CIPD 2013 reward management survey


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CIPD 2013 reward management survey

  1. 1. Annual survey report 2013REWARDMANAGEMENT2013
  2. 2. REWARDMANAGEMENT201312013REFLECTIONS ON THE LAST 100 YEARSThis year the CIPD celebrates its centenary. Howhas reward changed over the intervening years?Disappointingly, back then, we did not collectinformation on how employers determinedsalary levels, structured pay or determined payprogression. Or perhaps we did, but we did notthink that the findings would be useful and sothrew away the results after a number of years.Hindsight can be a wonderful thing.In 1913 the average annual earnings for theUK was around £51 (Change in Distribution ofNational Income, Bowley 1920, p13). Today, manypeople can earn that amount in a day, but whypeople earn that has changed, just as how it isdelivered by employers.Back then labour had traditionally been seen asjust one element of production, a cost that hadto be minimised and managed. Tasks, such assweeping and scavenging or engine cleaning,were often manual and repetitive. However, ideasaround labour management and developmentwere beginning to change. Some industrialistswere becoming concerned about the plight of theiremployees, for moral, social or political reasons.The recent Boer War had shown that many urbanvolunteers were unable to meet the army’s physicalrequirements and there was a concern about theimpact of this on Imperial security.In addition, the UK state was introducing asystem of national insurance to protect workersif they became unemployed, sick or old. Over theintervening years, many employers supplementedthese benefits with occupational sick pay andworkplace pensions. For instance, the August1921 issue of Welfare Work, the predecessor toPeople Management, has an interesting casestudy on why Cadbury Bros. decided to go beyondwhat was required by the 1906 Workmen’sCompensation Act.Benefits developed further, as employers usedthem to meet moral concerns, recognise employeestatus or found that they could be more cost-effective than pay. This concern about employeebetterment, or welfare, was one of the driversbehind the creation of the Welfare Workers’Association, though at the time there was more ofa focus on the plight of women and girls.From the US, scientific management wasencouraging a rational approach to peoplemanagement, including reward. While scientificmanagement did not emphasise the human in HR,it did stress that workers were important resourcesand that it made business sense to reward themwell for their physical and mental exertions,something that was taken up by Henry Ford athis Model T factory when he increased the hourlyrate to $5 an hour and introduced a wide rangeof benefits for his employees. Writing around thattime, Conan Doyle refers in his Sherlock Holmesbook, The Valley of Fear, to this idea when one ofthe characters says: ‘That’s paying for brains, you see– the American business principle.’A rational way of managing people resulted invarious reward policies and practices to ensureTo mark the CIPD’s centenary, Charles Cotton, CIPD Performance and RewardAdviser, shares his thoughts on a century of reward management.REWARDING TIMES?
  3. 3. MANAGEMENTCIPD is 100 in 2013!In 1913, some extraordinary and enlightened people came together to formwhat is now the CIPD. Lots of things have changed over the last 100 years,but one thing remains the same: our commitment to support and lead an HRprofession that can help people and organisations be the best they can be.Find out more about our centenary celebrations at common approach, though sometimes thesepolicies were not often thought to be rationalby many in the organisation. Partly, this wasbecause the reward policies and practices didnot support the business strategy or peoplemanagement ambitions of the organisation, oftenbecause the economic, demographic, political andtechnological contexts in which they had beendeveloped had changed. Also, it was becauseso-called best practice was often not built on anevidence base or what suited the organisation butsimply on what other competitor organisationswere doing at that time. Instead, reward couldoften be characterised as a series of ad hoccompromises, which – while they made tacticalsense – often led to strategic disaster.The current economic difficulties have throwninto sharp relief not just what people getpaid, but whether it is fair, from a multitudeof stakeholder perspectives, resulting in achallenging balancing act for reward. Thedevelopment of social media has further increasedreward transparency, both nationally andinternationally, though not always understanding.How to value jobs and contribution can bechallenging, yet in these complex and changingtimes the challenges are even greater; however,evaluating and pricing tasks and achievements hasnever been more important in today’s turbulentand ambiguous environment. Again, the desireto act now puts pressure onto reward systemsto react swiftly but also potentially encouragesshort-term thinking.As the demands from employees, the business andnew technology become more complex, rewardhas become more sophisticated. If you wantto reward or recognise individual or collectivesuccess, you now have a variety of options inthe toolbox, from merit awards and bonuses toevents held in foreign climes and duvet days.The challenge is to integrate these options intoa holistic approach that is aligned with both thebusiness and employee needs.Today, then, the challenge for employers is tocreate reward systems that are not only resilientto pressure and are agile enough to adapt tochanging contexts, but are also fair, transparent,are able to balance the needs of stakeholders,reflect the true value of roles as well as individualand collective achievements, are aligned toorganisational purpose and are supported byan evidence base. It will be interesting to seehow far we have come when we celebrate our125th anniversary.
  4. 4. REWARDMANAGEMENT201332013CONTENTSForeword 4Summary of key findings 7Base and variable pay policies 11Employee share schemes and long-term incentive plans 25Employee benefits 29Pensions 42Conclusions and implications for reward management 53Background to the report 57
  5. 5. MANAGEMENTFOREWORDWelcome to the twelfth edition of the CIPD’sannual Reward Management survey. As ever, weendeavour to provide useful insights into rewardtrends and developments and highlight possibleimplications for policy and practice.For me, one of the standout findings from thisyear’s survey is that employers would like to seea switch in focus from fixed pay towards variablepay. Currently, while 32% of employers reportthat all of their total pay spend is on fixed payand another 32% say that the split between fixedand variable pay is 90:10, when asked about theirideal split, these proportions fall to 23% and 26%respectively. Instead, employers are more likely toreport that an 80:20 or a 70:30 split between fixedand variable pay as their ideal, especially in theprivate sector.Perhaps this result is not so surprising. It can beargued that during these difficult times employersare looking for flexibility in how they rewardtheir staff so as to ensure that those who addmost value are rewarded for their contributions– assuming that they are able to identify thoseindividuals in the first place. Variable pay alsohas the advantage that, in theory, it only paysout when there is something to pay out andshould help align organisational reward practiceswith the business strategy as well as assisting tocommunicate what behaviours, skills, values andattitudes the organisation values and how it willreward and recognise these. It can also attract andretain those employees who want to see their paylinked to their contribution.If I were a benefits manager I’d be concerned bythe implications of this finding. I’d be worriedmy employer could be looking to divert resourcesfrom the benefit budget to help facilitate a shifttowards variable pay. Yet, our survey does notfind this. In fact, it shows the opposite. Employerswant to shift the pay/benefit split towards greateruse of benefits, not less. So, on the one hand,employers want to increase the variable elementof total pay and, on the other hand, they wantto reduce the pay element of total reward andincrease the emphasis on benefits.How can we explain this seemingly ambigousfinding? One explanation may be that employerswould like to scale back on their employeenumbers and so be able to afford to boost variablepay and benefits from the headcount savings.However, our research does not indicate that thisaccount is likely. Another possible reason is thatemployers do not have a reward strategy and thisis why they are pursuing conflicting objectives.Alternatively, respondents perceive that they canget a greater return on investment from theirreward spend from variable pay and benefits.While benefits can be seen as another fixed cost,they can be less costly than pay as employers oftenget cheaper deals from bulk purchasing thanemployees could themselves.
  6. 6. REWARDMANAGEMENT201352013If more money is being directed to the giftedand talented, we could speculate that the roleof benefits needs to increase so as to maintainengagement among those staff deemed to begood but not key value creators. Or, if moreemphasis is going to be placed on variable pay,benefits would have to be expanded to counteractthe possibility that employees could feel moreinsecure as their pay becomes more uncertain.Finally, we could conjecture that while employerssee advantages of increasing the amount of payat risk, they are concerned that this could leadto more of a transactional relationship betweenemployees and their organisation, that is, ‘you dox we’ll give you y’. Collective benefits are a way ofreminding employees that they are part of a socialendeavour. Whatever the reasons, employers maysee benefits as the new salary, fixed costs withadvantages.It would be remiss of me not to mention thatthis is the CIPD’s centenary year. However, we’renot the only organisation, or individual, with ananniversary in 2013. The London Undergroundis celebrating being in existence for 150 years.The creation of the London Underground helpedincrease the pool of available skills and labour foremployers by allowing more people to come andwork in the capital. London grew and employerswere able to do more as they tapped into thisgrowing pool of skills, knowledge and experienceand, of course, London has not been the onlyUK city to benefit from a suburban rail network.However, this development has led to challengesregarding how to utilise this talent as well asrewarding and recognising their contributions.On the back of the development of ‘rapid’ masstransit, we have seen the creation of the interest-free loans for rail season tickets and other benefitsrelated to commuting and travel.Other organisations celebrating anniversariesare the Financial Times (125 years) and the NewStatesman (100 years). Over time, both of thesepublications have commented on how work haschanged in terms of what we do, where, why andwhen. If anything, the world of work has changedeven more rapidly in the past few decades, butthis has also thrown up challenges for us as to howwe price jobs as tasks become more fluid. How wereward and recognise relevant knowledge, skillsand experiences has also become more difficultin this environment as they quickly becomeoutdated. In addition, there are a multitudeof stakeholders and reference points to judgewhether a particular reward decision is fair or not,more so with the growth of social media.Our Wimbledon neighbour, the Lawn TennisAssociation, was founded 125 years ago and sincethen employers have become more interested inthe physical and, increasingly, the mental well-being of their employees as the focus has switchedfrom seeing employees as just an element ofproduction to a source of competitive advantage.As our survey shows, there are now a multitude ofinterventions, such as staff canteens, time off tocompete in sporting events, employee assistanceprogrammes, workplace financial education/advice,company chaplains, gym membership, on-sitemassages, company choirs and welfare loans. To acertain extent, these offerings echo aspects of thewelfare capitalism of Henry Ford, who was born150 years ago, which aimed to improve the lot ofthe employee (though it can also be argued thatit was also aimed at removing the rationale fororganised labour), as well as the establishmentof the CIPD as the Welfare Workers’ Associationin 1913. Of course, the positive impact of suchemployer well-being benefits will be reduced ifemployees feel obliged to spend more time at workduring this period of economic uncertainty and lesstime keeping physically and mentally healthy.Another body with something to celebrateis the National Association of Pension Funds,clocking in 90 years. Over this period the world ofoccupational pensions has changed dramatically,as human longevity has increased. As theworkforce ages and automatic pension enrolmentin the workplace is gradually introduced,employers are reviewing the role of pensions in
  7. 7. MANAGEMENTparticular and reward more generally in termsof how they attract, retain, engage and exitemployees, both within the organisation andbetween roles. While organisations are changinghow they reward and develop an older workforce,they must also consider their existing valueproposition and how they may need to adaptit for the employees of tomorrow. With morefinancial demands, forward-looking employerswill regard reward more holistically, viewing itmore of a vehicle to help employees create andmanage wealth as well as offering assistancefor individuals in hardship. While the changes intreatment of tax relief on pension contributionshave created an element of uncertainty aroundretirement planning, the creation of a flat-ratepension should encourage more people to savemore knowing that they will not be penalised bythe state for doing so.Finally, Doctor Who is celebrating its fiftiethanniversary as a TV programme. One of the mainthemes of the programme is technology andscience. Reward has come a long way from thedays of ink-filled paper ledgers and comptometersto spreadsheets and integrated human resourceinformation systems. Yet while we are betterat generating and storing HR data, we do notappear to be particularly advanced in analysingthat information in a way that is useful for thebusiness. Few employers are able to calculatethe cost of their compensation and benefitprogrammes, let alone be able to express this as aproportion of revenue, profit or economic valueadded. Of course, the danger with HR analyticsand big data is that we focus on the volume ofthe data and how we collect and store it, ratherthan on the complexity of the data that we aremanipulating and why we’re analysing it in thefirst place.As ever, I would like to thank all those reward andHR professionals that took the time to completethis year’s survey, at a time when they have somany competing demands, those practitionerswho helped develop the questionnaire, thoseindividuals who volunteered to be case studiesand the researchers from the Universities ofBedfordshire, London Met and Sydney.Charles CottonCIPD Performance and Reward Adviser
  8. 8. REWARDMANAGEMENT201372013SUMMARY OF KEY FINDINGSThe twelfth annual survey of UK reward management is based onresponses received from 444 organisations, across private, publicand third sectors. The main aim of the research is to providereaders with a benchmarking and information resource in respectof current and emerging practice in UK reward management.Base and variable pay policies• Just under half of all employers questioneduse individual arrangements or spot salariesto manage base pay for management, otheremployees or both. Other common forms of basepay structures include narrow-graded pay grades,pay spines and broad-banded pay structures.• Just over two in five of respondents considermarket rates (underpinned by job evaluation)the most important factor in determiningsalary levels for management, other employeesor both, while just under two in five considerthe organisation’s ability to pay the mostimportant factor.• The most common criteria to manageindividual base pay progression are individualperformance (used by around seven in tenrespondents), followed by competencies (justover two-thirds) and market rates (just undertwo-thirds). The least common criteria for payprogression is length of service.• The top three factors determining the size ofthe 2012 pay review for all employees werethe organisation’s ability to pay, the ‘goingrate’ of competitors’ pay rises and movementin market rates. Inflation was also rankedas a top three factor for non-managementemployee pay reviews.• Over half of organisations operate one ormore performance-related reward, incentiveor recognition scheme. Individual bonuses andmerit pay rises are the most common individualperformance-related schemes, while the mostcommon group performance-related schemesare goal-sharing and profit-sharing.• In 2013, around half of respondents forecastthat their organisation’s total spend on baseand variable pay will increase; one-third predictit will stay the same and over one in tenforesee it will decrease. Pay rises are the mostcommon driver of increasing total spend onbase and variable pay, while employing fewerstaff is the most common driver of decreasingtotal spend on pay.• The most common actual splits between totalspend on fixed pay and variable pay are 90%fixed/10% variable. This ratio is the same asthe most common ideal split between totalspend on fixed pay and variable pay of 90%fixed/10% variable.Employee share schemes and long-termincentive plans (LTIs)• Over a quarter of respondent organisationsoffer employee share schemes and LTIs.• The most common broad-based schemes are
  9. 9. MANAGEMENTcompany share option plans, while the mostcommon executive schemes are executive shareoptions.• Over three-quarters of organisations offeringemployee share schemes or LTIs predict thattheir total spend will stay the same in 2013,while three in twenty predict an increase inspend and one in ten a decrease in spend.• Employing more staff and increasing schemeeligibility are given as the most common reasonsfor increasing total spend on shares schemes andLTIs, while reductions in average awards andreducing scheme eligibility are given as the mostcommon reasons for decreasing total spend onshares schemes and LTIs.Employee benefits• The six most common benefits providedto all employees are: paid bereavementleave; pension scheme; training and careerdevelopment; over 25 days’ annual leave(excluding public holidays); death in service/lifeassurance; and Christmas lunch/party.• One-fifth of organisations use flexible benefitsschemes and a further one in twenty willintroduce flexible benefits in 2013. Threein twenty organisations offer voluntary/affinity benefits, with a further one in thirtyintroducing them in 2013.• Three in twenty organisations currently issuetotal reward statements to employees, withanother one in ten planning to introduce themin 2013.• While seven in ten respondents agreethat a transparent approach to employeebenefits policies and practices exists in theirorganisations, around one in four agree thattheir organisation prefers a more secretiveapproach.• In 2013, over half of respondents predicttheir organisation’s total spend on employeebenefits will stay the same; three in tenforecast it will increase and around three intwenty think it will decrease.• Increases in the costs of benefits is the mostcommon driver of increasing total spend onemployee benefits, while reductions in moneyavailable for the benefits budget is the mostcommon driver of decreasing total benefitsspend.• The most common actual split between totalspend on employee pay and benefits is 90%pay/10% benefits and this is also the mostcommon ideal split.Pensions• Nine out of ten organisations currently offer tocontribute to an employee pension scheme. Themost common type of pension offered to allemployees is a defined contribution (DC) schemefollowed by a defined benefit (DB) plan.• Just over one-third of organisations questionedautomatically enrol employees into anexisting DC pension scheme. Over one-third oforganisations with DC pension schemes haveover 70% employees as members, while one-fifth have between 10% and 30% as members.• The average (mean) contribution rates to openDC pensions are 7.9% employer contributionand 5% employee contribution.• Just under half of respondents say theirorganisation is intending, or is required, tomake changes to its pension arrangementsor to introduce a pension for the first time inthe next 12 months, with the most commonchange being to comply with auto-enrolmentrequirements.
  10. 10. REWARDMANAGEMENT201392013Table 1: Summary of findingsReward approachesPercentage ofrespondentsusingBase pay structures Individual rates/ranges/spot salaries 49.0Narrow-graded 37.2Pay spines/service-related 31.5Job family 30.4Broad-banded 29.3Base pay determination Market rates (with JE) 42.5Ability to pay 39.5Market rates (without JE) 21.9Collective bargaining 16.4Base pay progression criteria Individual performance 71.5Competencies 64.7Market rates 64.2Employee potential/value/retention 51.3Skills 57.6Length of service 31.1Base pay review factors Ability to pay 78.8Going rate 45.9Movement in market rates 44.9Inflation 42.4Recruitment/retention issues 40.0Government funding/pay guidelines 34.4Union/staff pressures 27.1Living Wage pressures 24.0Shareholder views 19.8National Minimum Wage pressures 18.8Employers offering a performance-related reward scheme55.2Individual performance-relatedschemesIndividual bonuses 59.8*Merit pay rises 56.4*Combination schemes 49.4*Sales commissions 36.5*Individual non-monetary recognition awards 35.3*Ad hoc/project-based schemes 19.5*Other individual-based cash incentives 17.4*Group performance-related schemes Goal-sharing 50.3*Profit-sharing 39.7*Group- or team-based non-monetaryrecognition35.1*Group- or team-based non-monetaryincentives21.2*Gain-sharing 11.9*
  11. 11. MANAGEMENTTable 1: Summary of findings (continued)Reward approachesPercentage ofrespondentsusingEmployers offering LTIs 25.5Top six long-term incentives Executive share option schemes 40.6*Company share option plan (CSOP) 35.6*Share incentive plan (SIP) 32.7*Save as you earn (SAYE) 25.7*Executive deferred annual cash-based bonus 22.8*Executive restricted/performance share plan 20.8*Top six universal benefits Paid bereavement leave 92.9Pension scheme 83.8Training and career development 82.925+ days’ annual leave (excl. public hols) 73.0Death in service/life assurance 68.7Christmas party/lunch 66.9Employers providing total rewardstatements15.0Employers offering voluntary/affinity benefits15.5Employers offering flexible benefits 20.3Employers contributing to a pensionscheme90.5Open pension schemes Defined contribution 55.2*Defined benefit 28.1*Contribution to personal pension 24.9*Hybrid/other 7.0*Membership levels of open DCpension schemes10–30% 20.131–50% 21.051–70% 23.2Over 70% 35.7Organisations auto-enrollingmembers to DC pension schemes34.3Average employer contribution tomain DC pension schemes7.9%of salaryAverage employee contribution tomain DC pension schemes5.0%of salaryEmployers predicting change topension schemes48.0Top six changes to pension schemes Comply with auto-enrolment requirements 90.0+Increase employee DB contributions 13.3+Introduce salary sacrifice 12.4+Reduce the value of the DB plan 7.1+Increase employee DC contributions 6.7+Amend the DC default investment options 5.7+* % of respondents operating a performance-related/long-term incentive scheme/pension scheme+ % of respondents predicting pension changes
  12. 12. REWARDMANAGEMENT2013112013BASE AND VARIABLE PAY POLICIESOur findings show organisations responding to multiple contextualfactors in their reward management choices. Economic conditionscontinue to drive pay decisions for many. In the private sector, marketcompetition and employee value are also key drivers, while in thepublic sector more traditional forms of reward management prevail.Base pay structuresTable 2 shows that individual base payarrangements dominate as the most popularmethods of managing base pay, with just underhalf of organisations using individual rates or spotsalaries. In previous surveys we have observed thatthe incidence of narrow-graded pay structureshas been lower than we might have anticipated;however, this year there is a sharp increase inthe number of survey organisations managingbase pay this way. This result may, in part, bedue to sampling differences year on year (see‘Background to the report’) but clearly indicatesthat narrow-grading is still very much a part of thereward system in organisations across all sectors.There is a marked difference in approach to basepay management between sectors (Figure 1).Manufacturing/production and private sectorservices both clearly favour the individualisedapproach, whereas public services remain weddedto pay spine/seniority systems, which are largelyabsent from the private sector. In the voluntary,community and not-for-profit sector, the resultsare split: individualised pay and pay spines are themost common approaches, likely to be a reflectionof the heterogeneous nature of this sector.Differences between base pay managementfor different employee groups are not asmarked. While narrow-grading is used by nearlya third of organisations for non-managerialemployees and a quarter use broad-banding formanagement/professionals, individual rates/spotsalaries are the most common for both groups.Flexible, individualised approaches to base paymanagement are clearly a key feature of rewardmanagement in the UK.
  13. 13. MANAGEMENTTable 2: Base pay structures (% of respondents)Individualrates/spotsalariesNarrow-gradedPay spines/service-related Job familyBroad-bandedAll* 49.0 37.2 31.5 30.4 29.32012* 47.2 29.0 28.5 24.5 27.02011* 52.6 21.0 29.8 27.6 34.9By sector*Manufacturing andproduction60.0 48.2 17.6 43.5 40.0Private sector services 63.5 38.8 14.7 34.7 33.5Public services 23.8 32.4 68.6 17.1 21.9Voluntary, community andnot-for-profit39.5 28.4 33.3 24.7 18.5By employee categoryManagement/professional 44.3 25.5 23.2 25.2 25.2Other employees 32.9 32.2 29.9 23.6 17.1*% of respondents selecting for either employee category or both employee categoriesManufacturing and production Private sector Voluntary and not-for-profit Public services706050403020100Individual Narrow graded Pay spines Job family Broad-bandedFigure 1: Base pay structures, by sector (% of respondents)
  14. 14. REWARDMANAGEMENT2013132013Table 3: Base pay determination (% of respondents)Market rates(using JE)Abilityto payMarket rates(not using JE)CollectivebargainingAll* 42.5 39.5 21.9 16.42012* 37.5 42.7 31.0 24.0By sector*Manufacturing andproduction44.0 38.1 28.6 22.6Private sector services 42.9 43.5 31.0 5.4Public services 34.3 31.4 6.7 40.0Voluntary, community andnot-for-profit50.6 43.2 16.0 2.5By employee categoryManagement/professional 40.2 31.7 19.2 8.9Other employees 33.1 34.7 15.5 16.7*% of respondents selecting for either employee category or both employee categoriesFigure 2: Pay determination in 2012 and 2013 (% of respondents)2013 201250403020100Market rates(using JE)Ability to pay Market rates(not using JE)Collective bargaining
  15. 15. MANAGEMENTPay progressionThe criteria organisations use to progressindividuals within a pay grade/scale are shown inTable 4. Individual performance continues to bethe most common method of pay progression,although rates have fallen slightly in 2013. Incontrast, the incidence of competency-basedprogression has risen dramatically; indeed, allcriteria other than individual performance haveincreased this year. We might speculate that asperformance outputs are more difficult to achievein tough economic times, organisations have placedmore emphasis on inputs in the form of employees’competencies and skills. Market rates and employeepotential/retention have also increased slightly,perhaps indicating a return to a more competitiveapproach to base pay progression.Table 4 also shows the breakdown of payprogression criteria by sector and employeecategory. Individual performance and market ratesdominate in the private sector, whereas lengthof service is largely a public sector phenomenon.Figure 3 illustrates the differences in approachto pay progression for management andprofessionals compared with other employees.Length of service is the only criteria used morecommonly for non-managerial staff thanmanagement/professionals.Table 4: Base pay progression (% of respondents)Individualperformance CompetenciesMarketrates SkillsEmployeepotential/value/retentionLength ofserviceAll* 71.5 64.7 64.2 57.6 51.3 31.12012* 78.6 49.4 56.8 44.1 48.0 28.72011* 74.0 50.2 62.6 44.2 45.7 24.5By sector*Manufacturing andproduction88.0 71.1 84.3 74.7 69.9 26.5Private sector services 86.3 73.2 74.4 67.3 73.8 17.3Public services 45.0 51.0 33.0 36.0 19.0 60.0Voluntary, communityand not-for-profit55.4 56.8 60.8 45.9 23.0 28.4By employee categoryManagement/professional69.4 61.0 60.1 51.8 50.4 25.9Other employees 57.3 52.9 53.3 50.9 36.2 28.8*% of respondents selecting for either employee category or both employee categories
  16. 16. REWARDMANAGEMENT2013152013Table 5 shows the most common combinationof factors used by our respondent organisationsin pay progression by sector. While there areclear differences in approach between privatesector employers and those in the public andthird sectors, the treatment of employee groupswithin sectors is fairly consistent. The preferredcombination of individual performance,competencies, skills, market rate and employeepotential/value/retention is dominant acrossemployee groups in both private sector categories.Table 5: Most common combinations of factors used to determine base pay progression (% respondents)Management and professional Other employeesManufacturing and production Competencies, skills, individualperformance, market rates,employee potential (22.9%)Competencies, skills, individualperformance, market rates,employee potential (10.3%)Private sector services Competencies, skills, individualperformance, market rates,employee potential (29.3%)Competencies, skills, individualperformance, market rates,employee potential (20.0%)Public services Competencies, individualperformance (6.1%)Individual performance, lengthof service (5.3%)Voluntary, community and not-for-profitCompetencies, skills, individualperformance, market rates,employee potential (6.9%)Competencies, skills, individualperformance, market rates (5.6%)*% of respondents selecting for either employee category or both employee categoriesManagement/professional Other employees706050403020100IndividualperformanceCompetencies Market rates Skills Employee value/retentionLengthof serviceFigure 3: Pay progression criteria, by employee category (% of respondents)
  17. 17. MANAGEMENT2012 pay reviewsTable 6 shows that the top three factorsdetermining the size of the 2012 pay review forall employees were the organisation’s ability topay, the ‘going rate’ of competitors’ pay rises andmovement in market rates. This clearly indicatesthat organisations continue to walk the linebetween awarding pay rises to keep competitivewith the market while ultimately being constrainedby what is affordable. Inflation was also ranked asa top three factor for non-management employeepay reviews, presumably as cost of living changesare more crucial for those on lower incomes. Thereare other differences between the two employeegroups. Recruitment and retention issues are,as would be expected, more of a factor for themanagement/professional ‘talent’ group. WhereasLiving Wage and National Minimum Wageconcerns feature more for other, presumably lesswell paid, employees. It is also noteworthy thatlast year the Living Wage was seen as slightly moreof a factor than the National Minimum Wage indetermining the size of the base pay review. Bysector, government funding is more of an issueamong public services and voluntary, communityand not-for-profit employers.2013 pay reviewsFor the first time this year the survey askedrespondents about pay reviews for theforthcoming year in open-text format in anattempt to better understand the subtleties of payreview decisions. Interestingly, most respondentsidentified largely similar factors to the onesprovided in 2012. As in 2012, it is likely to beinternal assessment of ability to pay which willdetermine 2013’s pay review outcomes. However,we do see a more nuanced picture. Alongsidethe terms ‘ability to pay’ and ‘affordability’ wealso have ‘profitability’, ‘company performance’,‘budgetary restrictions’, ‘funding streams’,government funding, ‘management of costs’,‘level of savings made’ and even ‘staying inbusiness’, which remind us that there are amultitude of sub-factors which determine anorganisation’s ability to pay before we even beginto consider the interplay between main factors.There are strong links between different sets offactors, however. Ability to pay is often coupledwith other concerns; we see a balancing act asorganisations respond to competing pressures, asthe following responses indicate:Table 6: Factors determining size of base pay reviews in 2012 (% respondents)All grades* Management/professionals Other employeesAbility to pay 78.8 Ability to pay 73.6 Ability to pay 68.7Going rate 45.9 Going rate 41.9 Inflation 37.6Movement in market rates 44.9 Movement in market rates 41.2 Going rate 34.5Inflation 42.4 Recruitment and retention 37.8 Movement in market rates 34.5Recruitment/retention issues 40.0 Inflation 37.6 Government funding 30.0Government funding 34.4 Government funding 32.4 Recruitment and retention 27.9Union/staff pressures 27.1 Union/staff pressures 18.7 Union/staff pressures 24.1Living Wage pressures 24.0 Shareholder views 17.6 Living Wage pressures 20.9Shareholder views 19.8 Living Wage pressures 15.8 National Minimum Wage 17.1National Minimum Wage 18.8 National Minimum Wage 11.5 Shareholder views 14.2*% of respondents selecting for either employee category or both employee categories
  18. 18. REWARDMANAGEMENT2013172013‘Benchmarking and the ability for the organisationto pay any increases whilst remaining profitable.’(Large manufacturing and production company)‘Company performance dictates total fundsavailable, which will be prioritised to groupswhere recruitment and retention is problematic.’(Private sector services SME)‘Union buy-in to below-inflation wage rises at atime when costs are rising and revenue growth isslowing, the aim being to keep people in jobs untilan upturn is felt and we can increase wage risesaccordingly.’ (Large public services organisation)‘Organisational surplus/profit balanced withorganisational management and working conditionsimprovements – “we can’t pay much more but we’veimproved how the organisation manages you”.’(Voluntary, community and not-for-profit SME)‘Government pay guidance and the ability of theorganisation to convince stakeholders to operatethese as flexibly as possible.’ (Large public servicesorganisation)Overall, the picture gained from these answers is acomplex one. Organisations are clearly feeling thepush and pull of a number of competing factorswhile being heavily constrained by companyperformance or government funding issues.Performance-related reward, incentive andrecognitionOver half of all organisations in our surveyoperate one or more performance-related reward,incentive or recognition scheme (Table 7). Thisfigure is much reduced from last year, which couldbe due to sampling differences; the 2013 surveyhas a greater representation of public servicesand voluntary, community and not-for-profitorganisations than in 2012, where performance-related reward (PRR) is less common. However,a closer look at Table 7 reveals that, other thanmanufacturing/production, all sectors, sizesand ownership types have seen a reduction inincidence of PRR schemes. In speculating on whythis might be, one suggestion is that organisationscontinuing to feel the effects of economicdownturn are putting certain schemes on hold orshelving them altogether. This view is supportedTable 7: Organisations operating performance-related reward, incentive and recognition schemes(% of respondents)2013 all 55.22012 all 65.3By sector* 2012 2013Manufacturing and production 62.8 66.7Private sector services 76.9 71.9Public services 55.6 41.0Voluntary, community, not-for profit 37.5 25.9Multiple sectors 73.3 N/ABy sizeSME (<250) 59.2 43.5Large (250–9,999) 68.3 62.0Very large (10,000+) 91.7 74.3By geographic ownershipMainly UK-owned organisation 56.7 47.9Division of mainly UK-owned organisation 85.2 75.0Division of internationally owned organisation 80.3 74.3*% of respondents selecting for either employee category or both employee categories
  19. 19. MANAGEMENTto some extent by respondents to our questionabout PRR effectiveness (see below), some ofwhom mention reviewing their performance-related schemes in light of economic conditions,particularly merit pay/PRP schemes that increasebase pay, for example:‘We have not been able to make a pay awardsince 2009 and are intending to move away from aPRP system.’ (Large voluntary, community, not-for-profit organisation)However, the arguments for variable pay (forexample bonuses and commissions that have to bere-earned) would suggest that these schemes arewell suited to conditions where general base payincreases are unaffordable; the organisation onlypays out when performance has been achieved.The apparent decrease in operation of even theseschemes may well indicate that the economicclimate is biting deeper than ever.Tables 8 and 9 and Figure 4 show the proportionof different types of performance-related schemein operation. Individual bonuses remain themost common form of individual PRR scheme,but incidence has dropped this year comparedwith 2011 and 2012. Suggestions that this mayhave any connection to the bad press associatedwith ‘bonus culture’ are speculative, but this maybe an area to watch in future survey rounds.Merit pay as a proportion of all PRR schemes hasremained the same, while combination schemeshave increased substantially. Again, this shift fromindividual variable pay towards schemes wherethe award depends on a mix of individual, groupand/or organisational performance may indicateunwillingness to risk paying out unless overallorganisational performance is strong.There are clear sectoral differences in approachto individual PRR; combination schemes aremost common in manufacturing/productionTable 8: Individual performance-related reward schemes (% of respondents operating a PRR scheme)IndividualbonusesMeritpayrisesCombinationschemesIndividualnon-monetaryrecognitionawardsSalescommissionsAdhoc/project-basedschemesOtherindividual-basedcashincentivesAll* 59.8 56.4 49.4 35.3 36.5 19.5 17.42012* 66.8 56.5 40.1 33.9 37.3 17.8 25.72011* 65.2 60.8 35.4 33.1 40.9 22.1 20.4By sector*Manufacturing andproduction51.8 57.1 66.1 37.5 35.7 25.0 10.7Private sector services 69.7 55.7 51.6 34.4 53.3 18.9 23.8Public services 48.8 51.2 32.6 37.2 4.7 14.0 14.0Voluntary, community andnot-for-profit45.0 70.0 25.0 30.0 5.0 20.0 5.0By employee categoryManagement/professional 58.8 54.6 47.5 31.9 29.8 17.2 13.0Other employees 46.0 50.2 40.0 37.7 25.6 14.0 15.3*% of respondents selecting for either employee category or both employee categories
  20. 20. REWARDMANAGEMENT2013192013companies, whereas private sector services useindividual bonuses to a greater extent than othersectors. Sales commissions are most common inprivate sector services, where the type of work isbest suited to this form of performance-relatedincentive. Merit pay rises are most common in thethird sector, where incentive schemes are rarelyused. Among public services organisations usingPRR, both merit pay and individual bonuses areused most often.We also see a difference in approach dependingon employee category. Management andprofessionals are more likely to receive financialperformance-based rewards of nearly every typethan other employees. This could indicate a more‘talent management’ oriented approach to thisgroup, while non-monetary recognition is perhapsmore suited to the broad base of employees.Group-based performance-related reward schemesremain less common than individual-based schemes,reflecting the largely individualised nature of UKreward management. However, our results haveshown another increase this year in nearly all group-based schemes, perhaps indicating a shift in approachback towards more collective reward systems. Again,we will await future surveys to determine if thisapparent trend continues.Once again, goal-sharing (group bonuses based ongroup/team achievement of specific objectives) isthe most common form of group PRR, especiallyin private sector companies. The public and thirdsectors are far more likely to use non-monetaryrecognition and incentive schemes. The differencein approach between employee groups can alsobe seen here; once again, management andprofessionals are more likely to be included inmonetary schemes, while other employees are morelikely to be included in non-monetary schemes.2011 2012706050403020100IndividualbonusesMeritpay risesCombinationschemes2013Individualnon-monetarySalescommissionsAd hoc OtherindividualFigure 4: Individual performance-related schemes in past three years(% of respondents operating a PRR scheme)
  21. 21. MANAGEMENTMost effective performance-related schemesThis year, survey respondents were asked whichperformance-related reward, recognitionand incentive schemes in operation in theirorganisations were most effective and why. Theyprovided responses in open-text answers so wecould gain a deeper understanding of all thefactors in play.Many responses centred on individual bonusschemes, particularly flexible, discretionary bonusesas well as those based on achievement of specificperformance targets. The next most cited schemeswere merit pay rises. One respondent from a largemanufacturing and production company saidtheir merit pay scheme was ‘the most effectivein terms of matching contribution with reward’.Sales commission schemes were also mentionedfrequently by respondents; supporting commentslargely related to the direct link between behaviourand results. Combination schemes appear to beamong the most effective, as one respondentfrom a large public services organisation put it,because they ‘enable a clear line of sight betweenorganisation, team and individual performance’.Group- and team-based schemes such as goal-sharing were cited less often as effective schemes,especially given the relatively high incidence ofsuch schemes (Table 9). However, profit-sharingwas thought by a proportion of respondentsto be the most effective scheme, popular withemployees and providing the ‘engagement factor’.Non-monetary recognition schemes also featurestrongly among responses and these schemes seemto be providing a useful reward mechanism duringdifficult economic times:‘In the current climate our recognition schemenon-monetary awards are proving the mosteffective because they are enabling us torecognise success, improve morale and providesome genuine personal reward for our staff in aperiod when there are limited pay uplifts and noperformance bonus awards.’ (Large public servicesorganisation)However, one quite surprising aspect of theresponses to this question was the relatively highproportion of respondents who either said none oftheir performance-related schemes were effectiveor that it was impossible to tell as there was littleor no evaluation of such schemes. One respondentTable 9: Group performance-related reward schemes (% of respondents operating a PRR scheme)Goal-sharingProfit-sharingGroup orteam-basednon-monetaryrecognitionGroup orteam-basednon-monetaryincentivesGain-sharingAll* 50.3 39.7 35.1 21.2 11.92012* 47.9 38.1 26.8 18.6 21.62011* 14.9 21.0 18.2 8.3 7.2By sector*Manufacturing andproduction52.4 47.6 28.6 16.7 11.9Private sector services 55.3 44.7 27.1 16.5 15.3Public services 35.3 11.8 76.5 47.1 0.0Voluntary, community andnot-for-profit14.3 0.0 71.4 42.9 0.0By employee categoryManagement/professional 48.2 39.0 31.2 19.1 12.1Other employees 42.6 38.0 37.2 21.7 5.4*% of respondents selecting for either employee category or both employee categories
  22. 22. REWARDMANAGEMENT2013212013found their organisation’s scheme ‘demotivational’;another said theirs had a ‘tendency to encouragenarrow/short-term behaviour’. It seems rewardpractitioners are as split as academics on the topic ofperformance-related reward effectiveness.Total spend on fixed and variable payWhen it comes to the proportions of total spend onfixed and variable pay in our survey organisations,the most common split is 90% fixed/10% variableor 100% fixed pay (Table 10). Predictably perhaps,we do see some marked sectoral variation inresults. Public services and the voluntary sector arefar more likely to have 100% spend on fixed paythan private sector organisations, where the split ismore commonly 90% fixed/10% variable. Lookingat Table 11, however, the most favoured ideal splitbetween total spend on fixed pay and variable paywould be 90% fixed/10% variable overall. In fact, ingeneral respondents in all sectors would like to seea lower proportion of total spend on fixed pay andmore on variable pay.Table 10: Actual proportions of total spend on fixed and variable pay (% of respondents)AllManufacturingand productionPrivatesector services Public servicesVoluntary,community andnot-for-profit100% variable 0.3 1.4 0.0 0.0 0.010% fixed/90% variable 0.5 0.0 1.4 0.0 0.020% fixed/80% variable 1.4 1.4 2.7 0.0 0.030% fixed/70% variable 1.9 1.4 2.1 1.3 3.040% fixed/60% variable 0.5 1.4 0.7 0.0 0.050% fixed/50% variable 2.5 4.2 4.1 0.0 0.060% fixed/40% variable 3.6 1.4 5.5 3.8 1.570% fixed/30% variable 8.5 2.8 10.3 10.0 9.180% fixed/20% variable 17.6 25.0 19.9 11.3 12.190% fixed/10% variable 31.6 45.8 32.2 27.5 19.7100% fixed 31.6 15.3 21.2 46.3 54.5Table 11: Ideal proportions of total spend on fixed and variable pay (% of respondents)AllManufacturingand productionPrivatesector services Public servicesVoluntary,community andnot-for-profit100% variable 1.2 1.5 1.5 0.0 1.710% fixed/90% variable 0.9 0.0 2.2 0.0 0.020% fixed/80% variable 0.6 1.5 0.7 0.0 0.030% fixed/70% variable 1.8 1.5 2.9 0.0 1.740% fixed/60% variable 1.8 2.9 1.5 2.9 0.050% fixed/50% variable 3.0 7.4 2.2 1.4 1.760% fixed/40% variable 3.6 2.9 5.8 2.9 0.070% fixed/30% variable 14.1 10.3 19.0 13.0 8.580% fixed/20% variable 23.7 22.1 26.3 18.8 25.490% fixed/10% variable 26.4 35.3 21.9 30.4 22.0100% fixed 22.8 14.7 16.1 30.4 39.0
  23. 23. MANAGEMENTThis is an interesting finding, indicating that ‘newpay’ thinking on strategic reward advocatinghigher proportions of variable pay has, to a limitedextent, been adopted within organisations whichideally would like to shift further towards variablepay. However, there does seem to be a limit here;Tables 10 and 11 show clearly that while the actualfigures at the bottom of Table 10 all shift towardshigher ideal proportions of variable pay in Table11, there is relatively little change past the 70%fixed/30% variable mark, indicating that whilerespondents would in general prefer more variablepay, at present they would be unwilling to move toreward structures where variable pay is in greaterproportion than fixed pay.Base and variable pay – predictions for 2013Table 12 and Figure 5 reveal respondents’predictions for changes to base and variablepay spend in 2013. Just over half of respondentspredict their organisation’s total spend on baseand variable pay will increase, whereas 34.9%predict it will stay the same and 12.2% predict itwill decrease in the next year. Manufacturing andproduction, SMEs, divisions of UK companies andprivate (publicly traded) organisations are morelikely to predict increasing total spend. Of thoseorganisations predicting a decrease of total spend,very large, mainly UK-owned, public sector servicesorganisations are the most common. Presumably,this result is down to large government-fundedorganisations being required to cut spending,including pay budgets.Table 12: Prediction for changes to total spend on base and variable pay in 2013 (% of respondents)IncreasespendStaythe sameDecreasespendAll 52.9 34.9 12.2By sectorManufacturing andproduction63.2 27.6 9.2Private sector services 57.3 35.1 7.6Public services 35.2 38.1 26.7Voluntary, community andnot-for-profit55.6 38.3 6.2By sizeSME (<250) 56.0 38.2 5.8Large (250–9,999) 52.8 32.4 14.8Very large (10,000+) 37.1 34.3 28.6By geographic ownershipMainly UK-ownedorganisation51.4 35.8 12.8Division of mainly UK-ownedorganisation65.0 30.0 5.0Division of internationallyowned organisation53.3 35.2 11.4By structural ownershipPrivate sector (privately held) 57.7 35.2 7.1Private sector (publicly held) 61.8 26.3 11.8Public sector 29.8 38.1 32.1Non-profit 56.4 38.6 5.0
  24. 24. REWARDMANAGEMENT2013232013When we look at what our respondents say isdriving these changes to total spend on base andvariable pay, Table 13 shows that pay rises andemploying more staff are the most common driversof increasing spend on pay, while employing fewerstaff and pay cuts are the most common drivers ofspend decreases. There is a clear division here inorganisations which are taking on more employeesand awarding pay increases, while others arereducing headcount and cutting pay. The positiveaspect of this is that the majority of organisations,are increasing spend and, it seems, are doing sofor positive reasons. One particular result to noteis the relatively high response for ‘other’ drivers ofdecreasing pay spend when the ‘other’ category forincreasing spend is so low. It is possible that againthe public sector requirement to cut pay budgets isthe key factor here.34.952.912.2Increase spendStay the sameDecrease spendFigure 5: Prediction for changes to total spend on baseand variable pay in 2013 (% of respondents)Table 13: Drivers of predicted changes to total spend on base and variable pay in 2013 (% of respondentspredicting the change)Drivers for increasing pay spend Drivers for decreasing pay spendPay rises 83.8 Employing fewer staff 81.5Employing more staff 50.6 Pay cuts 29.6Skills shortages 19.1 Reductions in average variable pay 22.2Increases in average variable pay 15.3 Other 20.4Other 4.7 Skills shortages easing 1.9
  25. 25. MANAGEMENTCase study – Intel Corporation EuropeWhen it comes to putting reward right at the heart of the employment relationship, thecomputing giant Intel are firm believers in their managers exemplifying principles of reciprocaltrust and open communication – and this approach has seen spectacular results.Intel Corporation’s operation in Europe extends from Ireland in the west to Kazakhstan in theeast and Israel in the south, employing approximately 17,000 workers in sales and marketing,manufacturing and design. Intel’s mission – ‘This decade, we will create and extend computingtechnology to connect and enrich the lives of every person on earth’ – reflects both theirambition and their values. That such a mission would drive bold corporate objectives mightbe expected, but it is in the translation of these high-level objectives into meaningful workingpractices that has been key to delivering results.Gary Boyle, HR Business Partner for Europe, believes that this has been achieved through acombination of a strong reward philosophy; open, clear communications; and line managerswho are passionate about Intel and engaged with the company’s vision and values.Intel’s reward philosophy is based on matching or exceeding the market for fixed elementsof the total reward package (base pay, benefits and employee share schemes) and rewardingexceptional performance with variable pay practices which allow repeat high-performers toearn at the very top of the market. An annual bonus is based on individual targets with amultiplier based on overall company performance, while a six-monthly bonus is awarded onsize of revenue, operating margin and feedback from customers. What may be surprising in adiverse employee population of 17,000 is that the bonuses are open to all, regardless of role,business group or location. The message to employees is unambiguous: performance drivesearnings potential and performance is dependent on everyone – everyone will have a role toplay, and a share, in company success.Boyle is equally clear about the critical role of line managers in the performance equation andbelieves strongly that this is where HR should facilitate, not direct. For reward to be meaningfulfrom an employee perspective, Boyle says, ‘you don’t need someone from HR coming in andtelling you about the pay philosophy, you need your manager understanding it and being ableto relate it to you as an individual.’ In Boyle’s view, the relationship between direct reports andmanagers and the trust people have in their managers has the potential to be more importantthan pay in motivating and retaining high-performers.According to Boyle, a healthy management relationship and the principle of ‘matching whatyou say with what you do’ have been responsible for some extraordinary results at Intel. In2010 the company faced a product recall. Its factories around the world, already working tonear capacity, were challenged with doubling production to meet customer demands. Intelapproached the situation as a potential win–win; they knew that getting this right wouldimprove financial results and they committed to sharing any gains 50/50 with employees. Ahuge communications campaign promoted the challenge and kept employees informed ofperformance against target on a daily basis. Employees rose to the challenge spectacularly andachieved the equivalent of 14 weeks’ production in just 8 weeks, each earning a $1,000 bonus inthe process.In an economic environment of zero or very low base pay increases, it is clear from Intel’sexample that greater employee financial involvement underpinned by a positive employmentrelationship could be a very powerful tool indeed.
  26. 26. REWARDMANAGEMENT2013252013EMPLOYEE SHARE SCHEMES ANDLONG-TERM INCENTIVE PLANSOur findings indicate relative stability in this area of rewardmanagement, with executive share options and company shareoption plans remaining the most common schemes. Lookingforward, our respondents predict spending on this area of rewardwill stay the same over the forthcoming year.Table 14 shows roughly the same proportion oforganisations offering employee share schemesand long-term incentive (LTI) plans as last year.Although share schemes and LTIs remain apredominantly private sector reward mechanism,small numbers of respondents in other sectorsreport their use. Results this year also show thatthese schemes are most common, as we wouldTable 14: Organisations operating long-term incentive schemes (% of respondents)2013 25.52012 28.6By sector 2012 2013Manufacturing and production 43.6 46.0Private sector services 34.7 35.7Public services 2.8 5.7Voluntary, community, not-for-profit 0.0 7.4Multiple sectors 56.7 N/ABy sizeSME (<250) 21.1 21.5Large (250–9,999) 33.6 29.2Very large (10,000+) 43.5 25.7By geographic ownershipMainly UK-owned organisation 17.5 18.8Division of mainly UK-owned organisation 48.1 20.0Division of internationally owned organisation 45.8 47.6By structural ownershipPrivate sector (privately held) N/A 29.1Private sector (publicly held) N/A 63.2Public sector N/A 7.1Non-profit N/A 5.9
  27. 27. MANAGEMENTexpect, in publicly traded private firms. It isinteresting to note that the differences in LTI usebetween size of organisation is not as marked aslast year, partially due to the apparent fall in useamong very large organisations as well as divisionsof UK-owned organisations. However, this maywell be due to sampling effects, as the numbers ofrespondents in these categories is relatively small.Broad-based and executive schemesTable 15 and Figure 6 show that the most commonschemes are executive share options, althoughbroad-based schemes such as company share optionplans (CSOPs) and share incentive plans (SIPs)are also used by roughly a third of respondentsoperating share/LTI schemes. The results also showsome slight industry variations; for example, SIPs aremore common in manufacturing and productionTable 15: Long-term incentives (% of respondents operating a share/LTI scheme)Broad-based schemes Executive share schemesCompanyshareoptionplan(CSOP)Shareincentiveplan(SIP)Saveasyouearn(SAYE)ExecutiveshareoptionsExecutivedeferredannualcashbonusExecutiverestrict/performshareplanExecutivedeferred/co-investshareplanPhantomshareschemeEnterprisemanagementincentives(EMIs)SARS/equitySARSAll 35.6 32.7 25.7 40.6 22.8 20.8 11.9 9.9 8.9 6.9By sectorManufacturing and production 35.0 37.5 27.5 45.0 25.0 27.5 7.5 5.0 5.0 5.0Private sector services 35.7 26.8 25.0 39.3 19.6 17.9 16.1 12.5 12.5 8.9By sizeSME (<250) 40.5 21.6 10.8 18.9 18.9 8.1 2.7 10.8 18.9 5.4Large (250–9,999) 32.7 34.5 32.7 52.7 27.3 27.3 10.9 10.9 3.6 7.3Very large (10,000+) 33.3 66.7 44.4 55.6 11.1 33.3 55.6 0.0 0.0 11.1By geographic ownershipMainly UK-owned organisation 38.8 28.6 34.7 30.6 24.5 22.4 10.2 8.2 14.3 0.0Division of mainly UK-ownedorganisation25.0 50.0 0.0 0.0 50.0 0.0 0.0 25.0 25.0 0.0Division of internationally ownedorganisation33.3 35.4 18.8 54.2 18.8 20.8 14.6 10.4 2.1 14.6By structural ownershipPrivate sector (privately held) 36.7 32.7 12.2 28.6 22.4 8.2 6.1 16.3 18.4 2.0Private sector (publicly held) 35.4 35.4 39.6 54.2 22.9 35.4 18.8 2.1 0.0 12.5
  28. 28. REWARDMANAGEMENT2013272013than in private sector services. We also see variationaccording to firm size and ownership. SMEs favourCSOPs, while SIPs and executive share options aremore common in large and very large companies.Executive share options also feature strongly onreward plans for divisions of internationally ownedorganisations and publicly traded private companies.Manufacturing and production Private services50403020100CSOP SIP SAYE Exec shareoptionsExec defbonusExecrestrictExecdefPhantom EMIs SARSFigure 6: Long-term incentives by sector (% of respondents operating a share/LTI scheme)
  29. 29. MANAGEMENTTable 16: Prediction for changes to total spend on share schemes/LTIs in 2013 (% of respondentsoperating a share/LTI scheme)Stay the same Increase spend Decrease spendAll 76.1 15.0 8.8By sectorManufacturing and production 77.5 17.5 5.0Private sector services 73.8 16.4 9.8Public services 83.3 0.0 16.7Voluntary, community and not-for-profit 83.3 0.0 16.7By sizeSME (<250) 73.2 9.8 17.1Large (250–9,999) 77.8 19.0 3.2Very large (10,000+) 77.8 11.1 11.1By geographic ownershipMainly UK-owned organisation 72.9 15.3 11.9Division of mainly UK-owned organisation 75.0 25.0 0.0Division of internationally owned organisation 80.0 14.0 6.0By structural ownershipPrivate sector (privately held) 73.6 15.1 11.3Private sector (publicly held) 79.2 16.7 4.2Public sector 66.7 16.7 16.7Non-profit 83.3 0.0 16.7Employee share schemes/LTIs – predictionsfor 2013Table 16 and Figure 7 show the majority oforganisations offering share/LTI schemes predictthat their total spend will stay the same in 2013.There is little sectoral variation here, althoughSMEs and UK-owned organisations are more likelyto be predicting a decrease in spend, while largeorganisations and UK-owned divisions are morelikely to predict increases in spend.Employing more staff and increasing schemeeligibility were given as the most common reasonsfor increasing total spend on share schemes andLTIs. Reductions in average awards and reducingscheme eligibility were given as the most commonreasons for decreasing total spend on shareschemes and LTIs. However, the numbers ofrespondents are so small here (as the vast majoritypredicted no change) that we must treat theseresults with caution.1576.18.8Increase spendStay the sameDecrease spendFigure 7: Prediction for changes to total spend on share schemes/LTIs in 2013(% of respondents operating a share/LTI scheme)
  30. 30. REWARDMANAGEMENT2013292013EMPLOYEE BENEFITSThis year’s Reward Management survey aimed to be even morecomprehensive in its gathering of data on the provision and extentof employee benefits in the UK. The range of benefits offered on auniversal basis is remarkable. Furthermore, respondents indicatedthey would prefer a greater proportion of total reward spend beingdirected towards benefits provision.Tables 17–23 show the range and extent ofemployee benefits offered by survey respondents.They have been categorised this year under broadheadings which reflect key areas of benefitsprovision. However, we accept that the broadheadings are not mutually exclusive and somebenefits could go under different headings.Overall, results show that provision of benefits isnot only increasing in many areas but also thatin general provision is becoming more universaland less dependent on grade/seniority. It is alsonotable that compared with last year, far fewerbenefits are provided only through flexible orvoluntary schemes.Career developmentWhile in many organisations career developmentand reward management operate in separatespheres, the total reward perspective encouragesHR practitioners to think about and expressemployee development in reward terms. Table17 shows that our respondent organisationsmay well be thinking in this way as training andcareer development as a benefit is provided tonearly all employees. Rates of study leave, unpaidsabbaticals and coaching/mentoring programmesare also widespread, although far moredependent upon employee grade/seniority.Table 17: Provision of career development benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme only Do not provideTraining and careerdevelopment82.9 10.9 0.7 0.5 5.0Study leave (paid) 47.6 22.3 1.4 3.3 25.4Sabbaticals (unpaid) 39.8 10.4 1.7 2.2 45.8Professional subscriptions(paid/part-paid)37.4 36.2 0.7 0.0 25.8Coaching/mentoringprogrammes30.1 35.2 1.0 1.7 32.1Sabbaticals (paid) 7.2 7.2 0.8 0.0 84.7
  31. 31. MANAGEMENTFinancial benefits/pay in kindTable 18 shows pension schemes top the list ofmost extensive financial benefits provided byrespondent organisations and the 9% reportingthey do not currently offer a pension scheme willno doubt be looking at introducing schemes overthe next couple of years to ensure compliancewith pension law changes. More information onthe 91% of respondents who do can be found inthe next section.Other notable financial benefits include debtadvice/guidance/counselling, offered by nearlyhalf of organisations. This is the first yearthe reward management survey has askedrespondents about this particular benefit, so wecannot track whether its provision has increasedin recent years as personal debt has becomemore problematic for many. This will be an areato watch in future surveys. However, last yearwe did ask about free financial advice/educationand its provision has increased greatly; offeredby 12.3% in 2012 to 26.5% of respondents in2013 – perhaps due to pension auto-enrolment.Another related benefit is a welfare loan forfinancial hardship and we have seen a rise overthe year in the proportion of employers offeringthis to all employees. We may see more employersadopt such a scheme as the government raisesthe amount of money that organisations can loaninterest free to employees. We can speculate thatin the future that some employers will start toadopt a more joined-up approach to workplacesavings, investments and loans.Table 18: Provision of financial/pay in kind benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme only Do not providePension scheme 83.8 4.9 0.9 1.4 9.0Debt advice/counselling/guidance48.2 0.7 0.0 2.1 48.9Give as you earn 34.4 0.0 1.0 1.9 62.7Free/subsidised canteen 29.2 0.7 0.0 0.0 70.1Discounted own products/services28.9 0.9 0.0 0.5 69.7Discount cards 28.5 0.0 1.4 3.6 66.5Free financial education/advice26.5 0.9 0.2 0.5 71.8Discounted shoppingvouchers20.8 0.0 1.7 3.6 73.9Relocation assistance 19.0 32.8 0.5 0.5 47.3Christmas hamper/vouchers/gifts17.1 1.2 0.2 0.0 81.4Welfare loans forfinancial hardship13.0 1.4 0.7 1.0 83.9Corporate wrapperworkplace benefits9.2 0.5 0.7 0.5 89.1Christmas bonus 7.4 4.0 0.0 0.7 87.9Credit union 7.0 0.0 0.0 0.5 92.5Homeworker allowance 5.8 2.4 0.5 0.0 91.3Luncheon vouchers 2.2 0.0 0.0 0.0 97.8First-time buyer’s homedeposit assistance1.0 0.0 0.2 0.0 98.8
  32. 32. REWARDMANAGEMENT2013312013Health and well-being benefitsOur health and well-being results (Table 19)show a mix of benefits from insurance-basedschemes (death-in-service/life assurance beingthe most common) to medical assistance (forexample flu jabs and on-site medical services)and promotion of fitness/lifestyle facilities (forexample gym membership, on-site fitness classes).Employee assistance programmes (EAPs) are nowoffered by well over half of organisations in oursurvey, a figure that is an increase on last year,showing the growing popularity of such schemes.The general nature of EAPs, providing tailoredservices to employees (and often members of theirfamily/household), may be an attractive option foremployers looking for cost-effective ways to takepreventative measures against absenteeism andstaff turnover caused by well-being problems.Leave, personal and family-related benefitsHelping employees maintain a healthy work–lifebalance is another key component of the totalreward approach and our survey results showhigh levels of paid leave in excess of statutoryrequirements and, to a lesser extent, flexibilityin buying and selling leave allowances. Flexible/homeworking remains a common feature ofbenefits provision, use of which has increased thisyear despite recent publicity indicating a possiblebacklash in the USA. Family-friendly policies suchas provision of childcare vouchers and enhancedmaternity/paternity leave are also widespread. Justunder half of employers in our sample provide paidleave to all employees on military reserve activities.Table 19: Provision of health and well-being benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme only Do not provideDeath in service/lifeassurance68.7 6.3 3.7 4.7 16.6Tea/coffee/cold drinks – free 66.7 2.8 0.0 0.0 30.5Eyecare vouchers 62.9 2.8 1.4 0.9 32.0Employee assistanceprogramme56.2 1.4 0.7 1.2 40.5Flu jabs 27.0 3.1 0.7 0.9 68.2Gym (on-site ormembership)23.6 1.7 3.8 4.5 66.5Private medical insurance 23.0 23.9 3.5 4.9 44.8Health screening 20.4 12.8 4.0 2.1 60.6Permanent healthinsurance19.4 10.1 3.3 1.4 65.8Critical illness insurance 17.2 8.7 5.4 3.1 65.6Free fruit 15.6 0.0 0.0 0.0 84.4Workplace chaplain/equivalent12.3 0.0 0.0 0.0 87.7On-site aerobics/Pilates 13.2 0.7 0.2 2.2 83.7On-site medical facility 13.1 0.0 0.0 0.5 86.4Healthcare cash plans 11.6 2.4 4.7 9.2 72.1Dental insurance 8.1 4.5 8.8 10.0 68.6On-site massages 7.4 0.2 0.2 2.9 89.3Personal fitness trainer 2.9 0.0 0.2 1.9 95.0
  33. 33. MANAGEMENTSocial benefitsTable 21 shows that catering for employees’social needs at work is also an important aspectof benefits provision, with social events such asChristmas parties and company picnics popular.Transport benefitsTransport is an area of benefits provision wherewe do see differentials between grades ofemployee, with car allowances, company cars andfuel allowances predominantly provided accordingto grade/seniority (Table 23).Table 20: Provision of leave, personal and family benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme only Do not providePaid leave forbereavement92.9 0.9 0.0 0.0 6.225 days’ and over paidleave (excluding bankholidays)73.0 19.7 0.2 0.0 7.0Childcare vouchers 63.3 1.4 6.5 7.0 21.8Allow Internet purchasesto be delivered at work59.5 3.4 0.5 0.5 36.2Enhanced maternity/paternity leave57.8 1.9 0.5 0.0 39.9Paid leave for militaryreserve activities50.4 1.2 0.0 0.5 48.0Flexible/homeworking 44.2 32.2 2.3 0.0 21.3Time off for voluntarywork33.6 2.8 0.5 1.9 61.2Paid carer’s leave 28.9 1.2 0.0 0.0 70.0Emergency childcaresupport25.5 0.0 0.5 0.9 73.1Emergency eldercaresupport24.7 0.0 0.5 0.7 74.1Ability to buy and selladditional days of paidleave22.9 2.7 3.9 1.7 68.9Paid leave to train andcompete in sports events13.5 1.7 0.2 0.5 84.1Learning assistance (notwork-related)8.3 2.1 0.7 1.0 87.9On-site crèche 5.2 0.7 0.0 0.0 94.1Concierge benefits 1.9 0.0 0.0 0.0 98.1
  34. 34. REWARDMANAGEMENT2013332013Table 21: Provision of social benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme only Do not provideChristmas party/lunch 66.9 2.1 0.0 1.1 29.9Dress-down days 53.5 0.0 0.5 1.0 45.1Company picnic/barbeque 29.3 0.7 0.0 0.7 69.3Social club 23.4 0.0 0.0 2.4 74.2Company sports day 12.1 0.0 0.0 0.7 87.2Theatre/concert trips 11.5 0.0 0.0 2.6 85.9Company choir/band 8.8 0.0 0.0 1.0 90.2Table 23: Provision of transport benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme only Do not provideOn-site car parking (free/subsidised)59.6 15.9 0.5 0.7 23.4Cycle-to-work scheme loan 46.7 0.7 4.7 4.9 43.0Travel season ticket loan 31.8 2.3 1.6 1.6 62.6Travel insurance 13.4 6.4 6.1 3.1 71.1Fuel allowance 8.9 21.0 0.5 0.0 69.7Car allowance 4.0 51.6 1.2 0.5 42.8Car loan 2.9 6.0 .5 0.7 90.0All employee carownership schemes1.2 5.6 1.4 0.9 90.8Carbon offsetting/credits 1.2 0.5 0.7 0.0 97.6Company car 0.2 37.6 0.7 0.0 61.4Table 22: Provision of technology benefits (% of respondents)Provide to allemployeesProvisiondependent ongrade/seniorityPart of aflexiblebenefitsscheme onlyPart of avoluntarybenefitsscheme onlyDo notprovideHome computers 4.4 20.4 1.2 1.9 72.1Mobile phone (personal use) 4.4 37.1 0.7 1.2 56.6Mobile phone (salary sacrifice) 1.0 7.2 1.0 1.4 89.5
  35. 35. MANAGEMENTTable 24 breaks down the provision of benefitsto all employees according to sector. The listsare similar; paid leave for bereavement is themost common benefit in all sectors; training anddevelopment, and provision of pension schemesare also common to all sectors’ top lists; 25 days’and over paid leave is present in all sectors exceptprivate sector services.Certain benefits seem to be more sector-specific.For manufacturing and production, on-siteparking is in the top six, presumably becauseproduction units will often be in out-of-townlocations. Free tea/coffee and cold drinks onlyappears in the private sector services’ top six,whereas enhanced maternity/paternity leaveand paid leave for military reserve activitiesonly appear in the more welfare-oriented publicservices list. The third sector top six benefitsinclude childcare vouchers and allowing Internetpurchases to be delivered to work.Table 24: Top six universal benefits offered, by sector (% of respondents)Manufacturing and productionPaid leave for bereavement 92.0Training and career development 85.1On-site car parking (free/subsidised) 81.6Pension scheme 78.125 days’ and over paid leave 77.0Christmas party/lunch 77.0Private sector servicesPaid leave for bereavement 86.0Tea/coffee/cold drinks – free 84.2Christmas party/lunch 83.0Training and career development 80.1Pension scheme 73.1Death in service/life assurance 70.2Public servicesPaid leave for bereavement 93.3Pension scheme 90.525 days’ and over paid leave 82.9Training and career development 79.0Enhanced maternity/paternity leave 74.3Paid leave for military reserve activities 70.5Voluntary, community and not-for-profitPaid leave for bereavement 97.5Pension scheme 91.4Training and career development 86.425 days’ and over paid leave 77.8Allow Internet purchases to be delivered at work 71.6Childcare vouchers 69.1
  36. 36. REWARDMANAGEMENT2013352013Most popular employee benefitsOur survey respondents were asked whichbenefits are most popular with employees andwhy. The results in some respects are not thatsurprising: pension schemes feature very highly,many commenting on the rarity of their finalsalary schemes and high levels of employercontributions, which make them attractive optionsfor employees. Other financial-based benefitsare also popular, particularly healthcare/medicalinsurance. Similarly, work–life balance benefitssuch as flexibility, enhanced leave and childcarevouchers feature strongly, many respondentsmaking the connection with the profile of theirworkforces. Interestingly, this is the area wherea number of respondents comment on lack ofprovision versus the demand for it, for example:‘Many employees have indicated that flexibleworking or hours and enhanced paternity benefitsas well as childcare vouchers…would be valued.The organisation does not currently provide thesethough.’ (Private sector services SME)However, perhaps the most telling aspect of thequestion responses is the almost total absenceof career development and training supportcited as popular benefits among employees. Onerespondent mentions ‘personal and professionaldevelopment’, another a ‘personal trainingallowance’ and one other ‘sabbaticals’, but theseare the only mentions from over 400 responses.There are various possible explanations here.One is that employees and/or survey respondentsdo not see training and development activitiesas benefits per se; another is that trainingand development is so universal (and oftenprovided for reasons not associated with benefitsprovision) that it is not valued as highly as moretraditional benefits, which either provide a levelof economic security (pensions, health insurance)or enhance the quality of work and family life(flexible working, holiday entitlement, and so on).Whatever the explanation, this is a noteworthyfinding, with implications for the study of totalreward and non-monetary reward generally.It may also have a public policy implication ifemployers cut back on training because theythink that skills development is a waste of moneybecause it is not valued by workers and insteadfocus resources on particular employee groups orfirm-specific skills.
  37. 37. MANAGEMENTTotal reward statementsContinuing the total reward theme, Table 25shows relatively few organisations currentlyissuing total reward statements to employees,although 8.6% of respondents are planning tointroduce them in 2013. Total reward statementsare more common in the private sector and in verylarge organisations, presumably as the range offinancial benefits is more extensive here.Flexible benefits and voluntary/affinitybenefits schemesTable 25 and Figure 8 also show the levels ofusage of flexible and voluntary benefits schemes.Again, neither is extensive and both appear tohave decreased significantly in the past couple ofyears. Reasons for this are not readily apparent;there may well be sampling effects or we could beseeing a move away from these more expensivesystems during continuing economic austerity.Table 25 also shows a level of variation accordingto sector and size of organisation. Private sectorcompanies and large organisations are far morelikely to offer both voluntary and flexible benefitsschemes.Benefits transparencyFollowing on from last year’s investigation intopay transparency in organisations, for 2013we asked respondents about the approach totransparency of benefits specifically and the extentto which organisations are prepared to discloseto employees information about pensions andemployee benefits and how individuals or groupsof employees are treated the same or differently.Table 25: Types of benefits offered (% of respondents)Total rewardstatementsVoluntary/affinitybenefitsFlexiblebenefitsAll 15.0 15.5 20.32012 17.8 24.7 24.22011 N/A 45.1 34.0By sectorManufacturing andproduction19.0 15.7 25.6Private sector services 18.8 21.8 24.4Public services 7.6 8.7 17.3Voluntary, community andnot-for-profit12.8 11.4 10.0By sizeSME (<250) 12.8 8.6 12.4Large (250–9,999) 15.2 19.4 23.5Very large (10,000+) 27.3 30.3 44.1
  38. 38. REWARDMANAGEMENT2013372013Table 26 shows that overall most respondentsagree that a transparent approach to employeebenefits policies and practices exists in theirorganisations, that is, that benefit policies,practices and outcomes are made public with theintention that all benefit information across allgrades is as transparent as possible.This is in direct contrast with last year’s findings,which indicated most organisations prefer tokeep pay confidential rather than promotetransparency. While there could be a level ofmovement in approach following the EqualityAct’s prevention of employers using punitivemeasures to enforce pay confidentiality clausesin employment contracts, it is unlikely that suchattitudes have shifted so far and so fast. It seemsmore likely that there is a distinct differencein approach to pay as opposed to benefits; theconclusion being that while a culture of secrecy ismore often favoured where pay is concerned, inthe pensions and benefits arena the approach ismore open and transparent. This seems a logicalassumption given that pension and benefitsprovisions tend to be more harmonised or, at theleast, standardised according to grade, comparedwith the often individualistic nature of base paymanagement (see Tables 3, 4 and 6). Indeed, itcould be viewed as surprising that as many as26% of respondents agree that their organisationprefers a more secretive approach to employeepensions and benefits.Just as with the 2012 data on pay transparency, wesee a sectoral difference in benefits transparencythis year. Once again, more public and thirdsector organisations than private companies tendtowards more transparent approaches, whereasrather more private sector firms than publicservices/voluntary organisations tend towards themore secretive approaches. While employers aremore transparent about benefit provision thanpay, not many of them communicate the valueof benefits and the value of whole employeeproposition through total reward statements.2013 2012 201150403020100Voluntary/affinitybenefitsFlexible benefitsFigure 8: Flexible and voluntary benefits schemes in past three years (% of respondents)
  39. 39. MANAGEMENTTable 26: Approaches to benefits transparency (% of respondents)Approach to benefitstransparencySomewhatagree/stronglyagreeNeitheragree nordisagreeSomewhatdisagree/stronglydisagreeThis organisation activelymakes its benefit policies,practices and outcomes publicwith the intention that allbenefit information acrossall grades is as transparent aspossible to all employees.All 68.2 10.0 21.7Manufacturing and production 55.4 13.3 30.3Private sector services 63.8 9.0 27.1Public services 77.8 9.1 13.1Voluntary, community and not-for-profit78.8 10.0 11.3This organisation activelymakes its benefit policies,practices and outcomespublic with the intentionthat all benefit informationis as transparent as possible,but may not release to allemployees certain informationregarding senior grades.All 60.6 8.8 30.6Manufacturing and production 59.7 11.0 29.3Private sector services 64.2 6.1 29.7Public services 56.7 11.3 32.0Voluntary, community and not-for-profit58.4 9.1 32.5This organisation allows itsbenefit policies, practicesand outcomes to be disclosedto employees but does notactively promote disclosure.All 37.1 22.2 40.7Manufacturing and production 31.3 23.8 45.0Private sector services 38.8 21.8 39.4Public services 40.6 20.8 38.5Voluntary, community and not-for-profit35.1 23.4 41.6This organisation prefersdetails about benefit policies,practices and outcomes toremain confidential butprovides employees withrelevant benefit informationwhen asked in specificcircumstances.All 31.4 16.3 52.3Manufacturing and production 37.0 11.1 51.9Private sector services 37.0 17.9 45.1Public services 26.9 17.2 55.9Voluntary, community and not-for-profit18.7 17.3 64.0This organisation believesthat information onbenefit policies, practicesand outcomes should bea private matter betweenindividual employees andthe organisation but it willcomply with requests forrelevant benefit informationif required under legislation(for example, in response toan equal pay questions form).All 26.0 16.7 57.3Manufacturing and production 26.3 18.8 55.0Private sector services 31.9 14.7 53.4Public services 20.0 16.8 63.2Voluntary, community and not-for-profit20.3 18.9 60.8
  40. 40. REWARDMANAGEMENT2013392013Table 27: Actual proportions of total spend on employee reward (% of respondents)AllManufacturingand productionPrivate sectorservices Public servicesVoluntary,community andnot-for-profit100% benefits 0.9 0.0 0.7 1.3 1.610% pay/90% benefits 0.3 0.0 0.0 1.3 0.020% pay/80% benefits 0.3 0.0 0.0 1.3 0.030% pay/70% benefits 0.9 0.0 2.1 0.0 0.040% pay/60% benefits 0.3 1.4 0.0 0.0 0.050% pay/50% benefits 1.4 1.4 2.1 1.3 0.060% pay/40% benefits 2.0 4.2 2.1 1.3 0.070% pay/30% benefits 10.3 8.5 13.5 10.5 4.880% pay/20% benefits 26.0 26.8 25.5 23.7 29.090% pay/10% benefits 43.1 45.1 43.3 36.8 48.4100% pay 14.6 12.7 10.6 22.4 16.1Total spend on employee reward (pay andbenefits)Table 27 shows the composition of total rewardspend split between pay and benefits. The mostcommon split is 90% pay/10% benefits (43.1%),followed by 80% pay/20% benefits (26.0%).The results by sector show a broad similarity inapproach, although interestingly public servicesrespondents are more likely than any other sectorto say they spend 100% on pay. It is unlikely thatnearly a quarter of public sector organisations don’tspend on benefits at all. While the public sectormay not provide many pay-in-kind benefits such ascompany cars or private medical insurance, otherbenefits such as enhanced annual and maternity/paternity leave and contributory pensions (oftendefined benefit schemes) are more widespread,so this result is most likely due to definitionalissues. What is included in the term ‘benefits’ canbe open to interpretation. Another issue maywell be that, when it comes to pensions, publicsector respondents find it difficult to calculate theactual size of their employer pension contribution,especially if the scheme is ‘pay as you go’.Table 28 shows that while the 90% pay/10%benefits split reflects the ideal combination for34.2% of respondents, more would like to see anTable 28: Ideal proportions of total spend on employee reward (% of respondents)AllManufacturingand productionPrivate sectorservices Public servicesVoluntary,community andnot-for-profit100% benefits 0.6 0.0 0.8 0.0 1.810% pay/90% benefits 0.6 1.5 0.0 1.4 0.020% pay/80% benefits 0.6 0.0 0.8 1.4 0.030% pay/70% benefits 0.3 0.0 0.0 1.4 0.040% pay/60% benefits 0.3 0.0 0.8 0.0 0.050% pay/50% benefits 3.1 4.5 3.0 4.3 0.060% pay/40% benefits 3.7 1.5 3.8 5.8 3.570% pay/30% benefits 17.2 17.9 18.9 15.9 14.080% pay/20% benefits 30.8 32.8 31.8 21.7 36.890% pay/10% benefits 34.2 37.3 31.8 36.2 33.3100% pay 8.6 4.5 8.3 11.6 10.5
  41. 41. MANAGEMENTTable 29: Prediction for changes to total spend on employee benefits in 2013 (% of respondents)Increasespend Stay the same Decrease spendAll 30.9 55.4 13.7By sectorManufacturing and production 41.4 51.7 6.9Private sector services 33.9 53.2 12.9Public services 15.2 56.2 28.6Voluntary, community, not-for-profit 33.3 63.0 3.7By sizeSME (<250) 35.1 58.1 6.8Large (250–9,999) 29.6 53.7 16.7Very large (10,000+) 14.3 54.3 31.4By geographic ownershipMainly UK-owned organisation 30.7 55.3 14.1Division of mainly UK-owned organisation 40.0 50.0 10.0Division of internationally owned organisation 28.6 57.1 14.3By structural ownershipPrivate sector (privately held) 36.8 53.3 9.9Private sector (publicly held) 31.6 53.9 14.5Public sector 14.3 52.4 33.3Non-profit 32.7 63.4 4.080%/20% or 70%/30% split than is currently thecase. What might be preventing organisationsfrom shifting some of their total reward spendfrom pay to benefits is not clear, although wecould assume market visibility (or lack of visibility)of the total package might play a role as well asthe challenge of changing terms and conditionsthrough the contract of employment. This isperhaps an area to investigate further in futuresurvey rounds. It is also interesting to note thatdespite the economic slowdown, employers arenot planning to switch limited resources frombenefits to pay, but the other way around.Employee benefits – predictions for 2013Table 29 shows 55.4% of respondents predicttheir organisation’s total spend on employeebenefits will stay the same in 2013; 30.9% predictit will increase and 13.7% predict it will decrease.Figure 9 illustrates the breakdown by sector.Public services organisations are the least likelyto predict an increase in spend for reasons, wepresume, associated with continued budgetrestrictions. Manufacturing and productioncompanies are much more likely to predictincreased spend on benefits and far less likely tobe decreasing spending in 2013. The third sectoris the sector least likely to be decreasing benefitsspending over the next year. The picture overallshows respondents representing all organisationtypes predicting a relatively stable benefitsenvironment, with no changes in spending.Increases in the costs of benefits is the mostcommon driver of increasing total spend onemployee benefits, while reductions in moneyavailable for the benefits budget is the mostcommon driver of decreasing total benefits spend(Table 30). Once again we see the ‘other’ categoryfor decreased spending is relatively high. AsFigure 9 shows, the public sector is more likely tobe cutting spending on benefits and therefore itseems likely that government budget restrictionsare responsible for this result.
  42. 42. REWARDMANAGEMENT201341201351.741.46.9Manufacturing and production Private sector servicesPublic services Voluntary, community and not-for-profitStay the sameIncrease spendDecrease spend12.953.233.9Increase spendStay the sameDecrease spend28.656.215.2Increase spendStay the sameDecrease spend6333.33.7Increase spendStay the sameDecrease spendFigure 9: Prediction for changes to total spend on employee benefits in 2013, by sector (% of respondents)Table 30: Drivers of predicted changes to total spend on employee benefits in 2013 (% of respondentspredicting the change)Drivers for increasing benefits spend Drivers for decreasing benefits spendIncreases in the cost of benefits 60.6 Reductions in the money available for thebenefits budget67.2Employing more staff 58.4 Reductions in the cost of benefits 26.2Introduction of auto-enrolment 47.4 Other 23.0Increases in the cost of benefitadministration16.8 Reductions in the cost of benefitadministration14.8Other 14.6 Less need to maintain/increase attractivenessto employees13.1Skills shortages 6.6 Easing of skills shortages 1.6
  43. 43. MANAGEMENTPENSIONSMandatory auto-enrolment of eligible employees into contributorypension schemes has taken effect for many of our respondents thisyear and is on the horizon for many more. Our respondents reportthe challenges of auto-enrolment centring on cost, organisationalcapacity to deliver and communication issues with employees andthird parties.Pension schemesTable 31 shows 90.5% of organisations currentlyoffer to contribute to an employee pension scheme,broadly in line with our findings last year. Onceagain, results show differences by sector, size andownership of organisation. In general, public andthird sector employers are more likely to contributeto pension schemes, as are very large organisationsand those which are UK-owned divisions. Incontrast, private sector services, SMEs and UK-owned organisations are the least likely to offercontributory pension schemes. Over the next coupleof years, as auto-enrolment regulation extendsto more organisations, we would anticipate thenumber of organisations not currently offeringschemes to grow smaller and smaller.Table 31: Organisations contributing to a pension scheme (% of respondents)IncreasespendAll 90.52012 89.22011 98.9By sectorManufacturing and production 88.5Private sector services 84.2Public services 97.1Voluntary, community, not-for-profit 97.5By sizeSME (<250) 81.2Large (250–9,999) 97.7Very large (10,000+) 100.0By geographic ownershipMainly UK-owned organisation 89.8Division of mainly UK-owned organisation 100.0Division of internationally owned organisation 91.4
  44. 44. REWARDMANAGEMENT2013432013Table 32 and Figure 10 show the type ofpension schemes currently operated in oursurvey organisations. Defined contribution (DC)schemes continue to be the most common, withdefined benefit (DB) schemes and contributionsto personal pensions largely accounting forthe remainder. The year-on-year decrease inDC schemes and increase in DB schemes is mostlikely due to sampling differences across years.This year’s sample has a greater representationof public services than previously, where DCschemes are uncommon. The sectoral split remainsconstant; open DB schemes are now largely absentfrom the private sector, while they are still theprevailing type of scheme in the public sectornotwithstanding sweeping reforms coming intoforce over the next few years.Table 32: Open pension schemes (% of respondents operating pension schemes)DefinedcontributionDefinedbenefitContributionto anindividual’spersonalpension Other HybridAll 55.2 28.1 24.9 4.5 2.52012 63.9 22.0 23.5 2.5 2.02011 69.4 25.4 15.5 2.0 1.6By sectorManufacturing and production 66.7 10.3 28.7 2.3 4.6Private sector services 56.7 4.1 26.3 6.4 2.3Public services 15.2 74.3 8.6 1.0 1.0Voluntary, community, not-for-profit 63.0 23.5 25.9 4.9 1.2Contribution to personal pension Defined benefit70806050403020100Manufacturing andproductionPrivate sectorDefined contributionPublic services Voluntary andnot-for-profitFigure 10: Open pension schemes, by sector (% of respondents operating pension schemes)
  45. 45. MANAGEMENTDefined contribution pensions schemesFocusing specifically on DC pension schemes, Table33 shows a relatively low level of organisationsauto-enrolling employees, with only 34.3%currently doing so. As may be expected, ratesof auto-enrolment are far more common in thepublic sector, where it has been standard practicefor some time, and very large organisations, whichhave been in the first wave of employers subjectto pension reform (see Figure 11). Indeed, thestaging date from which organisations employingmore than 10,000 were due to action auto-enrolment was 1 March 2013, so it seems a fairlylarge proportion of organisations may not havestarted enrolling employees into their pensionscheme until after they had completed our surveyquestionnaire.Table 34 shows there are high levels of employeemembership reported by our respondents, withmembership levels of 70% plus being the mostcommon. There is clear sectoral variation here;public services are much more likely to have highermembership, while for the voluntary, communityand not-for-profit sector, membership levels aremore likely to be between 10% and 30%. Figure12 shows a direct association between whetheror not an organisation auto-enrols employeesinto DC pension schemes and membership levels,with the highest membership levels foundin organisations using auto-enrolment and,predictably, the lowest levels of membership inorganisations without auto-enrolment. This is aclear indication that pension regulation changesmaking auto-enrolment mandatory will encouragepension scheme membership.Table 33: Organisations auto-enrolling members to DC pension schemes (% of respondents)DefinedcontributionAll 34.3By sectorManufacturing and production 28.0Private sector services 27.2Public services 61.1Voluntary, community, not-for-profit 19.7By sizeSME (<250) 26.8Large (250–9,999) 35.7Very large (10,000+) 60.6Table 34: Membership levels of open DC pension schemes (% of respondents with DC schemes)10–30% 31–50% 51–70% Over 70%All 20.1 21.0 23.2 35.7By sectorManufacturing and production 24.3 25.7 15.7 34.3Private sector services 22.0 22.8 28.5 26.8Public services 4.3 8.6 24.3 62.9Voluntary, community, not-for-profit 29.2 26.2 20.0 24.6
  46. 46. REWARDMANAGEMENT201345201370806050403020100Manufacturing and production Private sector Public servicesSME (<250) Large (250−9,999) Very large (+10,000)Voluntary and not-for-profitFigure 11: Organisations auto-enrolling members to DC pension schemes, by sector and size(% of respondents)Auto-enrolment10−30% 31−50% 51−70% Over 70%No auto-enrolment70806050403020100MembershipFigure 12: Pension scheme auto-enrolment and membership levels (% of respondents)
  47. 47. MANAGEMENTTable 35 shows the average (mean) contributionrates to open DC pensions are 7.9% employercontribution and 5% employee contribution.There are far higher rates of contribution fromemployers and employees in the public sector(and therefore public sector services and divisionsof UK-owned organisations) and the lowestrates of contribution in private sector services,private sector firms which are privately held,and internationally owned organisations (seeFigure 13 for structural ownership breakdown).Contribution rates are also linked to membershiplevels (see Figure 14). Membership levels increasewhere employer contributions are higher andmembership levels are more frequently lowerwhere employer contributions are lowest,indicating that employees are more likely to joina pension scheme which offers a high employercontribution.Table 35: Employer/employee contributions to DC pension schemes (% mean contribution)Employer EmployeeAll 7.9 5.0By sectorManufacturing and production 7.3 4.5Private sector services 6.1 4.1Public services 12.3 7.5Voluntary, community, not-for-profit 7.9 4.9By geographic ownershipMainly UK-owned organisation 8.3 5.2Division of mainly UK-owned organisation 10.0 5.4Division of internationally owned organisation 6.6 4.4By structural ownershipPrivate sector (privately held) 5.6 4.1Private sector (publicly held) 7.7 4.6Public sector 13.3 7.6Non-profit 8.5 5.2