally owned organisation
53.3 35.2 11.4
By structural ownership
Private sector (privately held) 57.7 35.2 7.1
Private sector (publicly held) 61.8 26.3 11.8
Public sector 29.8 38.1 32.1
Non-profit 56.4 38.6 5.0
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2013When we look at what our respondents say is
driving these changes to total spend on base and
variable pay, Table 13 shows that pay rises and
employing more staff are the most common drivers
of increasing spend on pay, while employing fewer
staff and pay cuts are the most common drivers of
spend decreases. There is a clear division here in
organisations which are taking on more employees
and awarding pay increases, while others are
reducing headcount and cutting pay. The positive
aspect of this is that the majority of organisations,
are increasing spend and, it seems, are doing so
for positive reasons. One particular result to note
is the relatively high response for ‘other’ drivers of
decreasing pay spend when the ‘other’ category for
increasing spend is so low. It is possible that again
the public sector requirement to cut pay budgets is
the key factor here.
34.952.9
12.2
Increase spend
Stay the same
Decrease spend
Figure 5: Prediction for changes to total spend on base and variable pay in 2013 (% of respondents)
Table 13: Drivers of predicted changes to total spend on base and variable pay in 2013 (% of respondents predicting the change)
Drivers for increasing pay spend Drivers for decreasing pay spend
Pay rises 83.8 Employing fewer staff 81.5
Employing more staff 50.6 Pay cuts 29.6
Skills shortages 19.1 Reductions in average variable pay 22.2
Increases in average variable pay 15.3 Other 20.4
Other 4.7 Skills shortages easing 1.9
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Case study – Intel Corporation Europe
When it comes to putting reward right at the heart of the employment relationship, the computing giant Intel are firm believers in their managers exemplifying principles of reciprocal trust and open communication – and this approach has seen spectacular results.
Intel Corporation’s operation in Europe extends from Ireland in the west to Kazakhstan in the east and Israel in the south, employing approximately 17,000 workers in sales and marketing, manufacturing and design. Intel’s mission – ‘This decade, we will create and extend computing technology to connect and enrich the lives of every person on earth’ – reflects both their ambition and their values. That such a mission would drive bold corporate objectives might be expected, but it is in the translation of these high-level objectives into meaningful working practices that has been key to delivering results.
Gary Boyle, HR Business Partner for Europe, believes that this has been achieved through a combination of a strong reward philosophy; open, clear communications; and line managers who are passionate about Intel and engaged with the company’s vision and values.
Intel’s reward philosophy is based on matching or exceeding the market for fixed elements of the total reward package (base pay, benefits and employee share schemes) and rewarding exceptional performance with variable pay practices which allow repeat high-performers to earn at the very top of the market. An annual bonus is based on individual targets with a multiplier based on overall company performance, while a six-monthly bonus is awarded on size of revenue, operating margin and feedback from customers. What may be surprising in a diverse employee population of 17,000 is that the bonuses are open to all, regardless of role, business group or location. The message to employees is unambiguous: performance drives earnings potential and performance is dependent on everyone – everyone will have a role to play, and a share, in company success.
Boyle is equally clear about the critical role of line managers in the performance equation and believes strongly that this is where HR should facilitate, not direct. For reward to be meaningful from an employee perspective, Boyle says, ‘you don’t need someone from HR coming in and telling you about the pay philosophy, you need your manager understanding it and being able to relate it to you as an individual.’ In Boyle’s view, the relationship between direct reports and managers and the trust people have in their managers has the potential to be more important than pay in motivating and retaining high-performers.
According to Boyle, a healthy management relationship and the principle of ‘matching what you say with what you do’ have been responsible for some extraordinary results at Intel. In 2010 the company faced a product recall. Its factories around the world, already working to near capacity, were challenged with doubling production to meet customer demands. Intel approached the situation as a potential win–win; they knew that getting this right would improve financial results and they committed to sharing any gains 50/50 with employees. A huge communications campaign promoted the challenge and kept employees informed of performance against target on a daily basis. Employees rose to the challenge spectacularly and achieved the equivalent of 14 weeks’ production in just 8 weeks, each earning a $1,000 bonus in the process.
In an economic environment of zero or very low base pay increases, it is clear from Intel’s example that greater employee financial involvement underpinned by a positive employment relationship could be a very powerful tool indeed.
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EMPLOYEE SHARE SCHEMES AND LONG-TERM INCENTIVE PLANS
Our findings indicate relative stability in this area of reward management, with executive share options and company share option plans remaining the most common schemes. Looking forward, our respondents predict spending on this area of reward will stay the same over the forthcoming year.
Table 14 shows roughly the same proportion of
organisations offering employee share schemes
and long-term incentive (LTI) plans as last year.
Although share schemes and LTIs remain a
predominantly private sector reward mechanism,
small numbers of respondents in other sectors
report their use. Results this year also show that
these schemes are most common, as we would
Table 14: Organisations operating long-term incentive schemes (% of respondents)
2013 25.5
2012 28.6
By sector 2012 2013
Manufacturing and production 43.6 46.0
Private sector services 34.7 35.7
Public services 2.8 5.7
Voluntary, community, not-for-profit 0.0 7.4
Multiple sectors 56.7 N/A
By size
SME (<250) 21.1 21.5
Large (250–9,999) 33.6 29.2
Very large (10,000+) 43.5 25.7
By geographic ownership
Mainly UK-owned organisation 17.5 18.8
Division of mainly UK-owned organisation 48.1 20.0
Division of internationally owned organisation 45.8 47.6
By structural ownership
Private sector (privately held) N/A 29.1
Private sector (publicly held) N/A 63.2
Public sector N/A 7.1
Non-profit N/A 5.9
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expect, in publicly traded private firms. It is
interesting to note that the differences in LTI use
between size of organisation is not as marked as
last year, partially due to the apparent fall in use
among very large organisations as well as divisions
of UK-owned organisations. However, this may
well be due to sampling effects, as the numbers of
respondents in these categories is relatively small.
Broad-based and executive schemesTable 15 and Figure 6 show that the most common
schemes are executive share options, although
broad-based schemes such as company share option
plans (CSOPs) and share incentive plans (SIPs)
are also used by roughly a third of respondents
operating share/LTI schemes. The results also show
some slight industry variations; for example, SIPs are
more common in manufacturing and production
Table 15: Long-term incentives (% of respondents operating a share/LTI scheme)
Broad-based schemes Executive share schemes
Co
mp
any
shar
e o
pti
on
pla
n
(CSO
P)
Shar
e in
cen
tive
p
lan
(SI
P)
Save
as
you
ear
n
(SA
YE)
Exec
uti
ve s
har
e o
pti
on
s
Exec
uti
ve
def
erre
d a
nn
ual
cas
h b
on
us
Exec
uti
ve
rest
rict
/per
form
sh
are
pla
n
Exec
uti
ve d
efer
red
/co
-in
vest
sh
are
pla
n
Phan
tom
sh
are
sch
eme
Ente
rpri
se m
anag
emen
t in
cen
tive
s (E
MIs
)
SAR
S/eq
uit
y SA
RS
All 35.6 32.7 25.7 40.6 22.8 20.8 11.9 9.9 8.9 6.9
By sector
Manufacturing and production 35.0 37.5 27.5 45.0 25.0 27.5 7.5 5.0 5.0 5.0
Private sector services 35.7 26.8 25.0 39.3 19.6 17.9 16.1 12.5 12.5 8.9
By size
SME (<250) 40.5 21.6 10.8 18.9 18.9 8.1 2.7 10.8 18.9 5.4
Large (250–9,999) 32.7 34.5 32.7 52.7 27.3 27.3 10.9 10.9 3.6 7.3
Very large (10,000+) 33.3 66.7 44.4 55.6 11.1 33.3 55.6 0.0 0.0 11.1
By geographic ownership
Mainly UK-owned organisation 38.8 28.6 34.7 30.6 24.5 22.4 10.2 8.2 14.3 0.0
Division of mainly UK-owned organisation
25.0 50.0 0.0 0.0 50.0 0.0 0.0 25.0 25.0 0.0
Division of internationally owned organisation
33.3 35.4 18.8 54.2 18.8 20.8 14.6 10.4 2.1 14.6
By structural ownership
Private sector (privately held) 36.7 32.7 12.2 28.6 22.4 8.2 6.1 16.3 18.4 2.0
Private sector (publicly held) 35.4 35.4 39.6 54.2 22.9 35.4 18.8 2.1 0.0 12.5
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than in private sector services. We also see variation
according to firm size and ownership. SMEs favour
CSOPs, while SIPs and executive share options are
more common in large and very large companies.
Executive share options also feature strongly on
reward plans for divisions of internationally owned
organisations and publicly traded private companies.
Manufacturing and production Private services
50
40
30
20
10
0CSOP SIP SAYE Exec share
optionsExec defbonus
Execrestrict
Execdef
Phantom EMIs SARS
Figure 6: Long-term incentives by sector (% of respondents operating a share/LTI scheme)
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Table 16: Prediction for changes to total spend on share schemes/LTIs in 2013 (% of respondents operating a share/LTI scheme)
Stay the same Increase spend Decrease spend
All 76.1 15.0 8.8
By sector
Manufacturing and production 77.5 17.5 5.0
Private sector services 73.8 16.4 9.8
Public services 83.3 0.0 16.7
Voluntary, community and not-for-profit 83.3 0.0 16.7
By size
SME (<250) 73.2 9.8 17.1
Large (250–9,999) 77.8 19.0 3.2
Very large (10,000+) 77.8 11.1 11.1
By geographic ownership
Mainly UK-owned organisation 72.9 15.3 11.9
Division of mainly UK-owned organisation 75.0 25.0 0.0
Division of internationally owned organisation 80.0 14.0 6.0
By structural ownership
Private sector (privately held) 73.6 15.1 11.3
Private sector (publicly held) 79.2 16.7 4.2
Public sector 66.7 16.7 16.7
Non-profit 83.3 0.0 16.7
Employee share schemes/LTIs – predictions for 2013Table 16 and Figure 7 show the majority of
organisations offering share/LTI schemes predict
that their total spend will stay the same in 2013.
There is little sectoral variation here, although
SMEs and UK-owned organisations are more likely
to be predicting a decrease in spend, while large
organisations and UK-owned divisions are more
likely to predict increases in spend.
Employing more staff and increasing scheme
eligibility were given as the most common reasons
for increasing total spend on share schemes and
LTIs. Reductions in average awards and reducing
scheme eligibility were given as the most common
reasons for decreasing total spend on share
schemes and LTIs. However, the numbers of
respondents are so small here (as the vast majority
predicted no change) that we must treat these
results with caution.
15
76.1
8.8
Increase spend
Stay the same
Decrease spend
Figure 7: Prediction for changes to total spend on share schemes/LTIs in 2013 (% of respondents operating a share/LTI scheme)
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EMPLOYEE BENEFITS
This year’s Reward Management survey aimed to be even more comprehensive in its gathering of data on the provision and extent of employee benefits in the UK. The range of benefits offered on a universal basis is remarkable. Furthermore, respondents indicated they would prefer a greater proportion of total reward spend being directed towards benefits provision.
Tables 17–23 show the range and extent of
employee benefits offered by survey respondents.
They have been categorised this year under broad
headings which reflect key areas of benefits
provision. However, we accept that the broad
headings are not mutually exclusive and some
benefits could go under different headings.
Overall, results show that provision of benefits is
not only increasing in many areas but also that
in general provision is becoming more universal
and less dependent on grade/seniority. It is also
notable that compared with last year, far fewer
benefits are provided only through flexible or
voluntary schemes.
Career development While in many organisations career development
and reward management operate in separate
spheres, the total reward perspective encourages
HR practitioners to think about and express
employee development in reward terms. Table
17 shows that our respondent organisations
may well be thinking in this way as training and
career development as a benefit is provided to
nearly all employees. Rates of study leave, unpaid
sabbaticals and coaching/mentoring programmes
are also widespread, although far more
dependent upon employee grade/seniority.
Table 17: Provision of career development benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme only Do not provide
Training and career development
82.9 10.9 0.7 0.5 5.0
Study leave (paid) 47.6 22.3 1.4 3.3 25.4
Sabbaticals (unpaid) 39.8 10.4 1.7 2.2 45.8
Professional subscriptions (paid/part-paid)
37.4 36.2 0.7 0.0 25.8
Coaching/mentoring programmes
30.1 35.2 1.0 1.7 32.1
Sabbaticals (paid) 7.2 7.2 0.8 0.0 84.7
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Financial benefits/pay in kind Table 18 shows pension schemes top the list of
most extensive financial benefits provided by
respondent organisations and the 9% reporting
they do not currently offer a pension scheme will
no doubt be looking at introducing schemes over
the next couple of years to ensure compliance
with pension law changes. More information on
the 91% of respondents who do can be found in
the next section.
Other notable financial benefits include debt
advice/guidance/counselling, offered by nearly
half of organisations. This is the first year
the reward management survey has asked
respondents about this particular benefit, so we
cannot track whether its provision has increased
in recent years as personal debt has become
more problematic for many. This will be an area
to watch in future surveys. However, last year
we did ask about free financial advice/education
and its provision has increased greatly; offered
by 12.3% in 2012 to 26.5% of respondents in
2013 – perhaps due to pension auto-enrolment.
Another related benefit is a welfare loan for
financial hardship and we have seen a rise over
the year in the proportion of employers offering
this to all employees. We may see more employers
adopt such a scheme as the government raises
the amount of money that organisations can loan
interest free to employees. We can speculate that
in the future that some employers will start to
adopt a more joined-up approach to workplace
savings, investments and loans.
Table 18: Provision of financial/pay in kind benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme only Do not provide
Pension scheme 83.8 4.9 0.9 1.4 9.0
Debt advice/counselling/guidance
48.2 0.7 0.0 2.1 48.9
Give as you earn 34.4 0.0 1.0 1.9 62.7
Free/subsidised canteen 29.2 0.7 0.0 0.0 70.1
Discounted own products/services
28.9 0.9 0.0 0.5 69.7
Discount cards 28.5 0.0 1.4 3.6 66.5
Free financial education/advice
26.5 0.9 0.2 0.5 71.8
Discounted shopping vouchers
20.8 0.0 1.7 3.6 73.9
Relocation assistance 19.0 32.8 0.5 0.5 47.3
Christmas hamper/vouchers/gifts
17.1 1.2 0.2 0.0 81.4
Welfare loans for financial hardship
13.0 1.4 0.7 1.0 83.9
Corporate wrapper workplace benefits
9.2 0.5 0.7 0.5 89.1
Christmas bonus 7.4 4.0 0.0 0.7 87.9
Credit union 7.0 0.0 0.0 0.5 92.5
Homeworker allowance 5.8 2.4 0.5 0.0 91.3
Luncheon vouchers 2.2 0.0 0.0 0.0 97.8
First-time buyer’s home deposit assistance
1.0 0.0 0.2 0.0 98.8
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2013Health and well-being benefitsOur health and well-being results (Table 19)
show a mix of benefits from insurance-based
schemes (death-in-service/life assurance being
the most common) to medical assistance (for
example flu jabs and on-site medical services)
and promotion of fitness/lifestyle facilities (for
example gym membership, on-site fitness classes).
Employee assistance programmes (EAPs) are now
offered by well over half of organisations in our
survey, a figure that is an increase on last year,
showing the growing popularity of such schemes.
The general nature of EAPs, providing tailored
services to employees (and often members of their
family/household), may be an attractive option for
employers looking for cost-effective ways to take
preventative measures against absenteeism and
staff turnover caused by well-being problems.
Leave, personal and family-related benefitsHelping employees maintain a healthy work–life
balance is another key component of the total
reward approach and our survey results show
high levels of paid leave in excess of statutory
requirements and, to a lesser extent, flexibility
in buying and selling leave allowances. Flexible/
homeworking remains a common feature of
benefits provision, use of which has increased this
year despite recent publicity indicating a possible
backlash in the USA. Family-friendly policies such
as provision of childcare vouchers and enhanced
maternity/paternity leave are also widespread. Just
under half of employers in our sample provide paid
leave to all employees on military reserve activities.
Table 19: Provision of health and well-being benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme only Do not provide
Death in service/life assurance
68.7 6.3 3.7 4.7 16.6
Tea/coffee/cold drinks – free 66.7 2.8 0.0 0.0 30.5
Eyecare vouchers 62.9 2.8 1.4 0.9 32.0
Employee assistance programme
56.2 1.4 0.7 1.2 40.5
Flu jabs 27.0 3.1 0.7 0.9 68.2
Gym (on-site or membership)
23.6 1.7 3.8 4.5 66.5
Private medical insurance 23.0 23.9 3.5 4.9 44.8
Health screening 20.4 12.8 4.0 2.1 60.6
Permanent health insurance
19.4 10.1 3.3 1.4 65.8
Critical illness insurance 17.2 8.7 5.4 3.1 65.6
Free fruit 15.6 0.0 0.0 0.0 84.4
Workplace chaplain/equivalent
12.3 0.0 0.0 0.0 87.7
On-site aerobics/Pilates 13.2 0.7 0.2 2.2 83.7
On-site medical facility 13.1 0.0 0.0 0.5 86.4
Healthcare cash plans 11.6 2.4 4.7 9.2 72.1
Dental insurance 8.1 4.5 8.8 10.0 68.6
On-site massages 7.4 0.2 0.2 2.9 89.3
Personal fitness trainer 2.9 0.0 0.2 1.9 95.0
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Social benefitsTable 21 shows that catering for employees’
social needs at work is also an important aspect
of benefits provision, with social events such as
Christmas parties and company picnics popular.
Transport benefitsTransport is an area of benefits provision where
we do see differentials between grades of
employee, with car allowances, company cars and
fuel allowances predominantly provided according
to grade/seniority (Table 23).
Table 20: Provision of leave, personal and family benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme only Do not provide
Paid leave for bereavement
92.9 0.9 0.0 0.0 6.2
25 days’ and over paid leave (excluding bank holidays)
73.0 19.7 0.2 0.0 7.0
Childcare vouchers 63.3 1.4 6.5 7.0 21.8
Allow Internet purchases to be delivered at work
59.5 3.4 0.5 0.5 36.2
Enhanced maternity/paternity leave
57.8 1.9 0.5 0.0 39.9
Paid leave for military reserve activities
50.4 1.2 0.0 0.5 48.0
Flexible/homeworking 44.2 32.2 2.3 0.0 21.3
Time off for voluntary work
33.6 2.8 0.5 1.9 61.2
Paid carer’s leave 28.9 1.2 0.0 0.0 70.0
Emergency childcare support
25.5 0.0 0.5 0.9 73.1
Emergency eldercare support
24.7 0.0 0.5 0.7 74.1
Ability to buy and sell additional days of paid leave
22.9 2.7 3.9 1.7 68.9
Paid leave to train and compete in sports events
13.5 1.7 0.2 0.5 84.1
Learning assistance (not work-related)
8.3 2.1 0.7 1.0 87.9
On-site crèche 5.2 0.7 0.0 0.0 94.1
Concierge benefits 1.9 0.0 0.0 0.0 98.1
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2013Table 21: Provision of social benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme only Do not provide
Christmas party/lunch 66.9 2.1 0.0 1.1 29.9
Dress-down days 53.5 0.0 0.5 1.0 45.1
Company picnic/barbeque 29.3 0.7 0.0 0.7 69.3
Social club 23.4 0.0 0.0 2.4 74.2
Company sports day 12.1 0.0 0.0 0.7 87.2
Theatre/concert trips 11.5 0.0 0.0 2.6 85.9
Company choir/band 8.8 0.0 0.0 1.0 90.2
Table 23: Provision of transport benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme only Do not provide
On-site car parking (free/subsidised)
59.6 15.9 0.5 0.7 23.4
Cycle-to-work scheme loan 46.7 0.7 4.7 4.9 43.0
Travel season ticket loan 31.8 2.3 1.6 1.6 62.6
Travel insurance 13.4 6.4 6.1 3.1 71.1
Fuel allowance 8.9 21.0 0.5 0.0 69.7
Car allowance 4.0 51.6 1.2 0.5 42.8
Car loan 2.9 6.0 .5 0.7 90.0
All employee car ownership schemes
1.2 5.6 1.4 0.9 90.8
Carbon offsetting/credits 1.2 0.5 0.7 0.0 97.6
Company car 0.2 37.6 0.7 0.0 61.4
Table 22: Provision of technology benefits (% of respondents)
Provide to all employees
Provision dependent on
grade/seniority
Part of a flexible benefits
scheme only
Part of a voluntary benefits
scheme onlyDo notprovide
Home computers 4.4 20.4 1.2 1.9 72.1
Mobile phone (personal use) 4.4 37.1 0.7 1.2 56.6
Mobile phone (salary sacrifice) 1.0 7.2 1.0 1.4 89.5
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Table 24 breaks down the provision of benefits
to all employees according to sector. The lists
are similar; paid leave for bereavement is the
most common benefit in all sectors; training and
development, and provision of pension schemes
are also common to all sectors’ top lists; 25 days’
and over paid leave is present in all sectors except
private sector services.
Certain benefits seem to be more sector-specific.
For manufacturing and production, on-site
parking is in the top six, presumably because
production units will often be in out-of-town
locations. Free tea/coffee and cold drinks only
appears in the private sector services’ top six,
whereas enhanced maternity/paternity leave
and paid leave for military reserve activities
only appear in the more welfare-oriented public
services list. The third sector top six benefits
include childcare vouchers and allowing Internet
purchases to be delivered to work.
Table 24: Top six universal benefits offered, by sector (% of respondents)
Manufacturing and production
Paid leave for bereavement 92.0
Training and career development 85.1
On-site car parking (free/subsidised) 81.6
Pension scheme 78.1
25 days’ and over paid leave 77.0
Christmas party/lunch 77.0
Private sector services
Paid leave for bereavement 86.0
Tea/coffee/cold drinks – free 84.2
Christmas party/lunch 83.0
Training and career development 80.1
Pension scheme 73.1
Death in service/life assurance 70.2
Public services
Paid leave for bereavement 93.3
Pension scheme 90.5
25 days’ and over paid leave 82.9
Training and career development 79.0
Enhanced maternity/paternity leave 74.3
Paid leave for military reserve activities 70.5
Voluntary, community and not-for-profit
Paid leave for bereavement 97.5
Pension scheme 91.4
Training and career development 86.4
25 days’ and over paid leave 77.8
Allow Internet purchases to be delivered at work 71.6
Childcare vouchers 69.1
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2013Most popular employee benefitsOur survey respondents were asked which
benefits are most popular with employees and
why. The results in some respects are not that
surprising: pension schemes feature very highly,
many commenting on the rarity of their final
salary schemes and high levels of employer
contributions, which make them attractive options
for employees. Other financial-based benefits
are also popular, particularly healthcare/medical
insurance. Similarly, work–life balance benefits
such as flexibility, enhanced leave and childcare
vouchers feature strongly, many respondents
making the connection with the profile of their
workforces. Interestingly, this is the area where
a number of respondents comment on lack of
provision versus the demand for it, for example:
‘Many employees have indicated that flexible
working or hours and enhanced paternity benefits
as well as childcare vouchers…would be valued.
The organisation does not currently provide these
though.’ (Private sector services SME)
However, perhaps the most telling aspect of the
question responses is the almost total absence
of career development and training support
cited as popular benefits among employees. One
respondent mentions ‘personal and professional
development’, another a ‘personal training
allowance’ and one other ‘sabbaticals’, but these
are the only mentions from over 400 responses.
There are various possible explanations here.
One is that employees and/or survey respondents
do not see training and development activities
as benefits per se; another is that training
and development is so universal (and often
provided for reasons not associated with benefits
provision) that it is not valued as highly as more
traditional benefits, which either provide a level
of economic security (pensions, health insurance)
or enhance the quality of work and family life
(flexible working, holiday entitlement, and so on).
Whatever the explanation, this is a noteworthy
finding, with implications for the study of total
reward and non-monetary reward generally.
It may also have a public policy implication if
employers cut back on training because they
think that skills development is a waste of money
because it is not valued by workers and instead
focus resources on particular employee groups or
firm-specific skills.
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Total reward statementsContinuing the total reward theme, Table 25
shows relatively few organisations currently
issuing total reward statements to employees,
although 8.6% of respondents are planning to
introduce them in 2013. Total reward statements
are more common in the private sector and in very
large organisations, presumably as the range of
financial benefits is more extensive here.
Flexible benefits and voluntary/affinity benefits schemesTable 25 and Figure 8 also show the levels of
usage of flexible and voluntary benefits schemes.
Again, neither is extensive and both appear to
have decreased significantly in the past couple of
years. Reasons for this are not readily apparent;
there may well be sampling effects or we could be
seeing a move away from these more expensive
systems during continuing economic austerity.
Table 25 also shows a level of variation according
to sector and size of organisation. Private sector
companies and large organisations are far more
likely to offer both voluntary and flexible benefits
schemes.
Benefits transparency Following on from last year’s investigation into
pay transparency in organisations, for 2013
we asked respondents about the approach to
transparency of benefits specifically and the extent
to which organisations are prepared to disclose
to employees information about pensions and
employee benefits and how individuals or groups
of employees are treated the same or differently.
Table 25: Types of benefits offered (% of respondents)
Total reward statements
Voluntary/affinity benefits
Flexible benefits
All 15.0 15.5 20.3
2012 17.8 24.7 24.2
2011 N/A 45.1 34.0
By sector
Manufacturing and production
19.0 15.7 25.6
Private sector services 18.8 21.8 24.4
Public services 7.6 8.7 17.3
Voluntary, community and not-for-profit
12.8 11.4 10.0
By size
SME (<250) 12.8 8.6 12.4
Large (250–9,999) 15.2 19.4 23.5
Very large (10,000+) 27.3 30.3 44.1
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Table 26 shows that overall most respondents
agree that a transparent approach to employee
benefits policies and practices exists in their
organisations, that is, that benefit policies,
practices and outcomes are made public with the
intention that all benefit information across all
grades is as transparent as possible.
This is in direct contrast with last year’s findings,
which indicated most organisations prefer to
keep pay confidential rather than promote
transparency. While there could be a level of
movement in approach following the Equality
Act’s prevention of employers using punitive
measures to enforce pay confidentiality clauses
in employment contracts, it is unlikely that such
attitudes have shifted so far and so fast. It seems
more likely that there is a distinct difference
in approach to pay as opposed to benefits; the
conclusion being that while a culture of secrecy is
more often favoured where pay is concerned, in
the pensions and benefits arena the approach is
more open and transparent. This seems a logical
assumption given that pension and benefits
provisions tend to be more harmonised or, at the
least, standardised according to grade, compared
with the often individualistic nature of base pay
management (see Tables 3, 4 and 6). Indeed, it
could be viewed as surprising that as many as
26% of respondents agree that their organisation
prefers a more secretive approach to employee
pensions and benefits.
Just as with the 2012 data on pay transparency, we
see a sectoral difference in benefits transparency
this year. Once again, more public and third
sector organisations than private companies tend
towards more transparent approaches, whereas
rather more private sector firms than public
services/voluntary organisations tend towards the
more secretive approaches. While employers are
more transparent about benefit provision than
pay, not many of them communicate the value
of benefits and the value of whole employee
proposition through total reward statements.
2013 2012 2011
50
40
30
20
10
0Voluntary/affinity
benefitsFlexible benefits
Figure 8: Flexible and voluntary benefits schemes in past three years (% of respondents)
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Table 26: Approaches to benefits transparency (% of respondents)
Approach to benefits transparency
Somewhat agree/ strongly agree
Neitheragree nor disagree
Somewhat disagree/strongly disagree
This organisation actively makes its benefit policies, practices and outcomes public with the intention that all benefit information across all grades is as transparent as possible to all employees.
All 68.2 10.0 21.7
Manufacturing and production 55.4 13.3 30.3
Private sector services 63.8 9.0 27.1
Public services 77.8 9.1 13.1
Voluntary, community and not-for-profit
78.8 10.0 11.3
This organisation actively makes its benefit policies, practices and outcomes public with the intention that all benefit information is as transparent as possible, but may not release to all employees certain information regarding senior grades.
All 60.6 8.8 30.6
Manufacturing and production 59.7 11.0 29.3
Private sector services 64.2 6.1 29.7
Public services 56.7 11.3 32.0
Voluntary, community and not-for-profit
58.4 9.1 32.5
This organisation allows its benefit policies, practices and outcomes to be disclosed to employees but does not actively promote disclosure.
All 37.1 22.2 40.7
Manufacturing and production 31.3 23.8 45.0
Private sector services 38.8 21.8 39.4
Public services 40.6 20.8 38.5
Voluntary, community and not-for-profit
35.1 23.4 41.6
This organisation prefers details about benefit policies, practices and outcomes to remain confidential but provides employees with relevant benefit information when asked in specific circumstances.
All 31.4 16.3 52.3
Manufacturing and production 37.0 11.1 51.9
Private sector services 37.0 17.9 45.1
Public services 26.9 17.2 55.9
Voluntary, community and not-for-profit
18.7 17.3 64.0
This organisation believes that information on benefit policies, practices and outcomes should be a private matter between individual employees and the organisation but it will comply with requests for relevant benefit information if required under legislation (for example, in response to an equal pay questions form).
All 26.0 16.7 57.3
Manufacturing and production 26.3 18.8 55.0
Private sector services 31.9 14.7 53.4
Public services 20.0 16.8 63.2
Voluntary, community and not-for-profit
20.3 18.9 60.8
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Table 27: Actual proportions of total spend on employee reward (% of respondents)
AllManufacturingand production
Private sector services Public services
Voluntary, community and not-for-profit
100% benefits 0.9 0.0 0.7 1.3 1.6
10% pay/90% benefits 0.3 0.0 0.0 1.3 0.0
20% pay/80% benefits 0.3 0.0 0.0 1.3 0.0
30% pay/70% benefits 0.9 0.0 2.1 0.0 0.0
40% pay/60% benefits 0.3 1.4 0.0 0.0 0.0
50% pay/50% benefits 1.4 1.4 2.1 1.3 0.0
60% pay/40% benefits 2.0 4.2 2.1 1.3 0.0
70% pay/30% benefits 10.3 8.5 13.5 10.5 4.8
80% pay/20% benefits 26.0 26.8 25.5 23.7 29.0
90% pay/10% benefits 43.1 45.1 43.3 36.8 48.4
100% pay 14.6 12.7 10.6 22.4 16.1
Total spend on employee reward (pay and benefits)Table 27 shows the composition of total reward
spend split between pay and benefits. The most
common split is 90% pay/10% benefits (43.1%),
followed by 80% pay/20% benefits (26.0%).
The results by sector show a broad similarity in
approach, although interestingly public services
respondents are more likely than any other sector
to say they spend 100% on pay. It is unlikely that
nearly a quarter of public sector organisations don’t
spend on benefits at all. While the public sector
may not provide many pay-in-kind benefits such as
company cars or private medical insurance, other
benefits such as enhanced annual and maternity/
paternity leave and contributory pensions (often
defined benefit schemes) are more widespread,
so this result is most likely due to definitional
issues. What is included in the term ‘benefits’ can
be open to interpretation. Another issue may
well be that, when it comes to pensions, public
sector respondents find it difficult to calculate the
actual size of their employer pension contribution,
especially if the scheme is ‘pay as you go’.
Table 28 shows that while the 90% pay/10%
benefits split reflects the ideal combination for
34.2% of respondents, more would like to see an
Table 28: Ideal proportions of total spend on employee reward (% of respondents)
AllManufacturingand production
Private sector services Public services
Voluntary, community and not-for-profit
100% benefits 0.6 0.0 0.8 0.0 1.8
10% pay/90% benefits 0.6 1.5 0.0 1.4 0.0
20% pay/80% benefits 0.6 0.0 0.8 1.4 0.0
30% pay/70% benefits 0.3 0.0 0.0 1.4 0.0
40% pay/60% benefits 0.3 0.0 0.8 0.0 0.0
50% pay/50% benefits 3.1 4.5 3.0 4.3 0.0
60% pay/40% benefits 3.7 1.5 3.8 5.8 3.5
70% pay/30% benefits 17.2 17.9 18.9 15.9 14.0
80% pay/20% benefits 30.8 32.8 31.8 21.7 36.8
90% pay/10% benefits 34.2 37.3 31.8 36.2 33.3
100% pay 8.6 4.5 8.3 11.6 10.5
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Table 29: Prediction for changes to total spend on employee benefits in 2013 (% of respondents)
Increasespend Stay the same Decrease spend
All 30.9 55.4 13.7
By sector
Manufacturing and production 41.4 51.7 6.9
Private sector services 33.9 53.2 12.9
Public services 15.2 56.2 28.6
Voluntary, community, not-for-profit 33.3 63.0 3.7
By size
SME (<250) 35.1 58.1 6.8
Large (250–9,999) 29.6 53.7 16.7
Very large (10,000+) 14.3 54.3 31.4
By geographic ownership
Mainly UK-owned organisation 30.7 55.3 14.1
Division of mainly UK-owned organisation 40.0 50.0 10.0
Division of internationally owned organisation 28.6 57.1 14.3
By structural ownership
Private sector (privately held) 36.8 53.3 9.9
Private sector (publicly held) 31.6 53.9 14.5
Public sector 14.3 52.4 33.3
Non-profit 32.7 63.4 4.0
80%/20% or 70%/30% split than is currently the
case. What might be preventing organisations
from shifting some of their total reward spend
from pay to benefits is not clear, although we
could assume market visibility (or lack of visibility)
of the total package might play a role as well as
the challenge of changing terms and conditions
through the contract of employment. This is
perhaps an area to investigate further in future
survey rounds. It is also interesting to note that
despite the economic slowdown, employers are
not planning to switch limited resources from
benefits to pay, but the other way around.
Employee benefits – predictions for 2013Table 29 shows 55.4% of respondents predict
their organisation’s total spend on employee
benefits will stay the same in 2013; 30.9% predict
it will increase and 13.7% predict it will decrease.
Figure 9 illustrates the breakdown by sector.
Public services organisations are the least likely
to predict an increase in spend for reasons, we
presume, associated with continued budget
restrictions. Manufacturing and production
companies are much more likely to predict
increased spend on benefits and far less likely to
be decreasing spending in 2013. The third sector
is the sector least likely to be decreasing benefits
spending over the next year. The picture overall
shows respondents representing all organisation
types predicting a relatively stable benefits
environment, with no changes in spending.
Increases in the costs of benefits is the most
common driver of increasing total spend on
employee benefits, while reductions in money
available for the benefits budget is the most
common driver of decreasing total benefits spend
(Table 30). Once again we see the ‘other’ category
for decreased spending is relatively high. As
Figure 9 shows, the public sector is more likely to
be cutting spending on benefits and therefore it
seems likely that government budget restrictions
are responsible for this result.
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2013
51.7
41.4
6.9
Manufacturing and production Private sector services
Public services Voluntary, community and not-for-profit
Stay the same
Increase spend
Decrease spend
12.9
53.2
33.9Increase spend
Stay the same
Decrease spend
28.6
56.2
15.2
Increase spend
Stay the same
Decrease spend
63
33.3
3.7
Increase spend
Stay the same
Decrease spend
Figure 9: Prediction for changes to total spend on employee benefits in 2013, by sector (% of respondents)
Table 30: Drivers of predicted changes to total spend on employee benefits in 2013 (% of respondents predicting the change)
Drivers for increasing benefits spend Drivers for decreasing benefits spend
Increases in the cost of benefits 60.6 Reductions in the money available for the benefits budget
67.2
Employing more staff 58.4 Reductions in the cost of benefits 26.2
Introduction of auto-enrolment 47.4 Other 23.0
Increases in the cost of benefit administration
16.8 Reductions in the cost of benefit administration
14.8
Other 14.6 Less need to maintain/increase attractiveness to employees
13.1
Skills shortages 6.6 Easing of skills shortages 1.6
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PENSIONS
Mandatory auto-enrolment of eligible employees into contributory pension schemes has taken effect for many of our respondents this year and is on the horizon for many more. Our respondents report the challenges of auto-enrolment centring on cost, organisational capacity to deliver and communication issues with employees and third parties.
Pension schemes Table 31 shows 90.5% of organisations currently
offer to contribute to an employee pension scheme,
broadly in line with our findings last year. Once
again, results show differences by sector, size and
ownership of organisation. In general, public and
third sector employers are more likely to contribute
to pension schemes, as are very large organisations
and those which are UK-owned divisions. In
contrast, private sector services, SMEs and UK-
owned organisations are the least likely to offer
contributory pension schemes. Over the next couple
of years, as auto-enrolment regulation extends
to more organisations, we would anticipate the
number of organisations not currently offering
schemes to grow smaller and smaller.
Table 31: Organisations contributing to a pension scheme (% of respondents)
Increasespend
All 90.5
2012 89.2
2011 98.9
By sector
Manufacturing and production 88.5
Private sector services 84.2
Public services 97.1
Voluntary, community, not-for-profit 97.5
By size
SME (<250) 81.2
Large (250–9,999) 97.7
Very large (10,000+) 100.0
By geographic ownership
Mainly UK-owned organisation 89.8
Division of mainly UK-owned organisation 100.0
Division of internationally owned organisation 91.4
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2013Table 32 and Figure 10 show the type of
pension schemes currently operated in our
survey organisations. Defined contribution (DC)
schemes continue to be the most common, with
defined benefit (DB) schemes and contributions
to personal pensions largely accounting for
the remainder. The year-on-year decrease in
DC schemes and increase in DB schemes is most
likely due to sampling differences across years.
This year’s sample has a greater representation
of public services than previously, where DC
schemes are uncommon. The sectoral split remains
constant; open DB schemes are now largely absent
from the private sector, while they are still the
prevailing type of scheme in the public sector
notwithstanding sweeping reforms coming into
force over the next few years.
Table 32: Open pension schemes (% of respondents operating pension schemes)
Defined contribution
Defined benefit
Contribution to an
individual’s personal pension Other Hybrid
All 55.2 28.1 24.9 4.5 2.5
2012 63.9 22.0 23.5 2.5 2.0
2011 69.4 25.4 15.5 2.0 1.6
By sector
Manufacturing and production 66.7 10.3 28.7 2.3 4.6
Private sector services 56.7 4.1 26.3 6.4 2.3
Public services 15.2 74.3 8.6 1.0 1.0
Voluntary, community, not-for-profit 63.0 23.5 25.9 4.9 1.2
Contribution to personal pension Defined benefit
70
80
60
50
40
30
20
10
0Manufacturing and
productionPrivate sector
Defined contribution
Public services Voluntary and not-for-profit
Figure 10: Open pension schemes, by sector (% of respondents operating pension schemes)
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Defined contribution pensions schemesFocusing specifically on DC pension schemes, Table
33 shows a relatively low level of organisations
auto-enrolling employees, with only 34.3%
currently doing so. As may be expected, rates
of auto-enrolment are far more common in the
public sector, where it has been standard practice
for some time, and very large organisations, which
have been in the first wave of employers subject
to pension reform (see Figure 11). Indeed, the
staging date from which organisations employing
more than 10,000 were due to action auto-
enrolment was 1 March 2013, so it seems a fairly
large proportion of organisations may not have
started enrolling employees into their pension
scheme until after they had completed our survey
questionnaire.
Table 34 shows there are high levels of employee
membership reported by our respondents, with
membership levels of 70% plus being the most
common. There is clear sectoral variation here;
public services are much more likely to have higher
membership, while for the voluntary, community
and not-for-profit sector, membership levels are
more likely to be between 10% and 30%. Figure
12 shows a direct association between whether
or not an organisation auto-enrols employees
into DC pension schemes and membership levels,
with the highest membership levels found
in organisations using auto-enrolment and,
predictably, the lowest levels of membership in
organisations without auto-enrolment. This is a
clear indication that pension regulation changes
making auto-enrolment mandatory will encourage
pension scheme membership.
Table 33: Organisations auto-enrolling members to DC pension schemes (% of respondents)
Defined contribution
All 34.3
By sector
Manufacturing and production 28.0
Private sector services 27.2
Public services 61.1
Voluntary, community, not-for-profit 19.7
By size
SME (<250) 26.8
Large (250–9,999) 35.7
Very large (10,000+) 60.6
Table 34: Membership levels of open DC pension schemes (% of respondents with DC schemes)
10–30% 31–50% 51–70% Over 70%
All 20.1 21.0 23.2 35.7
By sector
Manufacturing and production 24.3 25.7 15.7 34.3
Private sector services 22.0 22.8 28.5 26.8
Public services 4.3 8.6 24.3 62.9
Voluntary, community, not-for-profit 29.2 26.2 20.0 24.6
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70
80
60
50
40
30
20
10
0
Manufacturing and production Private sector Public services
SME (<250) Large (250−9,999) Very large (+10,000)
Voluntary and not-for-profit
Figure 11: Organisations auto-enrolling members to DC pension schemes, by sector and size (% of respondents)
Auto-enrolment
10−30% 31−50% 51−70% Over 70%
No auto-enrolment
70
80
60
50
40
30
20
10
0
Membership
Figure 12: Pension scheme auto-enrolment and membership levels (% of respondents)
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Table 35 shows the average (mean) contribution
rates to open DC pensions are 7.9% employer
contribution and 5% employee contribution.
There are far higher rates of contribution from
employers and employees in the public sector
(and therefore public sector services and divisions
of UK-owned organisations) and the lowest
rates of contribution in private sector services,
private sector firms which are privately held,
and internationally owned organisations (see
Figure 13 for structural ownership breakdown).
Contribution rates are also linked to membership
levels (see Figure 14). Membership levels increase
where employer contributions are higher and
membership levels are more frequently lower
where employer contributions are lowest,
indicating that employees are more likely to join
a pension scheme which offers a high employer
contribution.
Table 35: Employer/employee contributions to DC pension schemes (% mean contribution)
Employer Employee
All 7.9 5.0
By sector
Manufacturing and production 7.3 4.5
Private sector services 6.1 4.1
Public services 12.3 7.5
Voluntary, community, not-for-profit 7.9 4.9
By geographic ownership
Mainly UK-owned organisation 8.3 5.2
Division of mainly UK-owned organisation 10.0 5.4
Division of internationally owned organisation 6.6 4.4
By structural ownership
Private sector (privately held) 5.6 4.1
Private sector (publicly held) 7.7 4.6
Public sector 13.3 7.6
Non-profit 8.5 5.2
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2013
Employer
Private sector(privately held)
Private sector(publicly held)
Public sector Voluntary andnot-for-profit
Employee
25
20
15
10
5
0
Figure 13: Employer/employee contributions to DC pension schemes, by structural ownership (% mean contribution)
Figure 14: DC pension scheme membership levels and mean employer contributions (% of respondents)
0−5% employer contribution 6−10% employer contribution
70
80
60
50
40
30
20
10
0
11−15% employer contribution
10−30% 31−50% 51−70% Over 70%Membership
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Defined benefit pension schemesTurning to look at the status of defined benefit
pension schemes, Table 36 shows the majority are
already closed or in wind-up, with only 45% still
open to new members. Once again, the variation
across sectors is apparent; manufacturing and
production, private sector services and the not-for-
profit sector all have more schemes closed than
open, whereas in the public sector 81.3% have DB
schemes open to new members. Presumably these
schemes will be subject to many changes in the
forthcoming years as the seemingly irreversible
trend away from the use of traditional final salary
pension schemes continues.
Table 36: Status of defined benefit pension schemes (% of respondents with DB schemes)
Open
Closed to new
employees but not future
accruals
Closed to new employees and future
accruals In wind-up
Total closed or in wind-
up
All 45.0 23.9 25.9 5.2 55.0
2012 42.1 30.1 24.1 4.6 58.8
By sector
Manufacturing and production 21.4 31.0 40.5 7.1 78.6
Private sector services 10.6 31.8 47.0 10.6 89.4
Public services 81.3 10.4 6.3 2.1 18.8
Voluntary, community, not-for-profit 40.4 34.0 23.4 2.1 59.5
Table 37: Organisations planning pension changes (% of respondents)
All 48.0
2012 39.8
2011 41.4
By sector
Manufacturing and production 46.0
Private sector services 48.0
Public services 44.8
Voluntary, community, not-for-profit 54.3
By size
SME (<250) 41.3
Large (250–9,999) 50.7
Very large (10,000+) 8.0
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2013Pension changes in 20132013 is set to be a busy year for reward and
pension specialists. When asked about pension
changes, 48% of respondents report that their
organisation is intending, or is required, to
make changes to its pension arrangements or to
introduce a pension for the first time in the next
12 months (Table 37). Large organisations and
those in the not-for-profit sector are most likely to
be making changes.
Table 38 and Figure 15 show the types of
changes being made and, unsurprisingly, it is
auto-enrolment that dominates, with 90% of
those making changes to pension arrangements
changing to comply with auto-enrolment
requirements. Increasing employee contributions
to both DB and DC pension schemes feature in
the top five changes, although not as strongly as
last year. Indeed, aside from reducing employer
contributions to DC schemes and closing DB
schemes, the incidence of all other types of
changes has decreased this year as auto-enrolment
is set to divert attention from elsewhere.
Table 38: Organisations making changes to pension schemes, by sector (% of respondents making changes to pensions)
2013
2012
Man
ufa
ctu
rin
gan
d p
rod
uct
ion
Priv
ate
sect
or
serv
ices
Pub
lic s
ervi
ces
Vo
lun
tary
, co
mm
un
ity
and
no
t-fo
r-p
rofi
t
Comply with auto-enrolment requirements 90.0 50.3 95.0 93.9 71.1 97.7
Increase employee DB contributions 13.3 21.6 5.0 3.7 33.3 18.6
Introduce salary sacrifice 12.4 16.8 20.0 11.0 11.1 9.3
Reduce the value of the DB plan 7.1 12.0 0.0 2.4 22.2 7.0
Increase employee DC contributions 6.7 15.6 7.5 4.9 13.3 2.3
Amend the DC default investment options 5.7 3.0 7.5 6.1 4.4 4.7
Other 5.7 9.6 7.5 4.9 8.9 2.3
Shift from RPI to CPI 5.2 12.0 5.0 1.2 11.1 7.0
Increase employer DC contributions 5.2 6.0 12.5 4.9 2.2 2.3
Close defined benefit (DB) scheme to new staff but not existing members
5.2 4.8 2.5 1.2 8.9 11.6
Introduce a defined contribution (DC) pension with employer contributions
4.8 10.8 5.0 1.2 8.9 7.0
Reduce employer DC contributions 4.8 2.4 0.0 4.9 2.2 11.6
Increase employer DB contributions 3.8 4.2 2.5 0.0 4.4 11.6
Close DB scheme to future accrual 3.3 4.8 0.0 1.2 8.9 4.7
Reduce employer DB contributions 2.9 3.0 2.5 0.0 6.7 4.7
Reduce employee DC contributions 1.9 N/A 0.0 2.4 2.2 2.3
Reduce employee DB contributions 1.0 2.4 0.0 1.2 0.0 2.3
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Challenges of pension auto-enrolmentWhen asked what they thought the biggest
challenge would be (or has been) to their
organisations in successfully implementing
automatic enrolment, respondents provided some
really interesting responses in open-text format,
again allowing us to see the nuances of this
complex subject.
The overriding theme to emerge from the answers
was a concern about organisational capacity to
meet the requirements of the pension changes.
Cost, time and administrative burden, whether
existing or new systems/technology could deal
with the required level of complexity and concerns
about maintaining compliance, particularly
dealing with ‘anomalous’ workers (for example
zero-hours contracts) were all factors mentioned
by respondents. For example, ‘understanding the
most efficient, least risky and bureaucratic way
to link up the HR and payroll data for monitoring
eligibility and fitting the increased workload into
already busy payroll team’ (large private sector
services company) was a typical response.
The second key theme identified internal
communication issues as a challenge. A small
number mentioned difficulties in engaging senior
management support for auto-enrolment. The
majority, however, had concerns about not only
communicating and explaining the requirements
to employees but also about employee or trade
union resistance to the changes. Our respondents
clearly expressed the emotive nature of auto-
enrolment; they talked of employee ‘disgust’,
‘concern’, ‘apathy’, ‘objection’, ‘reluctance’,
‘resentment’ and ‘distrust’. Many felt it was their
role to overcome employee concerns, mentioning
‘gaining staff buy-in’, ‘persuading’, ‘convincing’
and ‘encouraging’ employees to become
Figure 15: Organisations making changes to pension schemes 2012 and 2013 (% of respondents making changes to pensions)
2013 2012
70
80
90
100
60
50
40
30
20
10
0Comply with
auto-enrolmentrequirements
Increase employee DB contributions
Introducesalary sacrifice
Reduce the valueof the DB plan
Increase employee DC contributions
Amend the DC default
investment options
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2013members or just ‘coping with staff resentment’.
One respondent’s words seem to sum up the
sense of HR/reward practitioners being caught
in the middle of an enforced change: for them
the challenge is ‘making the business and the
individuals happy when neither really wants this’
(large manufacturing and production company).
Third parties also get a mention in the answers
of some respondents. Finding suppliers, ensuring
good communications with existing pensions/
benefits providers and using external providers
for systems and/or administrative support were all
listed as challenges, experienced or anticipated.
On a more positive note, a good proportion
of respondents confidently asserted that they
had not experienced, or did not anticipate
experiencing, any problems in successfully
implementing auto-enrolment, either because
auto-enrolment was already ‘well embedded’
in the organisation, that pension scheme
membership was typically very high or that they
were well prepared. More worryingly, some said
the challenges were unknown or that it was not
relevant to their organisation yet or even that
they did not understand the question. Considering
the variety and scale of auto-enrolment
challenges expressed by many of our respondents,
organisations would do well to start planning for
auto-enrolment sooner rather than later.
Case study – McDonald’s UK
For a great example of a large organisation managing pensions auto-enrolment successfully, look no further than McDonald’s UK, which was required by workplace pensions reforms to auto-enrol employees from 1 January 2013.
McDonald’s directly employs 35,000 hourly paid and 2,000 salaried staff in 400 restaurants across the UK.
Consultation In preparation for auto-enrolment, Neal Blackshire, Benefits and Compensation Manager, explains that a consultation team was formed in late 2010 including key stakeholders from the business, Towers Watson (McDonalds’ pensions consultant) and two representative franchisees (staging from 1 September 2013). The consultation team sought views from the Pensions Regulator, NEST (National Employment Savings Trust) and other pensions providers.
By August 2011 they were able to make a recommendation to the business that all qualifying salaried employees should be auto-enrolled into a stakeholder scheme provided by Friends Life and hourly paid staff into a NEST scheme.
Implementation The implementation of auto-enrolment of 1,100 salaried staff was based on two key principles: first, that employees who had previously shown no interest in joining a pension scheme should have a level of choice beyond being opted in or out; and second, the long-held principle that the DC scheme should replicate the type of employer contribution progression employees would see in a DB scheme as they get older and accumulate longer service.
Therefore, the new scheme to which salaried staff are now auto-enrolled meets the legislative requirement for McDonald’s to contribute 1% of qualifying earnings, but employees can opt up and join the enhanced scheme, which provides 3% employer contribution, life assurance at four times’ salary and long-term disability benefit. The scheme is also structured in three tiers
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of contribution matching so that the company pays in more depending on age and length of service, up to a maximum of a 2:1 ratio (that is, for every £1 of employee contribution the employer matches it with £2) and 10% of earnings.
For hourly paid employees, simplicity and flexibility were the priorities. In the NEST scheme, both employee and employer contribute 1% of qualifying earnings. If employees want to put more in, they set up a direct debit.
CommunicationsFor Blackshire, effective communications with a large, dispersed workforce was always going to be central to the success of auto-enrolment. He was impressed by NEST’s approach to communications – de-mystifying pensions and jargon-busting – using practical, everyday language. Another important investment was finding the right means and provider of regulatory communications – it had to be as simple and clear as possible, so an automated email system provided by JLT Benefit Solutions was chosen.
When it came to communicating the changes with employees in the months preceding auto-enrolment, Blackshire’s approach was to be factual and straightforward. Through the employee portal, ourlounge.co.uk, a weekly cascade email, links to DWP webpages, notice board and payslips, employees received the information they needed in a range of formats that were simple but effective.
Opt-outsMcDonald’s has seen extremely low opt-out rates so far. For salaried staff, just 3% have opted out as of 1 May, but nearly as many have opted up to the enhanced scheme.
For hourly paid employees, the rate is even lower; of 10,500 auto-enrolled, only 2.4% have opted out. Blackshire attributes these low rates to a number of factors: for many employees auto-enrolment has performed a task long deferred and they are content to remain in the scheme; the tiered contributions of the salaried scheme, which starts low and builds up over time, helps people to adjust to the outlay; and also, inevitably, an element of inertia – some employees have not opted out just as others previously put off opting in.
However, that the vast majority of auto-enrolled employees are staying put is also a testament to the investment McDonald’s has made over the previous two and a half years: in consultation, in designing appropriate pension schemes and in processes and employee communication – a good lesson for any organisation with auto-enrolment on the horizon.
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CONCLUSIONS AND IMPLICATIONS FOR REWARD MANAGEMENT
In this final section of the report, Stephen Perkins and John Shields draw together some of the key themes emerging from the survey data and reflect on the implications for reward management in a milestone year for the CIPD.
This is the CIPD’s centenary year, prompting
reflection on the ways in which reward
management might have been understood 100
years ago compared with today. What’s the same
and what’s changed?
What is the same is that there is a relationship
that may be thought of as a legal contract,
related to an economic exchange: employee’s
time for payment of a wage or salary. On the
other hand, with organisations looking to
encourage their staff to see themselves as having
a stake in the organisation’s success that goes
beyond the economic or legal, there is a more
profound relationship at stake. This is one in
which employee choices extend not just to an
economic contract but to a ‘psychological’ or
unwritten contract between the parties. This
perceived ‘deal’ reflects the fact that, in terms of
the ‘value’ on offer, the employment relationship
is indeterminate.
What employers offer is now commonly referred to
as ‘the employee value proposition’. What employees
offer in terms of work effort is neither fixed in
advance nor unchanging: they may choose to adjust
their contribution in line with changing experiences,
expectations and attitudes. Alternatively, they may
choose to contribute more than their material effort
in a pay bargain; they may co-operate willingly in the
functioning of the business where more and more
depends on judgement and choices made at the
front line with customers.
And in line with the notion of the ‘psychological
contract’, employers now typically offer different
‘value propositions’ to different types of employee.
As we have seen in the survey findings, strategies
of differentiation between categories of employee
are being applied – and these carry both upside
prospects and risks in the contemporary context.
Science and sensibilityOne hundred years ago management as a
discipline was itself in its infancy, with the notion
of bringing ‘science’ to bear through time and
motion study and linking pay to production
of ‘pieces’ on the production lines epitomised
by those created by Henry Ford in his US car
manufacturing plants.
With manufacturing in the most advanced economies
today balanced and sometimes outflanked by the
service industries, the question of what that ‘piece’
(of work) would be, how it should be incentivised
through rewards, and what effort employees should
be expected to contribute to produce it becomes
ever more complex. And the array of reward types
on offer adds further complexity to the challenge
of designing, communicating and monitoring what,
since the 1990s, has been referred to as the ‘total
reward’ approach.
Yet, for all of the apparent promise of ‘scientific’
piece-payment, it is also the case that employers
have long had to wrestle with reward system
complexity and the challenge of how best to
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configure ‘the employee value proposition’.
To illustrate: providing magazines for workers’
relaxation time and cakes for ‘girls’ leaving the
workforce (compulsorily) at the time of marriage
colourfully described in the ‘Bagatelle, baths
and total abstinence’ article on the Institute’s
centenary webpages,1 non-cash ‘benefits in kind’
featured in what employers were putting on the
table even in the early twentieth century.
The biggest issues today seem to be ones that
are at once of longstanding significance in British
workplaces: enhancing productivity (through what
people do as well as the capital investment to
enable or replace raw labour) and fair distribution
– albeit with a particularly contemporary twist. At
a time when the Rich Riccis2 of the upper echelons
are still commanding daily headlines, and with
ratings agencies looking negatively at the British
economy’s prospects of lifting performance, these
twin and hypothetically intertwined themes prevail.
For those who, while not clinging to the remnants
of scientific management in the strict sense
associated with its American ‘father’ Frederick W.
Taylor, nonetheless still wish to apply a scientific
logic to reward management, the related
questions are straightforward.
How do we develop and apply a strategy for
building a common sense of engagement in the
economic enterprise (whether for profit or not),
muting any sense of inequity other than justified
by individual and/or group contribution to the
corporate project?
And how do we extend that engagement
beyond one that is simply marking time, or
passionate without being productive, to one that
is continuously innovative, and adding value to
organisational effectiveness?
Engagement or disconnection?The opposite of reward is punishment: the
proverbial carrot versus stick – sometimes
applied in combination. Rather than physical
punishment, people in employment relationships
can perceive themselves punished or at least
negatively motivated when aggrieved at a sense
of inequitable treatment. In the literature, that
reasoning stretches back to the writings of John
Stacey Adams in the 1960s. At one level, research
has shown that people make their comparisons
for equity of treatment in employment situations
to those nearest to them – to co-workers. But
with the media attention given to high-profile
business failures and allegations that things such
as a ‘bonus culture’ in banks and financial services
are to blame, there is a heightened sense of
awareness on the part of individuals as groups of
less-well-rewarded employees that this is wrong. As
a consequence, it can be hypothesised that some
workers go into the employment relationship pre-
motivated to feel negative and relatively ill-treated.
On the other hand, this may be something more
generally related to how people feel as citizens in a
society that it is sensed is increasingly stacked against
them in terms of their capacity for social mobility
(through work and its rewards), compared with a
privileged few. So this may only serve as a very broad
backdrop to how individuals approach their own
employment relationship, the way in which they
attribute meaning to what they see as rewarding
within that relationship and the manner in which
they respond attitudinally and behaviourally.
What have we learned in 2013 and what should managers do about it?What, then, do the 2013 results tell us about
how these questions are being dealt with as
evidenced in this benchmarking survey? And what
managerial implications flow from these findings?
1 http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2013/02/25/cipd-centenary-eight-hr-stories-that-changed-the-world.aspx
2 http://www.guardian.co.uk/business/2013/apr/18/barclays-rich-ricci-retires
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2013The interplay between managing pay flexibly
at the individual level and overall concerns for
internal equity of treatment across groups shows
through in the survey report. In particular, while
management of pay contrasts markedly between
the for-profit and not-for-profit sectors, similarity
of treatment of groups within sector is visible
in the survey data. Somewhat contradicting
this finding, however, evidence of active
differentiation in the treatment of those in broad
groupings (managerial and professional roles, on
the one hand, compared with other employee
groups, on the other hand) highlights the scope
for tension. This can be seen in the juxtaposition
of market trends and ability to pay, when
comparing and contrasting these broad employee
groupings, for example. The sense communicated
is that engagement is particularly sought among
those whose skills and influence is regarded as
highly significant for the business.
But is engagement to be understood only in terms
of retaining ‘key capability’ employees? What
about seeking to encourage corporate citizenship
behaviours – putting the organisation’s interests
first – at every level in the hierarchy? Risks arising
from such an orientation may be low if theoretical
arguments regarding points of reward comparison
by employees hold true. On the other hand, unless
organisations find ways of scripting behaviours
among those who, despite having skills that
may be learned fairly quickly, still serve at crucial
customer interface points, managers may need to
be alert to the negative consequences of lower-
level employees feeling relatively undervalued.
While we caution in the report that differences in
sampling between the current survey and those
undertaken in 2011 and 2012 mean there is a
need for circumspection in generalising, it could
be that the rise in narrow-graded pay structures
represents an attempt to mitigate the risk. This
is especially so when considered in combination
with the accent this year on pay progression
related to competencies and skills. If employees
below managerial and professional grades see
the path to progression more explicitly mapped,
this may mitigate the potential for grievance and
disengaged behaviour.
The tendency to underpin market rate-informed
pay determination by job evaluation may also be
seen as a form of risk management – especially
in efforts to protect employers against equal pay
for work of equal value claims. Although pay for
performance in some form remains a core feature
of the UK pay management landscape, rewarding
inputs (competencies and skills) rather than solely
outputs in a targeted manner is, we have argued,
suggestive of an attempt to remain competitive
under still-sluggish economic conditions. It may
also reflect stated frustrations among responding
organisations about realising the promised
productivity gains when applying the range of
available pay-for-performance plans. Further, the
accent on combination awards revealed in the
survey results may reflect a growing sensitivity to
the alleged dysfunctional nature of stand-alone
individual bonus schemes.
These findings reinforce the conclusion that
employers must continuously balance market
competitiveness in pay management with
cashflow constraints, accentuated when the
economy has yet to turn the recessionary corner.
The ongoing dynamics of these factors shows
through in the survey findings that the projected
2013 pay review expectations broadly replicate
those applying in 2012. While these actions
may be viewed as part of a deliberate strategy
in privately and publicly owned organisations
alike, in the latter case the strategy may be seen
as one driven more by the political ‘owners’, in
the form of government policy to constrain the
public sector pay bill. Managers have to determine
pay outcomes within that strategy rather than
initiating it as part of an organisationally specified
plan to focus employment-related resources.
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Benefits and total rewardFinally, this ‘balancing’ imperative shows through
when considering benefits within a total reward
approach. Here, willingness to increase spend
seems more related to ‘benefits inflation’
than steps actively to add additional value to
employees. And while there is as yet little evidence
of a rebalancing of pay to benefits, respondents
do appear to have an appetite to do so where the
conditions are favourable. We raised the question
last year as to whether or not employers were
doing more to establish if reward investment was
hitting the target in terms of what worked best
for employees. If anything, the limited use of total
reward statements and apparent retrenchment in
offering flexible benefits provision suggests the
contrary.
Findings on benefits this year have raised a
number of key questions that deserve attention in
future research:
• Is debt counselling something of short-term
interest, related to recessionary times?
• Will trans-Atlantic employers adopt markedly
different approaches in different operational
locations, given apparent trends in relation to
tolerance of flexible/homeworking?
• Are employers missing a trick in failing to
convince people of the long-term career
benefits – assuring employability during
turbulent times – accruing from corporate
investment in development and training?
Or is this an indication that employees are
taking an instrumental approach in the face of
immediate uncertainties, preferring benefits
that deliver economic security or enhanced
quality of life beyond the job?
• What changes would apply in practice were
employers to achieve their stated aspiration
to shift the total reward mix more in favour
of benefits, despite the uncertainties in some
quarters associated with pensions auto-
enrolment?
A final question warranting attention emerges
from the attention in this year’s survey to the
transparency–secrecy mix in benefits provision.
As we note, compared with the cognate findings
in last year’s survey, when we investigated
transparency and secrecy regarding pay per
se, there would appear to be less of a ‘culture
of secrecy’ surrounding benefits. But there is
sufficient indication of a counterpoint to give
pause for reflection as to what is going on: more
than a quarter of this year’s respondents indicated
that they would prefer employee benefits,
including pensions, to be a matter between
individuals and the employer alone. Employers
may wish to ask themselves whether narrowing
the range of universally offered benefits would
help to overcome such concerns.
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BACKGROUND TO THE REPORT
This is the twelfth annual survey of reward
management by the CIPD. The main aims of the
survey are to:
• inform the work of the CIPD on reward
management
• provide readers with an information and
benchmarking resource in respect of current and
emerging practice in UK reward management.
The research was carried out between February
and March 2013. The survey was sent out to senior
reward/HR practitioners in the public, private and
voluntary sectors. The number of respondents to
the survey was 444 in total.
The following tables provide a breakdown
of percentage of respondents by sector, by
ownership and by size of organisation (number of
employees).
In comparison with last year, the sample has a
stronger representation of public sector and not-
for-profit organisations, although private sector
services still remains the largest group (Table 39).
Last year we gave respondents the option of
indicating that they operate in multiple sectors,
although due to the small numbers that this was
relevant for, we have reverted back to the main
four sectors for 2013.
Table 40 shows geographic ownership and that
the vast majority of our survey respondents
provided responses relating to mainly UK-owned
organisations.
For the first time this year, to complement the
sectoral and geographic ownership breakdowns,
we also asked our respondents to categorise
their organisations’ structural ownership (Table
41). The majority of organisations in our survey
are from the private sector and privately held,
although there is good representation from other
ownership structures too. It is interesting to note
that the proportions of public sector and non-
profit organisations do not align exactly with
Table 39: Survey respondents, by sector (%)
Manufacturing and production
Private sector services Public services
Voluntary, community and not-for-profit
19.6 38.5 23.6 18.2
Table 40: Survey respondents by ownership (%)
Mainly UK-owned organisation
Division of mainly UK-owned organisation
Division of internationally owned organisation
71.5 4.6 24.0
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public services and voluntary, community and
not-for-profit in Table 39 above as we may have
expected. This may be indicative of increasing
complexity in the public sector, as increased
involvement of private and other external not-for-
profit organisations blurs the sectoral divisions.
Table 42 shows that our sample of respondents
is fairly evenly split between small and medium-
sized organisations (fewer than 250 employees)
and large organisations (between 250 and 9,999
employees), with quite a small number from very
large organisations (more than 10,000 employees).
For the second year running, the survey asked
respondents to answer questions regarding the
demographic breakdown of the employee groups
in their organisations. However, the question
was asked in a different way this year, allowing
respondents a multiple-choice response, which
has greatly improved the response rate for this
question.
Table 43 shows that in most organisations female
managers/professionals are in the minority
and that there is a substantial proportion of
organisations where women make up the majority
of other employees. Managers/professionals under
30 are in the minority as are younger workers
generally. However, graduates make up half
or more of the management and professional
employee group in most organisations.
Table 41: Survey respondents, by structural ownership (%)
Private sector – privately held
Private sector – publicly traded
Public sector (local or national
government) Non-profit
41.1 17.2 19.0 22.8
Table 42: Survey respondents, by organisation size (number of employees) (%)
SMEs (<250) Large (250–9,999) Very large (10,000+)
43.2 48.9 7.9
Table 43: Survey respondents, by demographic composition (%)
None Minority About half Majority
Female employees (Management and professional) 0.9 43.2 36.0 17.3
Female employees (Other) 0.9 23.4 31.8 34.0
Under age 30 (Management and professional) 11.7 65.3 14.2 3.2
Under age 30 (Other) 3.4 48.4 26.8 10.4
Graduate employees (Management and professional) 7.7 31.5 21.2 32.7
Graduate employees (Other) 7.2 52.0 14.4 12.4
The team that helped to design the questionnaire, carry out the analysis and write the report were: Sarah Jones from the University of Bedfordshire, Liz Marriot and Stephen Perkins from London Metropolitan University and John Shields from the University of Sydney.
We would like to thank all the reward professionals who helped inform the questionnaire and report as well as those who completed the survey. Special thanks to those who contributed to the case studies appearing in this report.
OTHER TITLES IN THIS SERIES
LEARNING AND TALENT DEVELOPMENTThe annual Learning and Talent Development survey provides valuable commentary on current and future issues and trends. It explores employer support for learning, talent management, employee skills, managing and evaluating coaching and training spend. The latest report is brought to you in partnership with Cornerstone OnDemand.
2013
ABSENCE MANAGEMENTThe annual Absence Management survey provides useful benchmarking data on absence levels, the cost and causes of absence, and how organisations are managing absence. The latest report is brought to you in partnership with Simplyhealth.
EMPLOYEE ATTITUDES TO PAYThe annual Employee Attitudes to Pay survey investigates employee attitudes and expectations towards pay and bonuses. This survey is carried out by YouGov and focuses on employees in the UK.
RESOURCING AND TALENT PLANNINGThe annual Resourcing and Talent Planning survey contains valuable information on current and emerging trends in people resourcing practice. The report provides benchmarking information to support employers on resourcing strategies, attracting and selecting candidates, labour turnover and employee retention. The latest report is brought to you in partnership with Hays.
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