UK employers resist increasing the rate of pay despite facing a tight labour market

UK employers must involve line managers in pay and benefit strategies in order to keep control of wage increases and to ensure money is not being wasted. A third of organisations have a separate reward function and this is becoming more important as organisations attempt to recruit, retain and motivate staff in a highly competitive environment, according to the latest comprehensive annual survey of pay and benefit practices from the Chartered Institute of Personnel and Development (CIPD).

But many employers may not be benefiting fully from their new reward schemes because the message is not reaching the rank and file. Effective pay and benefit packages depend on the involvement of line managers with 60% of organisations expecting line managers to communicate the reward strategy, according to the Reward management survey 2005. But less than a third of organisations actually involve line managers in developing the reward strategy.
The findings will be discussed at the CIPDís Annual Reward Conference on 9 February 2005.

There also appears to be a continuing shift to individualised, and away from collectivist, approaches to pay. The majority of organisations continue to involve HR, board members and senior management in determining pay and benefit strategies. However, trade union input to pay and benefit strategies appears to be declining.

Charles Cotton, CIPD Reward Adviser, says, ìReward is becoming more and more important in helping employers compete in the war for talent, as unemployment is so low. Many employers are recognising that non-financial rewards, such as family friendly work policies, are just as important as wages and bonuses. They help to attract employees from a wider pool and avoid unaffordable pay increases. But organisations must think about how they communicate these benefit programmes to staff and ensure the different elements of total reward, including non-financial, are integrated. Staff must fully understand and appreciate the rewards they are offered to realise a full return on the investmentî

Total reward
Employers are promoting non-financial benefits in their pay and benefit packages. In both the voluntary and public sectors, managing pay costs is also a key consideration that has influenced organisations to examine more non-financial benefits.

However, only three in ten organisations have adopted a total rewards approach to managing and communicating reward and all sectors believe that they are not doing well at getting front-line managers to implement the total rewards approach.

ìClearly employers need to do more to sell the non-financial rewards, such as flexible working, to potential and existing staff. This will help organisations become an employer of choice and keep wage costs down,î says Cotton.

Equal pay
There is increased awareness surrounding equal pay, however 47% have no intention to carry out an equal pay review in the near future. This is proportion is particularly high among small businesses, with the majority assuming that the pay systems are non-discriminatory.

ìThere is still a huge lack of awareness around equal pay and the Government must do more to encourage employers to conduct equal pay reviews. They need to work with employers to change mindsets and ensure they recognise the business benefits of paying employees equitably,î says Charles Cotton, CIPD Reward Adviser.

Pensions
Almost all employers provide an occupational pension scheme and the most popular scheme for existing employees remains the defined benefit (DB) scheme. However, for new staff there has been a shift, from the DB plan to the defined contribution (DC) plan and this move is concentrated among the private and voluntary sectors. The sharpest reduction has taken place in manufacturing and production, with a fall from 61% of companies offering a DB scheme to 35%.

ìDefined contribution schemes place greater demands on employees in terms of saving for retirement. Organisations who hope to use the pension scheme as a tool to attract, retain and engage their staff need to devote more time to communicating with staff about their pension schemes,î says Charles Cotton, CIPD Reward Adviser.

Other key findings:
Almost 50% have adopted or are adopting a written reward strategy and the key reward objectives are business focused.

The top priority is supporting the goals of the organisation, followed by rewarding, recruiting and retaining high performers.

All sectors believe that they are not doing well at getting front-line managers to implement the total reward approach.

Two of the top benefits to be reduced are occupational sick pay and long-term disability suggesting absence management is high on organisational agenda.

Respondents forecast that the trend away from using individual pay rates, ranges and spot salaries and slightly more using a mixture of broadbanding and job families will continue.

There will be slightly more using contribution-related pay to manage progression and fewer using service-related increments.

There is widespread use of cash bonus and incentive schemes, especially within the private sector.