By Daniel Hunter
More than half of employers (53%) expect their pay budgets will have increased by the end of the year, and many would like to see variable pay (such as bonuses linked to individual or company performance) play a greater role in total pay packages. That’s according to a survey of senior reward and benefits professionals.
The CIPD’s annual Reward Management Survey 2013, reports the top two drivers for increased pay budgets were pay rises (84%) and rise in staff numbers (51%), suggesting that respondents are confident about increasing wages and taking on more staff in 2013.
At present, 26% of organisations report that variable pay represents between 20% and 30% of total pay, whereas in an ideal world, 38% would like such a split. Among private sector service firms 45% would like to see this ratio in future (compared to the current reality of just 30%).
Total spend on benefits budgets also look likely to rise in 2013, with 34% of private sector employers forecasting an increase but only 15% in the public sector. Instead, public sector employers (29%) are more likely to report a reduction in spend on benefits.
“The issue of employee remuneration is high on the agenda in the workplace, and appreciation of the perils of short-termist approaches to reward is growing," Charles Cotton, rewards adviser at the CIPD, said.
"It’s encouraging to see employers wanting a more flexible way of rewarding their employees, in an effort to help align pay with the delivery of business strategy, but it’s crucial to ensure that measures of performance look to the long term so that they encourage sustainable business growth.
"If appropriately designed, variable pay can 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.
“However, employers should be wary of an overreliance on the conventional carrot and stick approach to reward. Research has shown that ‘if, then’ rewards, which see financial incentives attached to specific behaviours or projects, can have a detrimental impact on intrinsic motivation by creating transactional relationships between employees and their organisation.
"If more emphasis is going to be placed on variable pay, other benefits may have to be expanded to counteract possible employee insecurity fed by more uncertainty around pay. Communicating collective benefits to employees can also serve to remind them that they are part of a social endeavour with a stake in the success of their organisation.”
- Private sector companies (57%) are the most likely to report an increase in total spend and the public sector the least likely (35%). The public sector is the most likely to forecast a decrease in spend (27%).
- In the private sector, 88% of manufacturing and production firms and 86% of service sector employers are likely to link pay with individual performance for some or all of their staff, however, just over 45% of public sector employers do likewise. Instead, they are more likely to link it to length of service (60%).
- Auto-enrolment dominates the type of changes that employers are making to pensions schemes. Of those making changes, 90% are taking action to comply with auto-enrolment requirements (up from 50% in 2012). A recent CIPD report, Pensions Auto-Enrolment — learning the lessons, reflects on the operational and strategic implications of auto-enrolment.
- Key drivers that are increasing benefits spend include companies employing more staff (58%) and introduction of auto-enrolment (47%).
- Pensions are among the most valued benefits by employees, according to our respondents. Others that score highly are healthcare and medical insurance. Similarly, work-life balance benefits such as flexible working are also seen as being valued by staff. However, few thought that training and development was valued by their employees.
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