Reward Fundamentals Executive summary

When Aon Hewitt last ran this survey of strategic reward priorities and experiences in 2007, the data indicated significant concern from European HR professionals regarding the effectiveness of their reward programmes. The volatile economic environment following the financial crisis of 2008 has forced organisations to review reward programmes and many organisations have managed to achieve notable improvements. Our 2011 survey results indicate that respondents are twice as confident that their programmes are aligned with business objectives and are helping to produce desired business outcomes.

Growing confidence in strategic planning and reward programme design

European HR professionals are also more positive about the integration of reward programmes with business processes and the quality of their reward programme design. They are satisfied that reward programmes motivate their high performers and see compensation as critical for building and sustaining employee engagement generally, though the ratings are less positive in this regard. Strategic alignment is clear and buy-in from key stakeholders is seen as strong.

Concerns over tactical implementation and delivery

There are, however, concerns around tactical and implementation issues, as well as the overall impact of reward programmes. European HR professionals are uncertain about plan effectiveness with respect to a number of critical issues such as: the link with performance management, pay differentiation and the quality of data.

There are further concerns with regard to tactical implementation: nearly half of respondents (47%) say they are not making best use of technology and nearly one third of respondents (30%) struggle to quantify the actual outcomes and impact of their reward programmes on the business.

Improvements needed in reward programme communication and engaging with managers

Most importantly, there are concerns about the adequacy of HR support for frontline management to ensure their buy-in for reward programmes, as well as effective communication of reward. While over half (53%) of respondents believe communication of their compensation practices is effective, it is perceived to be a shortcoming by nearly a third (29%) of reward professionals.

Our research shows that a quarter of respondents believe that managers do not have the training and ability to execute compensation practices. A further 38% indicate a lack of ownership by business managers.

Many organisations are taking steps to address these issues, and some of the most common initiatives include: improved HR support and specific training sessions for line managers, better moderation of pay and bonus recommendations, as well as additional consultation with line managers before introducing changes.

Driving employee engagement

European HR professionals believe that maintaining and improving employee engagement is a key driver of the reward agenda, and:

■ 79% see reward as critical for building and sustaining engagement ■ 82% are satisfied with the engagement levels of their high performers ■ 66% are satisfied with the engagement levels of all their staff

However, there is plenty of room for improvement, as more than one third (39%) state that they do not measure the impact of reward programmes on employee engagement at all.

Key changes in 2011 and plans for 2012

The graphs below illustrate the changes made to reward programmes in 2011 and key plans for 2012:

■ Variable pay was the area in which most organisations made changes in 2011 (39%), and it continues to be the key focus for the next 12 months (25%). Extending bonus plans and introducing new ones, changing plan measures and increasing bonus opportunities are some of the most common changes employers are making.

■ Pay and grading remain the second most common area that organisations have reviewed or are planning to review, with continuing changes made to the number of grades and width of pay bands, and increasing use of job family concepts.

■ The activity on pensions and benefits continues, with 10% stating that they have made changes in 2011 and 17% intending to make changes in 2012. This is due to a combination of regulatory and demographic changes, increased focus on cost management and the need to improve the motivational effect of benefit programmes.

■ 4% of organisations made changes to their performance management processes in 2011, and a further 8% are planning to revise these in 2012. Changes in performance management are driven by major concerns around the effectiveness of the current processes.

About the Reward Fundamentals survey

Research was conducted at the end of 2011, and the results are based on a survey of 352 organisations across 25 countries in Europe, representing a diverse range of demographics and industry sectors.

Related research you might find of interest

■ 7th European HR Barometer ■ Managing Compensation and Benefits in EMEA 2012 ■ Global Total Compensation Measurement™ 2012 ■ Managers: Your Strongest (or Weakest) Link in Driving Employee Engagement?

Key contacts

Austria | Gregor Lötsch | gregor.loetsch@aonhewitt.com | +43 1712 998 132 France | Vincent Cornet | vincent.cornet.2@aonhewitt.com | + 33 147 831 390 Germany | Marco Reiners | marco.reiners@aonhewitt.com | +49 898 898 7313 United Kingdom | Duncan Brown | duncan.brown@aonhewitt.com | +44 (0)779 502 7051

About Aon Hewitt

Aon Hewitt is the global leader in human resource solutions. The company partners with organisations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.