Public sector cutbacks and only marginal private sector growth continue to have impact on organisations’ ability to reward employees, says annual survey.
Just under two-thirds (65%) of employers have, or are planning to, increase base pay in 2011; roughly a quarter (26%) have or will freeze pay. Almost one in 10 (9%) have decided to delay the pay review and almost all (99%) plan not to cut pay. These are the top line findings of the Chartered Institute of Personnel and Development’s (CIPD) annual Reward Survey, produced in partnership with Benefex.
Market rates are considered the most important factor in determining pay levels for well over half of all respondents (60%). Ability to pay is the most important factor for one in four organisations (26%). For managing pay progression, the most common approach is to link pay to a measure of individual performance (61%), either on its own or in combination with another factor, such as competencies.
The survey of 280 respondents, intended as a benchmarking and information resource in respect to current and emerging practice in UK reward management, also finds that two-thirds (67%) of organisations are operating performance-related reward schemes. Merit pay rises (56%) and individual bonuses (54%) are the most common forms of performance-related reward. One in three (29%) organisations also operates individual non-monetary recognition awards for clerical and manual employees.
Charles Cotton, performance and reward adviser, CIPD, said: “In the context of public sector spending cuts and cautious economic growth in parts of the private sector, it’s not surprising that not all organisations have been in a position to make a pay award this year. The findings also show that this competitive environment is having the effect of encouraging employers to focus on linking pay rises and bonuses to employee and organisational performance.
“We expect that there will not be much change to the proportion of organisations making a pay award in 2012. This is again due to a public sector that doesn’t have much money to play around with as employers freeze pay, scrap bonus schemes and ask employees to pay more towards their pensions. Some private sector organisations will also find it hard to increase pay if their part of the economy does not grow as quickly as anticipated.”
The survey also reveals latest pension practice, with nearly every respondent organisation offering a pension scheme to its employees with an employer contribution. Over two-thirds (69%) of open pension schemes offered are defined contribution schemes, while a quarter (25%) are defined benefit. Around two-fifths (41%) of employers are intending to make changes to their pension arrangements within the next year, with the most common being a shift to salary sacrifice (28% of all those making a change), to increase employee defined benefit contributions (26%) and switch from RPI to CPI (21%).
And most employers are relaxed about the abolition of the Default Retirement Age (DRA), with the majority (52%) saying they would allow employees to work as long as they are able so that they have the opportunity to build up savings for retirement. Four out of 10 (42%) respondents thought it was too early to say what their response would be, one quarter (25%) said they would improve their performance management system, while around one in ten (12%) will objectively justify a retirement age.
Matt Waller, CEO, Benefex, added: “With the backdrop of longer working lives and the need for employees to build up larger savings for retirement, it’s not surprising to see so many employers now embracing the removal of the default retirement age and an acceptance that employees should be allowed to do the job as long as capable.
“However, with the significant burden of pensions auto enrolment, it’s fascinating to see such a large percentage of organisations state that the changes would not impact on the value of their pension offering, but that the Government is acting in a responsible way in educating and communicating to employees about the pension reforms.”