reward management annual report (cipd) 2010
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Annual reward management report published by the Chartered Institute of Personnel and Development - published February 2010TRANSCRIPT
Annual survey report 2010
Reward management
Reward management 1
Contents
Summary of key findings 3
Strategic reward 6
Base pay 8
Bonuses, incentives and recognition 16
Pensions and benefits 21
Reward measurement 24
Total reward issues 25
Conclusions and implications 29
Background to the survey 32
Reward management 3
Summary of key findings
The ninth annual survey of UK reward management is based on responses received
from 729 organisations, across all industrial sectors. The main aims of the research are to
provide readers with a benchmarking and information resource in respect of current and
emerging practice in UK reward management.
Strategic reward
• Just over a third of respondents report having a
reward strategy. A further three in ten plan to
create one in 2010.
• A total reward approach has been adopted by one-
third of the sample, while a further two in ten plan
to take this approach up in 2010.
• One in twelve respondents have abandoned their
reward strategy and one in twenty have ditched
their total reward approach.
Base pay
• Overall, the most common approaches to managing
base pay are to use individual pay rates/ranges/
spot rates and broadbands. For setting salary levels
the most important methods are to use market
rates (not using a job evaluation database), market
rates (supported by a job evaluation database) and
an ability to pay. For managing pay progression,
the most common approach is to use individual
performance (either solely or, more typically, in
combination with other factors, such as competency).
• The key factors influencing the size of this year’s
annual pay review are ability to pay, inflation and
movement in market rates.
• Some reward specialists will be busy in 2010
amending the way that their organisations structure
pay, attaching salaries to these structures and
managing pay progression. However, there is less
change planned for 2010 than there was for 2009.
• In 2010, half of respondents predict that their salary
spend will increase, two-fifths believe that it will
stay the same, one in seven forecast that it will fall,
while one in ten don’t know.
Bonuses, incentives and recognition
• Cash-based bonus and incentive schemes are
widespread in the private sectors. The most common
types are individual-based schemes and ones driven by
business results, such as profit or customer service.
• The most popular reasons for having a bonus
are to enhance the connection between pay and
performance, to motivate employees and reward
high-performers.
• Around two-fifths of all respondents use employee
recognition schemes, while three in ten use non-
cash incentives.
• Just under half of private sector employers have
a long-term incentive scheme and/or employee
share plan. The most common arrangements are
executive share options, share incentive plans and
executive restricted/performance share plans.
Pensions and benefits
• Virtually all respondents have an employee pension
plan. The most common types of arrangement
are final salary schemes, group personal pensions
and stakeholders with an employer contribution.
However, outside the public and voluntary sectors,
most of the final salary pension schemes are
now closed to new entrants, while a significant
proportion are closed to future accrual as well.
• Just under one-fifth of employers are planning
changes to their pension arrangements in 2010,
with the most popular options being to introduce
salary-sacrifice arrangements, increase employee
contributions and amend the existing final salary
pension scheme.
• In 2010, two-fifths of respondents predict that their
employee benefit spend will remain the same, one-
third say that it will increase, one in ten predict that
it will fall, while the remainder don’t know.
4 Reward management
Table 1: Summary of key findings
Reward approachesPercentage of
respondents using
Written reward strategy 35
Adopted a total reward approach 33
Pay structures Individual pay rates/ranges/spot salaries 36
Broadbands 26
Pay spines 18
Job families/career grades 16
Narrow-graded pay structures 11
Factors used to determine salary levels
Linked to market rates (not using a job evaluation database)
40
Linked to market rates (using a job evaluation database)
31
Ability to pay 25
Owner’s/managing director’s views 13
Collective agreement 11
Factors used to manage pay progression
Individual performance 68
Market rates 48
Competency 38
Organisational performance 34
Skills 32
Employee potential/value/retention 32
Key factors predicted to influence the size of 2010 pay review
Ability to pay 78
Inflation 39
Movement in market rates 37
Recruitment and retention issues 33
The going rate of pay awards elsewhere 28
Level of government funding/pay guidelines 13
Union/staff pressures 11
Employers with cash-bonus or incentive plans 71
Types of bonus and incentive plans Individual-based 58
Scheme driven by business results 47
Combination 44
Team-based 21
Ad hoc/project-based 11
Department/site based 11
Employers with recognition schemes 40
Employers with non-cash incentive schemes 30
Private sector long-term incentives 46
Reward priorities in 2010
• The total reward issues predicted to be key for 2010
are: ensure alignment with the business strategy;
ensuring reward is market competitive; cost
minimisation; and ensure reward is internally fair.
Reward management 5
Table 1: Summary of key findings (continued)
Reward approachesPercentage of
respondents using
Types of long-term incentives Executive share option scheme 37
Share incentive plan 31
Executive restricted/performance share plan 26
Company share option plan 24
Save as you earn 21
Reward management changes planned for 2010
Amend the existing bonus and incentive arrangements
33
Introduce a reward strategy 31
Change pension arrangements 22
Introduce total rewards 21
Increase the pay award differential 19
Amend existing recognition/non-cash incentives arrangements
17
Pay progression 15
Pay structure 15
Introduce a new job evaluation scheme 14
Way pay levels are determined 12
Factors determining the annual pay review 12
Introduce a recognition/non-cash incentive arrangement for the first time
12
Increase the bonus differential 11
Introduce another new bonus scheme 9
Introduce a bonus for the first time 9
Change an existing job evaluation scheme 7
Total reward priorities for 2010 Ensure alignment with the business strategy 52
Ensuring reward is market competitive 51
Ensure reward is internally fair 44
Cost minimisation 44
Salary spend predictions for 2010 Increase 53
Decrease 15
Stay the same 21
Don’t know 11
Benefit spend predictions for 2010 Increase 34
Decrease 9
Stay the same 40
Don’t know 16
6 Reward management
Strategic reward
Having a strategic approach towards reward is back after the recent economic turbulence.
Table 2 shows that 35% of our respondents have
adopted a reward strategy, while a further 31% intend
to adopt one in 2010. It also reveals that 33% of
employers have adopted a total reward approach while
another 21% plan to do so this year.
Compared with last year, we have seen a jump in the
proportion of employers adopting a strategic approach
to reward. In 2008, 26% of respondents claimed to
have a reward strategy while 20% said that they had
adopted a total reward approach. Even the
percentages of respondents planning to introduce a
reward strategy and/or total reward are up on 2008:
24% and 22% respectively.
So what’s happening? This increase may be due to:
sampling or that more employers have adopted them as
they perceive that the economic situation is starting to
stabilise. As Table 2 shows, the proportion of private
sector employers with a reward strategy are almost back
to the levels seen in 2007, the last year of the economic
boom, and 2006. In the voluntary sector, the proportion
of employers with a strategy has almost returned to
levels seen in 2006. However, the proportion of
employers with a reward strategy in the public sector
has increased to an even higher level than in 2007.
Regarding total reward, Table 4 shows that the decline
in this approach since 2006 has been reversed.
We have also asked employers to indicate whether
they do not have a reward strategy (57%) or, for the
first time, whether they don’t now but did once (8%).
Manufacturing firms (11%) and public sector
employers (9%) are more likely to have once had a
reward strategy that they have since abandoned.
Similarly, 5% of respondents report discarding their
total reward approach. Interestingly, it is voluntary
sector employers (9%) and public sector organisations
(8%) that have been more likely to have dumped their
total reward approach than employers in the private
sector. As this is the first time that we have asked
these questions, we are unable to say whether the
default rate for reward strategy and total reward is
high, low or normal. However, these figures do
suggest that some employers are prepared to abandon
their strategic approach if they think that it no longer
adds value to the organisation.
Reward management 7
Table 2: Prevalence of reward strategies and total reward approaches (%)
With a reward strategy
Adopting a reward strategy
With a total reward
approach
Adopting a total reward
approach
All 35 31 33 21
By sector
Manufacturing and production 30 29 30 18
Private sector services 36 29 37 23
Voluntary sector 36 32 26 22
Public services 39 40 29 21
By size (employee numbers)
0–9 22 43 44 14
10–49 32 23 32 23
50–249 25 26 24 16
250–999 31 31 34 26
1,000–4,999 54 45 47 22
5,000+ 60 38 39 31
Table 3: The fall and rise of reward strategy (%)
2006 2007 2008 2009
All 35 33 26 35
By sector
Manufacturing and production 35 31 26 30
Private sector services 38 39 29 36
Voluntary sector 38 25 22 36
Public services 26 28 24 39
Table 4: The fall and rise of total reward (%)
2006 2007 2008 2009
All 41 29 20 35
By sector
Manufacturing and production 42 28 17 30
Private sector services 45 36 27 37
Voluntary sector 40 21 16 26
Public services 34 17 11 29
8 Reward management
Base pay
The recession has impacted on base pay practices in 2009 and is set to influence the pay
outlook in 2010.
Pay structures and levels
Tables 5 and 6 examine how our survey respondents
manage their pay structures. The most common
approach is to use individual pay rates/ranges and spot
salaries. However, there are variations by sector and
occupation. Public sector employers and, to a lesser
extent, voluntary sector organisations, are far more
likely to use pay spines/increments, which provide for a
greater degree of control and certainty. When it comes
to occupation, senior managers are far more likely to
be on individual pay rates/ranges/spot salaries.
Table 5: Pay structure management, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Individual pay rates/ranges/spot salaries
36 41 44 28 11
Broadband pay structures 26 28 29 21 18
Pay spines/increments 18 6 4 35 66
Job family/career grade structures 16 15 19 12 8
Narrow-graded pay structures 11 14 10 7 14
Table 6: Pay structure management, by occupation (%)
Senior management
Middle/ first-line
management Technical/
professionalClerical/manual
Individual pay rates/ranges/spot salaries 52 33 31 27
Broadband pay structures 25 30 27 24
Job family/career grade structures 12 15 18 17
Pay spines/increments 12 18 21 19
Narrow-graded pay structures 7 10 11 18
Reward management 9
Table 7 shows that the most important factors used by
employers when attaching salary levels to these grades
are market rates (not using a job evaluation database),
followed by market rates (using a job evaluation
database) and ability to pay. There are variations by
sector, with market rates being more important among
private sector firms, while collective bargaining is more
important in the public sector employers. By
occupation, clerical and manual staff are more likely to
be covered by collective bargaining (16%) than senior
managers (5%), while the views of the owner or
managing director is more of an influence for senior
staff (21%) than clerical and manual workers (10%).
By size, the views of the owners or managing director
is more of an issue in micro, small and medium-sized
organisations than in large ones, while the opposite is
broadly true for job evaluation.
Pay progression
The most popular criterion used by our sample in
progressing someone along their pay scale is to use
individual performance. Table 8 shows that there are
variations towards pay progression by sector. For
instance, public service employers are more likely to
take into account length of service than private sector
services firms. Also, employee potential, value or
retention is far more important as a factor in pay
progression in both of the private sectors compared
with the voluntary and public services sectors.
Table 9 shows the variations by occupation, with
senior managers far more likely to have their
progression linked to individual performance than
clerical/manual employees.
Table 7: Most important factor used to determine salary rates/ranges/mid-points, by sectorm (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Market rates (not using a job evaluation database)
40 38 47 38 24
Market rates (using a job evaluation database)
31 34 30 35 30
Ability to pay 25 25 24 34 23
Owner’s/managing director’s views 13 14 19 1 5
Collective bargaining 11 10 5 4 39
Table 8: Pay progression criteria, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Individual performance 68 73 77 43 50
Market rates 48 51 59 39 17
Competency 38 42 43 25 23
Organisational performance 34 39 44 14 8
Skills 32 37 39 16 15
Employee potential/value/retention
32 37 43 13 4
Length of service 15 8 8 20 46
Team profit/performance 12 14 14 7 4
10 Reward management
Table 10 reveals the most common ways of
progressing an employee along their pay band by
occupation. It shows that linking pay progression
solely to individual performance is the most common
of the various approaches.
However, instead of relying on just one factor to
progress their employees along their pay grades, 77%
of respondents use a combination of factors, such as
market rates or skills, a progression method that we
term as a combination approach.
Table 11 shows the most common combination
approach used, by sector and occupation. Given that
the most popular approaches are used in no more than
8% of cases, this indicates that there is no one
particular set of combinations that dominate a
particular sector, suggesting ‘best fit’ practice rather
than a ‘best practice’ approach to pay progression.
Pay awards
Against a backdrop of economic decline, Table 12
reveals that just over half of private sector service firms
have not increased pay for some or all of their
employees in 2009, compared with just under a half of
Table 10: The most common pay progression methods, by occupation
Senior managementMiddle/first-line management
Technical/professional Clerical/manual
Individual performance only (15%)
Individual performance only (13%)
Individual performance only (12%)
Individual performance only (11%)
Organisational performance only (5%)
Length of service only (7%)
Length of service only (7%)
Length of service only (7%)
Market rates only (4%) Market rates only (5%) Individual performance, competency, skills, market rates and employee potential (6%)
Market rates only (7%)
Individual performance, competency, skills, market rates and employee potential (4%)
Individual performance, competency, skills and market rates (5%)
Individual performance and market rates (4%)
Individual performance and market rates (5%)
Percentage of respondents in brackets
Table 9: Pay progression criteria, by occupation (%)
Factors usedSenior
management
Middle/ first-line
managementTechnical/
professionalClerical/manual
Individual performance 76 70 67 58
Market rates 48 48 49 47
Competency 37 38 40 36
Organisational performance 44 34 29 28
Skills 30 31 36 31
Employee potential/value/retention 36 34 34 24
Team profit/performance 13 15 10 9
Length of service 12 15 16 17
Reward management 11
Table 11: The most common combinations of factors used in a combination approach, by occupation
Senior managementMiddle/first-line management
Technical/professional Clerical/manual
Manufacturing and production
Individual performance, competency, skills, market rates and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (8%)
Individual performance and market rates (4%)
Private sector services
Individual performance, competency, skills, market rates, organisational performance and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (6%)
Individual performance, competency, skills, market rates and employee potential (8%)
Individual performance and market rates (7%)
Voluntary sector
Individual performance and market rates (3%)
Individual performance and competency (3%)
Individual performance, market rates and employee potential (3%)
Individual performance and competency (3%)
Public services Individual performance and market rates (4%)
Individual performance and length of service (4%)
Individual performance and length of service (4%)
Individual performance and length of service (6%)
Percentage of respondents in brackets
Table 12: Pay decisions, by sector and size (%)
Pay increase Pay cut Pay freeze Pay deferral
All 48 4 41 11
By sector
Manufacturing and production 37 6 48 12
Private sector services 39 5 53 10
Voluntary sector 68 – 22 10
Public services 80 1 9 13
By size (employee numbers)
0–9 50 12 35 4
10–49 44 5 43 12
50–249 40 5 49 11
250–999 54 4 36 9
1,000–4,999 57 2 33 11
5,000+ 58 1 32 19
manufacturing and production firms. This contrasts
with the public and voluntary sectors, where most
employers have awarded a pay rise. By occupation,
senior managers and above have been slightly less
likely to have received a salary increase (45%)
compared with clerical and manual workers (50%).
12 Reward management
Table 13: Elements of the overall pay increase, by sector (%)
Across-the-board increases Pay progression increases
Manufacturing and production 66 63
Private sector services 51 66
Voluntary sector 85 56
Public services 92 61
Table 13 indicates that the overall pay increase is often
made up of two elements, an across-the-board increase
(or a flat rate increase linked to the cost of living) and a
pay progression increase (such as a performance-related
pay rise). For instance, in manufacturing and production
66% of respondents say that their pay award consists of
an across-the-board rise while 63% say it consists of
pay progression increases.
Of those private sector service firms that did make an
award, they were more likely to give a pay progression
increase than an across-the-board rise. This may reflect
the state of the economy in 2009 in that such firms
did not have to increase wages in line with the cost of
living as inflation was negative, or that they could not
afford to award all staff a flat rate increase because of
falling revenue. It may also reflect their reward
philosophy and they prefer to reward progression,
which allows them to better reflect individual
contribution rather than give a cost-of-living rise that
spreads the pay budget around indiscriminately.
Overall, in 2009, the median pay award made by those
employers who did increase salaries was 2.5%,
ranging from 2% (lower quartile) to 3% (upper
quartile). By sector, those private sector employers that
were able to afford a pay increase gave higher rises
(manufacturing and production (3%) and private
services sector (2.5%)) than the not-for-profit sectors
(voluntary (2%) and public services (2.05%)).
Table 14 shows the three factors that were predicted in
2008 to be the most influential in 2009 in determining
the size of the overall pay review budget (taking into
account both individual base-pay progression and, if
applicable, general or cost-of-living pay rises) compared
with what respondents in 2009 have said has been the
most influential. The 2009 data is in italics.
The biggest difference is around the rate of inflation,
which respondents in 2008 tended to overestimate in
importance, and ability to pay, which they have tended
to underestimate. The gap around inflation may be
due to the Retail Prices Index (RPI) measure (which is
traditionally the measure used to inform the annual
pay review) being relatively high in 2008, driven by
energy, fuel and food costs, while in 2009 it was
negative, driven by falling housing and energy costs
and the temporary VAT reduction. The gap around
ability to pay may be that in 2009 many respondents
simply did not have the cash to increase salaries so
ability to pay has become more of an issue.
Table 14 also highlights variations by sector. For
instance, in the private service sector recruitment and
retention has been more of an issue than was
originally predicted, indicating that even during the
recession some firms have had an eye on the coming
recovery and the people who they need to attract and
keep to ensure that they take advantage of the growth
in the economy. In the public sector staff and union
pressures have turned out to be less of an issue in
2009 than was originally predicted, which could reflect
that many employees in this sector have enjoyed
above-inflation rises over this period.
Table 15 shows what our respondents predict will be
the most important factors in the determination of the
annual pay review in 2010. For instance, compared
with Table 14, it shows that in 2010 movement in
market rates and recruitment and retention factors are
likely to become more of an issue for private sector
employers, presumably an indication of confidence
among our sample in the outlook for 2010. In the
public and voluntary sectors, the factors that were
important in 2009 are likely to carry through into 2010.
Reward management 13
Table 14: The most important factors for employers when determining their annual pay review, by sector, 2009 (predicted in 2008 for 2009 versus actual)
Manufacturing and production Private sector services Voluntary sector Public services
Ability to pay (52%; 83%)
Ability to pay (67%; 82%)
Inflation (46%; 53%) Level of government funding/pay guidelines (62%; 61%)
Inflation (63%; 45%) Movement in market rates (46%; 39%)
The ‘going rate’ of pay awards elsewhere (27%; 27%)
Union/staff pressures (38%; 24%)
Movement in market rates (37%; 33%)
Inflation (54%; 33%) Ability to pay (67%; 86%)
Inflation (41%; 31%)
The ‘going rate’ of pay awards elsewhere (28%; 32%)
Recruitment and retention issues (22%; 31%)
Recruitment and retention issues (23%; 17%)
The ‘going rate’ of pay awards elsewhere (23%; 17%)
Recruitment and retention issues (29%; 26%)
The ‘going rate’ of pay awards elsewhere (29%; 30%)
Movement in market rates (20%; 27%)
Ability to pay (37%; 53%)
Percentage of respondents in brackets; 2009 actual data in italics
Table 15: The most important factors for employers when determining their annual pay review, by sector, 2010
Manufacturing and production Private sector services Voluntary sector Public services
Ability to pay (83%) Ability to pay (81%) Ability to pay (88%) Level of government funding/pay guidelines (60%)
Inflation (45%) Movement in market rates (47%)
Inflation (48%) Ability to pay (54%)
Movement in market rates (44%)
Recruitment and retention issues (42%)
The ‘going rate’ of pay awards elsewhere (31%)
Inflation (34%)
Recruitment and retention issues (34%)
Inflation (34%) Movement in market rates (25%)
Union/staff pressures (28%)
The ‘going rate’ of pay awards elsewhere (31%)
The ‘going rate’ of pay awards elsewhere (31%)
Recruitment and retention issues (20%)
Recruitment and retention issues (15%)
Percentage of respondents in brackets
14 Reward management
Table 16 shows the proportion of respondents who
report that their salary spend has increased, decreased
or remained the same since 2008. Against a backdrop
of economic contraction, Table 16 reveals that three in
ten employers in both of the private sectors have seen
the amount of money they spend on salaries drop in,
or during, 2009.
Table 17 reveals what respondents predict will happen
to their total salary spend in 2010. It shows that public
sector employers are more likely to predict a decrease
to their salary pay bill, possibly a reflection of political
concerns about the cost of public sector salaries.
Table 16: How the salary spend has changed since 2008, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Increased 61 56 53 75 85
Decreased 24 31 30 10 4
Stayed the same 10 9 12 8 7
Don’t know 5 3 5 8 9
Table 17: How the salary spend is predicted to change in 2010, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Increased 53 53 56 49 51
Decreased 15 16 13 12 18
Stayed the same 21 22 21 25 17
Don’t know 11 10 10 14 13
Reward management 15
Table 18: Organisations planning to change their pay arrangements in 2010, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Increase the pay award differentiation between ‘normal’ and ‘high-performing’ staff
19 19 21 15 13
Changing the way that employees progress within their pay ranges
15 13 14 20 15
Changing the way the pay structure is organised
15 13 14 26 15
Introducing a new job evaluation scheme
14 15 11 18 15
Changing the way that pay rates/ranges/mid-points are attached to the pay structure
12 10 12 18 13
Changing the factors that determine the size of the pay review
12 13 13 16 7
Changing the existing job evaluation scheme
7 6 7 5 11
Changes planned
The most popular reward change for private sector
employers in 2010 is to increase the pay award
differentiation between employees, possibly as a
reflection of tight pay budgets and a desire to reward
those who have contributed most a greater proportion
of the overall pay rise. By contrast, the public and
voluntary sectors are more likely to be amending their
pay structures and progression arrangements.
The overall proportion of employers planning changes
in 2010 is down on the number that planned changes
in 2009. For instance in 2009, 29% were planning to
change the way the pay structure is organised; in
2010 just 15% are planning to do likewise. Similarly,
the proportion planning changes to pay progression
has fallen from 30% to 15% and the percentage
amending the way that pay levels are determined have
dropped from 23% to 12%. That less change is
predicted for 2010 may be because HR is trying to get
more value out of their existing systems rather than
changing them wholesale.
16 Reward management
Bonuses, incentives and recognition
Employers in 2010 will be busy reviewing existing bonus, incentive and recognition plans to
ensure that they meet the needs of the business as the economy, hopefully, improves.
Short-term bonuses and incentives
The use of variable pay is a popular method of reward,
with 71% of our respondents using it. Table 19 shows
the variations by sector and size, with these
arrangements being far more common in both parts of
the private sector. Interestingly, the voluntary sector
has a low incidence of incentives of any kind.
The most common arrangement for those using a
bonus scheme is an individually based plan (such as
commission), followed by a plan driven by business
results (such as customer satisfaction) and then a
combination scheme (which takes into account both
individual and collective performance), according to
Table 20.
Table 21 reveals the key objectives behind the use of
cash-based bonus and incentive schemes. It shows that
the most popular objective in both parts of the private
sector and among public services is to enhance the pay–
performance connection. In the voluntary sector, by
contrast, the most important objective is to encourage
high productivity. Another significant variation by sector
is that public service employers are more likely to use a
cash bonus to reward performance through a non-
consolidated pay award. This is probably due to the
inflexibility of pay structures to reward individuals at the
top of their grade, especially high-performers, and/or a
desire to move more of the pay increase from a fixed
cost to a variable cost.
Table 19: Use of cash-based bonus/incentive plans, recognition schemes and non-cash incentive plans, by sector and size (%)
Cash-based bonus or incentive plan
Recognition scheme
Non-cash incentive plan
All 71 40 30
By sector
Manufacturing and production 83 39 23
Private sector services 86 41 38
Voluntary sector 25 23 16
Public services 44 59 33
By size (employee numbers)
0–9 67 22 13
10–49 69 28 23
50–249 68 30 23
250–999 73 44 29
1,000–4,999 75 55 44
5,000+ 71 72 48
Reward management 17
Table 20: Types of cash-based or incentive plans on offer, by sector (%)
Type of planAll
Manufacturing and production
Private sector services
Voluntary sector
Public services
Individual-based 58 50 57 78 83
Schemes driven by business results 47 52 50 30 13
Combination 44 50 48 13 17
Team-based 21 17 23 9 32
Ad hoc/project-based 11 10 10 4 21
Departmental/site-based 11 13 11 9 6
Gainsharing 1 3 1 – –
Table 21: Key objectives behind cash-based bonus and incentive schemes, by sector (%)
Manufacturing and production Private sector services Voluntary sector Public services
Enhance pay–performance connection (52%)
Enhance pay–performance connection (40%)
Encourage high productivity (44%)
Enhance pay–performance connection (51%)
Motivate employees (32%)
Motivate employees (38%)
Reward high-performers (39%)
Reward performance through a non-consolidated pay award (47%)
Encourage high productivity (30%)
Reward high-performers (31%)
Enhance pay–performance connection (35%)
Reward high-performers (36%)
Reward high-performers (28%)
Encourage high productivity (31%)
Recruit and retain high-performers (30%)
Motivate employees (28%)
Improve financial results (25%)
Improve financial results (31%)
Reward performance through a non-consolidated pay award (30%)
Encourage high productivity (23%)
Support business goals (24%)
Recruit and retain high-performers (25%)
Motivate employees (26%)
Recruit and retain high-performers (23%)
Reward performance through a non-consolidated pay award (21%)
Support business goals (23%)
Improve financial results (17%)
Support business goals (23%)
18 Reward management
Against a backdrop of tight reward budgets, Table 22
reveals that a large proportion of those employers with
bonus schemes plan to review or amend them in 2010
to ensure that they align to the organisation’s objectives,
with a lot of respondents with existing plans amending
them this year, such as changing the measures,
coverage or targets. Within the private sector, a
significant proportion of firms will be increasing the
bonus differential between ‘normal’ and ‘high-
performing’ employees, presumably to ensure what little
financial rewards they have go to those who have
contributed the most. As Table 18 shows, a similar
proportion is also planning to increase the differential
when it comes to 2010 salary awards.
Due to the low coverage of bonus plans in the
voluntary sector, a significant proportion of these
employers are looking to introduce a bonus scheme for
the first time, or examine the case for introducing a
scheme for the first time.
Recognition and non-cash incentive schemes
Table 19 shows that 41% of employers operate a
recognition scheme (such as employee of the month),
while 30% have a non-cash incentive plan (such as
sales incentive where the award has a monetary value,
such as a travel package, but is not paid in cash). This
is a significant increase on the proportion using them
in 2008, when 31% used recognition schemes and
17% used non-cash incentive plans.
By sector, the proportion of employers using
recognition schemes has risen from 26% to 39% in
manufacturing and production, 14% to 23% in the
voluntary sector and from 35% to 59% in the public
sector. Those using non-cash incentives has jumped
from 24% to 38% in the private services sector, from
8% to 16% in the voluntary sector and from 17% to
33% in the public sector.
Part of the increase over the year in the use of these
low-cost plans may be attributable to the state of the
economy and many employers having a tight budget
from which to reward and recognise individual and
team contribution.
Like cash bonus and incentive plans, many employers
will be reviewing existing non-cash incentive and
recognition arrangements in 2010, according to Table
23. Interestingly, while private sector employers are
Table 22: Bonus and incentive reviews and changes planned in 2010, by sector (%)
Manufacturing and production
Private sector services Voluntary sector Public services
Examine existing bonus arrangements
47 57 25 31
Amend existing bonus plans 40 48 16 27
Increase the bonus differentiation between ‘normal’ and ‘high-performing’ staff
17 22 6 12
Examine the case for introducing a bonus for the first time
9 11 19 10
Introduce another new scheme 8 13 4 10
Examine the case for removing a bonus or incentive arrangement
10 10 11 11
Remove an existing bonus or incentive scheme
7 11 7 11
Introduce a bonus for the first time
5 7 11 8
Deferring cash into long-term vehicles
5 7 – 2
Reward management 19
Table 23: Non-cash incentive and recognition reviews and changes in 2010, by sector (%)
Manufacturing and production
Private sector services
Voluntary sector Public services
Examine existing non-cash incentive and recognition arrangements
24 30 23 34
Examine the case for introducing recognition and non-cash incentive plans for the first time
17 18 23 16
Amend existing recognition and non-cash incentive arrangements
12 20 11 25
Introduce a recognition or a non-cash incentive scheme for the first time
13 12 11 12
Increase the recognition/non-cash differentiation between ‘normal’ and ‘high-performing’ staff
7 9 8 8
Introduce another recognition or a non-cash incentive scheme
7 7 6 11
Remove an existing recognition or a non-cash incentive scheme
5 3 1 11
Examine the case for removing a recognition or non-cash incentive plan
2 3 5 5
more likely to increase the bonus differential between
‘normal’ and ‘high-performing’ workers, they are less
likely to do this for recognition and incentive
schemes. Possibly employers believe such rewards
should be awarded in a more egalitarian manner than
cash bonuses.
Share schemes
Just under half (46%) of private sector respondents
have some sort of employee share plan or other long-
term incentive arrangements. Table 24 shows the most
common arrangements.
Overall, the proportion of employers offering a share
plan has increased slightly from 43% in 2008 to 46%.
However, there are significant changes within this
figure. On the all-employee front, the percentage of
private service sector firms offering a save as you earn
(SAYE) plan has dropped from 33% to 23% while the
percentage offering a company share option plan
(CSOP) has fallen from 32% to 26% in the
manufacturing and production sector. While on the
executive front, the proportion of manufacturing and
production firms with a restricted/performance share
plan has risen from 25% to 35%.
Table 25 shows the changes to executive long-term
incentive plans (LTIPs) between 2008 and 2009. It shows
that a similar proportion of employers have increased
the number of individuals who participate and the size
of the potential award as have done the opposite. The
only significant difference is that employers have been
far more likely to have increased the LTIP performance
requirements than have reduced them, which should
please the shareholders if not the executives.
20 Reward management
Table 24: Common types of long-term incentives, by sector (%)
SchemeManufacturing and
production Private sector services
Executive share option schemes 33 40
Share incentive plans (SIPs) 38 27
Company share option plans (CSOPs) 26 23
Save as you earn (SAYE) 17 23
Executive restricted/performance share plan 35 20
Executive deferred annual cash-based bonus 14 16
Other 7 14
Executive deferred/co-investment share plan 5 5
‘Phantom’ share scheme 3 7
Share appreciation rights (SARs)/Equity-settled SARs 3 2
Enterprise management incentives (EMIs) 4 6
Table 25: Changes to executive long-term incentive plans, 2008 to 2009 (%)
Reduced the number of individuals who participate 18
Increased the number of individuals who participate 18
Increased the performance requirements 15
Reduced the size of the potential award 14
Increased the size of the potential award 10
Reduced the performance requirements 1
Reward management 21
Pensions and benefits
While pension provision remains a common employee benefit, there have been significant
changes in the types of scheme offered. Overall, the benefit spend has been less responsive
to the economic downturn than the salary spend.
Virtually all of our sample (95%) provides their
employees with access to a pension scheme. Table 26
shows that final salary schemes are the most common
type of pension provision, followed by group personal
pension (GPP) schemes. Since last year, the proportion
of employers with final salary pension schemes has
fallen from 52% to 46%, while the percentage of
those with group personal pensions has increased from
34% to 41%.
Among manufacturing and production firms the
proportion of employers with final salary pension
schemes has dropped from 50% to 43%, while the
percentage with group personal pensions has
increased from 38% to 45%, indicating that such
employers may be switching away from expensive final
salary pension schemes to lower-cost group personal
pension arrangements. That said, other forms of
defined contribution (DC), such as stakeholder (no
employer contribution) and trust-based schemes, have
also seen a decline, suggesting a shift in the type of
DC provision. The concept of risk-sharing in pension
provision remains a minority interest, with just under
1% of employers using a hybrid pension scheme.
Within private sector services, the proportion of
employers with group personal pensions has also risen
from 45% to 53%, while the proportion of those with
stakeholder with no employer contribution has fallen
from 24% to 19%. We can speculate that automatic
pension enrolment from 2012 onwards and the
national employment savings trust (NEST) are
encouraging some employers to shift to pension
arrangements that exempt them from NEST.
Table 26: Pension provision, by sector (%)
Type of arrangement TotalManufacturing and production
Private sector services
Voluntary sector
Public services
Final salary scheme 46 43 32 52 89
Group personal pension (GPP) 41 45 53 34 9
Stakeholder pension (with employer contribution)
32 29 34 45 17
Defined-contribution (DC) plan 26 37 29 15 10
Stakeholder pension (no employer contribution)
16 16 19 9 10
Contribution to personal pension 8 7 10 7 8
Career-average scheme 5 4 2 7 12
Group self-invested personal pension (SIPP)
3 3 5 – 1
Hybrid 1 2 – 1 1
22 Reward management
Further analysis of final salary pension schemes shows
that while most public sector employers still have them
open to new employees, they are now mostly closed
to new entrants or future accrual in the private sector
(Table 27). Interestingly, despite the media hype, we
have not seen a large increase in the proportion of
employers that have closed their final salary schemes
to existing employees between 2008 and 2009. This
may be because many employers that are planning
such a move were still going through staff
consultations at the time of the survey and we can
expect an increase in schemes closed to future accrual
in 2010.
Changes planned for 2010
Around one-fifth of employers (22%) will be amending
their existing pension arrangements this year. By sector,
voluntary sector organisations (26%) are more likely to
be making changes, followed by manufacturing and
production firms (24%), private sector service firms
(22%) and public sector employers (14%).
Among those changing their existing arrangements,
the most common amendment is to introduce salary
sacrifice (33%), followed by increasing employee
contributions (23%), increasing employer contributions
(20%), amending the existing final salary pension
scheme (19%), closing the final salary scheme to
existing members (16%) and introducing automatic
workplace pension enrolment (15%).
Interestingly, employers (especially those in the private
services sector) are now more likely to close their final
salary pension arrangements to existing employees
than new employees (9%), suggesting the end of
traditional final salary pension arrangements in the
private sector.
Benefit spend
By sector, Table 28 indicates how the employee benefit
spend, including pensions, has changed between 2008
and 2009. Given the state of the economy over the
past 12 months, we find that around one in five
private sector employers have cut back on their benefit
spend since 2008. This compares with three in ten
private sector employers who reported that their salary
spend was smaller during this period, indicating that
the benefit spend is less responsive to economic
changes than the salary spend. Another interesting
find is the high proportion of respondents, especially in
the public sector, who just didn’t know what had
happened to their benefit spend over this period,
indicating that unlike the salary spend, the benefit
spend is a grey area for such employers.
Looking ahead to the next 12 months, employers in the
private sector are more likely to predict that the benefit
spend will remain constant than increase or decrease,
while the opposite is true in the voluntary and public
sectors, according to Table 29. Interestingly, while
public sector employers were more likely to predict a
Table 27: Final salary pension arrangements, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Open to all 37 19 9 40 81
Closed to new employees but not future accruals
43 51 62 44 15
Closed to new employees and future accruals
14 20 22 10 3
Wind up 6 10 6 6 1
Reward management 23
shrink in the size of their salary spend over this period,
they are less likely to predict that this will happen for
the benefit spend. Also of note is that while the future
of benefit spend is less of a grey issue for public and
voluntary sector employers, it is more of a grey area for
private sector respondents, with an increase in the
proportion of them answering ‘don’t know’.
Table 30 shows the size of benefit spend as a
percentage of the payroll in 2008, 2009 and what is
predicted for 2010. By 2010, the inter-quartile range
for the benefit spend in both manufacturing and
production and private sector services is estimated to
range from 5% to 17% with the median pitched at
10%, for the voluntary sector the range is 3% to
15% with an 8% median, and for the public sector
the range is 2% to 23% with a 12% median.
Table 28: How benefit spend has changed between 2008 and 2009, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Increased 40 39 40 48 39
Decreased 16 21 19 5 5
Stayed the same 28 31 30 27 21
Don’t know 15 9 11 19 36
Table 29: How benefit spend is predicted to change in 2010, by sector (%)
AllManufacturing and production
Private sector services
Voluntary sector
Public services
Increased 34 31 33 44 36
Decreased 9 11 11 4 7
Stayed the same 40 43 45 37 24
Don’t know 16 15 12 15 33
Table 30: The benefit spend as a proportion of payroll, 2008–10, by sector (%)
2008 2009 2010
Lower quartile 4 4 4
Median 9 10 10
Upper quartile 15 15 16
24 Reward management
Just under half (49%) of respondents claim that they
calculate the size of their total remuneration spend (that
is pay, benefits and other financial rewards, plus
National Insurance Contributions).
By sector, public service employers (55%) are more likely
to calculate this, followed by private sector service firms
(51%), manufacturing and production firms (48%) and
voluntary sector organisations (38%). Smaller employers
are more likely to, or be able to, calculate their total
remuneration expenditure than larger organisations. While
67% of firms with organisations with fewer than ten staff
calculate their total remuneration spend, only 50% of
employers with more than 5,000 staff do likewise.
Compared with 2008, there has been a drop in the
proportion of respondents who calculate the size of
their total remuneration spend from 54% to 49%. The
most significant drops are in private sector services
(60% to 51%) and the voluntary sector (44% to 38%).
Possible explanations for this decline may be due to
sampling, that some respondents thought that their
employer did calculate the size but now realise
otherwise, that for some reason a number of employers
have simply stopped calculating the size of their total
remuneration spend and that it has become harder to
calculate this total.
However, while many employers know the size of their
total pay and benefit spend, most are unable to break it
down into its constituent parts. When we asked for
these employers to break down their total remuneration
expenditure into fixed pay, variable pay and benefits as
a percentage of their annual turnover or revenue,
around 80% were unable to.
Of the 20% that are able to give a breakdown, Table 31
reveals the mean findings by sector. It shows that in the
public, private and voluntary service sectors the total
remuneration spend represents more than two-thirds of
organisation turnover or income. By contrast, in the
capital and physical-resource intensive manufacturing
and production sector, total remuneration accounts for
a lower proportion (48%) of organisational turnover.
It is surprising that in the depths of a recession so many
employers do not know the size of their total
remuneration spend and of those that do, most are
unable to express this as a percentage of their total
revenue or income. Having such data to hand allows
employers to work out how much they need to increase
income, or reduce labour costs, so as to maintain or
increase profits.
Reward measurement
This year’s survey finds only a minority of employers know the size of their total
remuneration spend.
Table 31: Elements of total remuneration expressed as a percentage of organisation turnover, by sector (%)
Manufacturing and production
Private sector services
Voluntary sector Public services
Fixed pay 30 52 58 69
Variable pay 6 8 – 3
Benefits 12 13 11 16
Reward management 25
This year we asked respondents what were the key total
reward issues that they had focused on in 2009 and
what issues they predicted they would be facing in
2010. Figure 1 reveals that cost minimisation, followed
by ensuring alignment with the business strategy and
ensuring reward is market competitive were the three
most common reward priorities in 2009.
Figures 2, 3, 4 and 5 show the differences by sector.
Unsurprisingly, given the state of the economy, cost
minimisation has been more of an issue in the private
sector than the public or voluntary sector. By contrast,
possibly as a consequence of political and media
concerns over paying women less than men, ensuring
pay is internally fair is more of an issue in the public and
voluntary sectors. Similarly, pay transparency is more of
an issue in the public (32%) and voluntary (21%)
sectors than in manufacturing and production (9%) and
private services (8%).
In 2010, the three key reward priorities in order of
preference are predicted to be ensuring alignment with
the business strategy, followed by ensuring reward is
market competitive and then cost minimisation and
ensuring reward engages employees in equal place. We
can speculate that the jump in the priority given to
ensuring that reward is market competitive may be a
reflection of pay freezes and cuts in the private sector in
2009 and the belief among individual firms that as the
economy picks up reward will need to be competitive if
they are not to lose key talent. This assumption is also
supported by the increase in the importance given to
rewarding talent by our private sector sample and a
drop in the proportion of employers regarding cost
minimisation as a key priority in 2010.
Within the public sectors, cost minimisation is predicted
to grow in importance, but possibly less than one may
have expected given the spending constraints predicted
for the public sector. Given a lack of money for
employee reward, ensuring employee reward engages
employees will become more of a priority in 2010.
Other less common total reward priorities for 2010
include: decreasing pay at risk (2%); tax planning (5%);
increasing pay at risk (5%); reward administration (6%);
rewarding innovation (7%); evaluating return on reward
investment (8%); executive reward (10%); developing
line manager buy-in to reward (10%).
Total reward issues
The total reward priorities of employers reflect the state of the economy in 2009 and
what is predicted to happen in 2010.
26 Reward management
Figure 1: Key reward priorities in 2009 and 2010, percentage of respondents – all.
Figure 2: Key reward priorities in 2009 and 2010, percentage of respondents – manufacturing and production
Cost m
inim
isatio
n
Ensu
re al
ignm
ent w
ith th
e
busin
ess s
trate
gy
Ensu
ring
rewar
d is
mar
ket c
ompe
titive
Ensu
re re
ward
is int
erna
lly fa
ir
Align
pay w
ith in
dividu
al,
emplo
yee a
nd b
usine
ss pe
rform
ance
Ensu
ring
rewar
d en
gage
s em
ploye
es
Pens
ion co
sts
Tota
l rew
ard
issue
s
Ensu
re al
ignm
ent w
ith th
e HR
strat
egy
Rewar
ding
talen
t
2009 2010
40
30
50
60%
51
4448
52
44
51
43 44
3941
32
39
25
30
22
28
2123
19
26
10
20
0
Cost m
inim
isatio
n
Ensu
re al
ignm
ent w
ith th
e
busin
ess s
trate
gy
Ensu
ring
rewar
d is
mar
ket c
ompe
titive
Ensu
re re
ward
is int
erna
lly fa
ir
Align
pay w
ith in
dividu
al,
emplo
yee a
nd b
usine
ss pe
rform
ance
Ensu
ring
rewar
d en
gage
s em
ploye
es
Pens
ion co
sts
Tota
l rew
ard
issue
s
Ensu
re al
ignm
ent w
ith th
e HR
strat
egy
Rewar
ding
talen
t
2009 2010
40
30
50
60%
56
4846
51
44
53
39
44
38
45
35
40
29
34
17
27
1921
23
28
10
20
0
Reward management 27
Figure 3: Key reward priorities in 2009 and 2010, percentage of respondents – private sector services
Figure 4: Key reward priorities in 2009 and 2010, percentage of respondents – voluntary sector
Cost m
inim
isatio
n
Ensu
re al
ignm
ent w
ith th
e
busin
ess s
trate
gy
Ensu
ring
rewar
d is
mar
ket c
ompe
titive
Ensu
re re
ward
is int
erna
lly fa
ir
Align
pay w
ith in
dividu
al,
emplo
yee a
nd b
usine
ss pe
rform
ance
Ensu
ring
rewar
d en
gage
s em
ploye
es
Pens
ion co
sts
Tota
l rew
ard
issue
s
Ensu
re al
ignm
ent w
ith th
e HR
strat
egy
Rewar
ding
talen
t
2009 2010
40
30
50
60%
57
43
5053
46
56
3942
45 46
31
38
2123 23
28
16
20 21
27
10
20
0
Cost m
inim
isatio
n
Ensu
re al
ignm
ent w
ith th
e
busin
ess s
trate
gy
Ensu
ring
rewar
d is
mar
ket c
ompe
titive
Ensu
re re
ward
is int
erna
lly fa
ir
Align
pay w
ith in
dividu
al,
emplo
yee a
nd b
usine
ss pe
rform
ance
Ensu
ring
rewar
d en
gage
s em
ploye
es
Pens
ion co
sts
Tota
l rew
ard
issue
s
Ensu
re al
ignm
ent w
ith th
e HR
strat
egy
Rewar
ding
talen
t
2009 2010
40
30
50
60%
33
42
4951
46
41
61
52
3229
31
42
30
38
2725
30
26
5
17
10
20
0
28 Reward management
Figure 5: Key reward priorities in 2009 and 2010, percentage of respondents – public services
40
30
50
60%
4044
4852
3638
50
44
28 29 29
38
30
34
26
3336
32
16
27
10
20
0
Cost m
inim
isatio
n
Ensu
re al
ignm
ent w
ith th
e
busin
ess s
trate
gy
Ensu
ring
rewar
d is
mar
ket c
ompe
titive
Ensu
re re
ward
is int
erna
lly fa
ir
Align
pay w
ith in
dividu
al,
emplo
yee a
nd b
usine
ss pe
rform
ance
Ensu
ring
rewar
d en
gage
s em
ploye
es
Pens
ion co
sts
Tota
l rew
ard
issue
s
Ensu
re al
ignm
ent w
ith th
e HR
strat
egy
Rewar
ding
talen
t
2009 2010
Reward management 29
Conclusions and implications
CIPD Performance and Reward Adviser Charles Cotton gives his personal views on some
of the implications from this and other research for reward and HR professionals.
Our survey shows that the longest economic recession
since the Second World War is having an impact on
UK reward practices. Within the private sector, this
research reveals widespread use of pay freezes and, in
some instances, pay cuts as employers have tried to
avoid big job losses.
There are a number of reasons why employers have been
able to keep a lid on pay rises during 2009. The first is
that the measure of inflation traditionally used to inform
the annual salary review, the Retail Prices Index (RPI), has
been negative for most of 2009. This has meant that
while many employees may not have seen their pay
increase, or only received low increases, negative inflation
has meant that their wage packet has gone further.
Two other key factors determining the size of the pay
review are the going rate of pay awards elsewhere and
movement in market rates. Employers who waited a
few months before making a pay decision were able to
give zero increases, as that is what other firms had been
doing, while those that were using market-based pay
approaches found many market rates had not changed
and so their own rates did not require uprating.
Finally, ability to pay was another crucial factor. Most
employers reported that they simply did not have the
money to fund a pay rise when their revenues were falling.
Pay freezes and employee acceptance
Our 2009 Employee Pay Attitude survey found that 51%
of private sector employees had seen their pay frozen, yet
while employees were dissatisfied with this pay decision,
the difference between those who were satisfied and
dissatisfied was –19%, compared with –36% in the public
sector. Those who accepted the pay decision believed that
their pay freeze reflected the state of the economy and
how much their organisation had available to spend on
their increase. Those who were dissatisfied with the
decision felt this way because it did not keep pace with
inflation or reflect their individual performance.
This suggests that employers who will have to freeze
pay in 2010 need to pay attention to managing pay
expectations among their employees. They need to be
able to communicate the business rationale for the
decision if they are to gain their acceptance. However,
they’ll also need to give employees a vision of a better
future resulting from this decision and that all
employees, not just the workers, are expected to
tighten their belts. Again, our pay attitude survey
found that leaders had accepted this and have been
more likely to see a pay freeze (47% compared with
38%) or a pay cut (8% compared with 4%).
Those private sector employers that were able to afford
a pay award uplifted salaries by between 2.5% and
3%. Unsurprisingly, our 2009 Employee Pay Attitude
survey found those private sector employees who were
lucky enough to receive a pay rise were far more
appreciative of their increase (a net appreciation score of
69%) than public sector workers, who got an increase
typically worth 2% (a net appreciation score of 48%).
Another indicator of the impact of the recession is
what has happened to the salary spend over the past
12 months, with around three in ten employers
reporting their fixed pay spend has fallen as the
recession hit. Unfortunately, as our 2009 Employee Pay
Attitude survey has found, those who have lost their
job in the past 12 months have usually had to take a
25% pay cut to price themselves back into work.
30 Reward management
Private sector pay in 2010
Looking forward to 2010, employers report that if they
do make a pay rise in 2010 they are more likely to
differentiate the pay award between high and normal
performers. A similar percentage is also planning to do
the same for bonuses.
Reassuringly, respondents to our 2009 Employee Pay
Attitude survey were reasonably confident in their
employers’ ability to assess their individual (a net
satisfaction score of 22%) and their team’s (a net
satisfaction score of 21%) performance. However,
while employees may feel that their employer is able to
differentiate between star and good performers, what
impact this has when they realise that they are not
regarded as star material remains to be seen. Again, if
employers are going to increase the differential, they
need to be able to justify this to employees if they’re
going to gain acceptance of this change and not lead
to a collapse in self-worth among the good performers
and a disintegration of employee engagement.
According to our winter Labour Market Outlook survey
report, 35% of employers believe that they will
increase pay in 2010, while 14% predict that they will
freeze it and 2% plan to cut it (49% report that it’s
too soon to say). Of those 35% who are predicting an
increase, the median award is 1.5%.
However, if inflation rises over this period, and the RPI
measure is expected to be between 2.6% and 3% in
the first half of the year, then employees who have had
a pay freeze or a 1.5% increase will feel worse off
financially and may be less likely to accept the pay
decision. Whether this feeling impacts on their decisions
to stay with their employer may depend on the state of
the jobs market, but economic growth is expected to be
small during 2010. If this is the case then employees
may be more accepting of their pay awards.
Public sector pay
While the private sector was buffeted by the economic
downturn in 2009, the public sector largely escaped.
Most public sector employers made a pay award – a
flat rate increase, or a pay progression rise, or both –
while between 2008 and 2009, just 4% of public
sector employers reported that the amount of money
they spent was on fixed pay had fallen.
However, despite most public sector workers seeing
their pay go up in 2009, many were not as
appreciative as those private sector workers who got a
pay increase. The most common reason given for pay
dissatisfaction was that the increase did not keep with
the rate of inflation. Given that RPI was negative for
most of 2009, either public sector workers started
using a different measure of inflation to judge their
pay rise, such as the Consumer Prices Index (CPI), or
they were looking back over a longer period over
which they perceive that their pay did not keep pace
with RPI. And while they did well in 2009, they believe
that this did not make up for 2007 and 2008 when
they did less well when compared with inflation and
private sector pay awards.
Another interesting finding from the 2009 Employee
Pay Attitude survey is that most public sector workers
are expecting a pay rise in 2010 that is the same or at
least higher than the one they enjoyed in 2009.
However, many public sector workers, such as NHS
employees, police officers and Scottish school teachers,
are covered by multi-year deals, some of which were
front-loaded, so their 2010 pay award will be lower
than their 2009 pay increase. Those that are covered
by long-term pay deals that are due to expire in 2010,
or are under annual pay agreements, may come in for
a shock if they believe that their 2010 pay rise will be
higher than 2009’s.
Rather like the private sector, public sector employers
will need to focus on employee reward communication
over the next few years to better manage staff pay
expectations by articulating what values, attitudes,
performances and behaviours they require and how
they will reward and recognise given that budgets will
be constrained.
Another key source of grievance for the public sector
workers regarding their pay award is that it did not
reflect their performance, according to the 2009
Employee Pay Attitude survey. Yet this report reveals
that linking pay and performance is not widespread in
the public sector. However, this may be a good thing
as the pay attitude survey finds that most public sector
employees don’t believe that their employer is able to
assess/measure good performance. If reward is going
to recognise an element of individual or collective
Reward management 31
performance, then public sector organisations are
going to have to revamp their existing systems so that
employees believe that their performance will be
rewarded or recognised by their employer.
Reward changes planned for 2010
Interestingly, the number of employers planning
changes to their base pay systems has fallen,
compared with previous years, with fewer employers
planning to amend their pay structures or change the
way they attach salaries to them. This may indicate
that employers are trying to do more with existing
arrangements, which may reflect the state of the
economy and that the organisation doesn’t have the
time or resources to embark on widespread changes.
The sector planning most base pay change in 2010 is
the voluntary sector.
By contrast, when it comes to variable pay, it is the
private sector that is planning most change, with 48%
of private sector service firms and 40% of
manufacturing and production employers planning to
amend their existing bonus programme, such as raising
targets or adding new ones.
When it comes to non-cash incentives and recognition,
it is public sector employers who are more likely to be
making changes in this area, perhaps a reflection of
future pay budgets being tighter in that sector and
employers looking at other ways to drive employee
engagement.
Pensions and benefits
2009 has seen a decline in the proportion of
employers with final salary pension schemes to just
below half. However, in the private sector, many of
these schemes are closed to new employees. Looking
to 2010, more private sector respondents are planning
to close final salary pension plans to existing staff than
are closing them to new employees, indicating that
from now on we will see a shift from schemes that are
just closed to new employees to closed to all
employees and raising issues around how this change
is communicated.
Within defined contribution (DC) pensions, employees
are switching away from trust to contract-based
arrangements as trust-based schemes become less
attractive, especially with the end of contracting out
for DC. The proportion of employers offering access to
a pension but not contributing to it has also declined,
despite the tough financial year in 2009. This increase
may be due to employers wishing to sort out their
pension arrangements prior to automatic workplace
pension enrolment from 2012, or a concern that with
the probable end of default retirement that they will
need to help their staff build up a pension pot on
which they can retire.
While around 30% of private sector employers
reported that their salary spend fell in 2009, only
around 20% said this was also happening to their
benefit spend, while 30% reported that it had
remained the same. This suggests that the benefit
spend has been less adaptable to economic decline.
Part of the reason for benefit-spend inflexibility may
have been because many firms have had to pump
extra money into their pension funds so as to meet
their obligations. However, this may not be the
explanation for all employers, so HR should review
their current benefit spend to ensure that it does not
become a millstone around the firm’s neck.
Overall, while cost minimisation has been the most
significant reward issue for employers in 2009, private
sector firms believe that it will decline in importance.
Instead, ensuring reward remains market competitive,
that employees find the rewards engaging and rewarding
talent will grow in relevance, indicating that they believe
that the economy will improve in 2010, or at the very
least, it will not get any worse. We can only hope.
32 Reward management
This is the ninth annual survey of reward management
by the CIPD. The main aims of the survey are to:
• inform the work of the Institute on reward
management
• provide readers with an information and
benchmarking resource in respect of the changing
face of UK reward management.
The research was carried out between August and
October 2009 and questionnaires were sent to reward
specialists and people managers in the public, private
and voluntary sectors. Replies were received from 729
organisations; this is up on the 520 employers who
responded in 2008.
The following figures give breakdowns of the
respondents to this survey by organisational size and
by sector.
If you need further information or have any suggestions
for next year’s survey, please contact Charles Cotton at
Background to the survey
Table 32: Participants by sector
Sector Percentage of respondents
Manufacturing and production 27
Private sector services 46
Voluntary sector 13
Public services 15
Table 33: Participant breakdown, by sector and size (%)
Number of staffManufacturing and production
Private sector services
Voluntary sector Public services
1–9 1 2 1 1
10–49 10 14 12 6
50–249 44 40 46 8
250–999 28 23 26 26
1,000–4,999 14 13 15 36
5,000+ 3 8 – 24
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We explore leading-edge people management and development issues through our research.
Our aim is to share knowledge, increase learning and understanding, and help our members
make informed decisions about improving practice in their organisations.
We produce many resources on reward management including guides, books, practical tools,
surveys and research reports. We also organise a number of conferences, events and training
courses. Please visit www.cipd.co.uk to find out more.