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Dominant UK reward model is failing: new approaches must address low pay, gender pay and total rewards

With many UK workers experiencing real wage cuts, persistent and unjustified pay gaps in a tightening labour market, a new research paper by the Institute for Employment Studies (IES) identifies areas where employers and policymakers should act to reinvigorate their pay practices to improve employee engagement and productivity.

With the likely intensification of current recruitment shortages, skills gaps and the fall in living standards as the UK leaves the European Union, the paper argues that both employers and policymakers should act on three key areas – low pay, gender pay and total rewards – to help halt the relative decline of the UK’s already below-par productivity performance.

The paper, authored by IES head of HR consultancy, Dr Duncan Brown, analyses trends in UK pay and rewards over the past thirty years. It shows moves across all sectors towards more market- and performance-related pay and individualised, more flexible reward packages. However, beneath the rhetoric of ‘total’ rewards and aspiring to be a ‘best-place-to-work’, greater risk and precariousness in pay was transferred to employees at the same time as pay differentials escalated and pay fairness took a back-seat. In this context, more action on the areas of low pay, gender pay and total rewards should be a priority, Brown argues.

Since the financial crash in 2008, many UK employers have made use of low-cost reward models and low pay awards which, Brown suggests, go hand-in-hand with stalled pay progression, limited benefits and uncertain working hours. This has prompted recent government intervention on the ‘fairness’ agenda, including new measures to address excessive executive pay and systemic low pay with the National Living Wage.

Dr Duncan Brown, author of the paper, commented:

‘The UK’s productivity woes, lagging behind countries like France and Germany, are partly due to a lack of investment in skills and too many businesses benefiting opportunistically from a prevailing culture of low pay.

‘IES research suggests that prioritising and balancing the goals of fairness, flexibility and affordability in reward arrangements is essential to tackle the challenges facing the UK economy.’