A survey of CIPD members found an increase in the proportion of HR professionals who believe that their organisation or client struggle to manage the risks surrounding how they reward their staff, in the past 12 months.
The survey, ‘Managing Reward Risks: An Integrated Approach’, found a significant increase from 9% in 2009 to 15% of respondents feeling that their organisation is poorly prepared to deal with such risks. 15% believe their organisation is well prepared (a slight decrease from 17% last year).
Concerns about the overall effectiveness of pay and benefits packages in attracting and retaining key talent have increased considerably. Rewards being unable to attract key skills rose from 4 to the top, number one, risk. Rewards being unable to retain employees is now ranked at the number 6 risk situation, up from 12 last year. This reflects concerns that organisations have not been effectively competing in the labour market as the economy has started showing signs of recovery.
Also ranked highly in the concerns and risks for this year are: the ability to change pay and benefit practices (ranked number 4), the ability to engage employees through pay and benefits (ranked number 3) and the ability of line managers to manage rewards.
Concerns about pension and general reward costs and affordability are much higher within the public sector than the private sector. Increasing costs of pensions is ranked as the number 5 concern in the public sector, while much lower as 17 in the private sector. Similarly, the risk of not having enough cash to meet reward commitments is ranked higher as 4 in the public sector, but 14 in the private sector. Fears of the organisations approach to rewards damaging industrial relations are also more likely to be expressed in the public sector, attitudes of the trade unions towards the reward strategy is ranked as number 10 risk, compared to a much lower 32 in the private sector. The voluntary sector also shows higher concerns about such risks than the private sector.
CIPD performance and reward advisor, Charles Cotton, says:
“The past 12 months have been a turbulent time for many employers in terms of pay and benefits practice. They are fearful that the way that reward helps them attract, retain and motivate their employees is no longer appropriate.”
Cotton explains that the private sector is concerned that their reward practices will not benefit them if the economic recovery is sustained, whereas the public sector is more concerned that their reward practices will not help as their economy starts to decline.
Anticipations for the next 12 months show that the reward risks that are predicted to become more prominent and of more concern are: increasing pension costs, not having enough cash to meet reward commitments, poor industrial relations and taxation changes reducing the impact of reward.
Jonathan Chapman is the co-author of the survey report and Management Education Fellow of Cranfield School of Management. Chapman says that changes to how employee pay and benefits are taxed are of major concern to some employers, as it is feared that such changes will make it more difficult to compete effectively to recruit and retain valuable talent.
He continues to say: “These and other changes have also placed and additional burden on reward professionals, with many struggling to manage. A planned response to increasing risks is now needed by organisations to make sure that reward plays a key role in ensuring that organisations thrive in this new economic environment.”