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Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012
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Daniel Hibbert - Reward in Local Government - PPMA Seminar April 2012

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    • 1. REWARD IN LOCAL GOVERNMENT27 April 2012
    • 2. RECENT DEVELOPMENTS
    • 3. Recent developments CLG Guidance: The Localism Act 2011 • Requires disclosure of all salaries • Requirement to produce a “Pay Policy Statement” over £58,000, together with from 2012/13 salary structure and pay bands; • The policy statement must be approved by a • Full council should approve resolution of the full council before it comes into force salary packages over £100,000; • In doing this authorities must “have regard to” any • The pay multiple between the guidance issued by the Secretary of State highest salary and the median should be published; Local flexibility • Local authorities should Will Hutton’s Fair Pay Review “consider” Will Hutton’s Earn with stronger • Recommends performance-related pay through an Back proposals; governance “earn back” arrangement • And more helpfully: and • Supports “gainsharing” for all employees “Each local authority is an disclosure • Recommends use of Remuneration Advisory individual employer in its own requirements Committees where decisions are made by elected right and has the autonomy to politicians make decisions on pay that are appropriate to local circumstances and which Treasury deliver value for money for • Strongly pushing the “regional pay” agenda local taxpayers”. • Emphasis on controlling costsMERCER© 2011 Mercer (Switzerland) SA 3
    • 4. How does local government pay compare with the private sector? The examples below shows how the total package for local government jobs compares with those of comparable size in the private sector: Housing Officer v private sector Chief Executive v private role of comparable size sector Head of Organisation £35,000 £400,000 Pension and benefits £30,000 Other direct compenstion £350,000 For most roles the Base salary £25,000 £300,000 local government £250,000 package is £20,000 competitive with £200,000 £15,000 the private sector, £10,000 £150,000 but less so for £100,000 more senior £5,000 £50,000 positions £0 £0 Local governm ent Private sector Local governm ent Private sector com parator com parator Notes: • Comparisons are made using Mercer’s IPE job evaluation system. The Housing Officer is assessed as being in IPE Position Class 45 and the Chief Executive in IPE Position Class 66. • Local government pension is valued at 20% of base salary. • Other direct compensation includes the value of bonus and long-term share incentives. • Private sector data are drawn from Mercer’s Total Reward Survey which has data from around 70,000 UK positions.MERCER© 2011 Mercer (Switzerland) SA 4
    • 5. DEVELOPING A STRATEGICAPPROACH TO REWARD
    • 6. The future challenges for reward in local government External drivers The challenges Political The HR challenge: • More emphasis on regional pay How can we improve • Additional disclosure requirements employee performance whilst • Continuing “anti-bonus” rhetoric maintaining control of costs? Local government • Single status largely completed • Three years of pay freeze The reward challenge are to: • Pension reforms reducing value of • Integrate reward as part of the pension wider Employment Value • More commissioning of services and Proposition less delivery • Have more segmentation of reward • Pressures on costs and performance for different types of jobs • Align reward with Labour market performance/contribution • An aging workforce • Adapt reward for transformed • A younger workforce with different values organisations • Increasing competition (if/when the economy recovers)MERCER© 2011 Mercer (Switzerland) SA 6
    • 7. Moving to a “top down” approach in developing reward strategy A better approach – Inflexible complex – What does the systems providing organisation need Likely Business to achieve ? poor value for money Outcome Strategy – What recruitment and – What people skills are retention issues need needed to do this ? fixing? HR – What is the HR – How can we integrate the Strategy Policy Employment Value reward policy with other Proposition that will HR policies and obtain these? processes? – What can we afford? – What reward system Reward Reward – What is the latest “best is needed to make Policy Strategy practice” and guidance this happen ? we can copy? The usual approachMERCER© 2011 Mercer (Switzerland) SA 7
    • 8. The components of a reward system Reward systems are comprised of three  All organisations need to decide on elements: job size, market rate and performance: the appropriate balance between these elements, depending on their culture, business and the employment Job size Market markets in which they operate. rate Reward Alignment of  Private sector organisations tend to system the value of place a greater emphasis on the skills with the market rate, whereas in the public external market Performance sector job size is more important.  In the future local authorities will need Taking account of: to place a greater emphasis on: The responsibilities • The achievement of – Performance or contribution, to and impact of the job, annual objectives, • Levels individual align reward strategy with the and the levels of knowledge and skills skills and broader HR objectives; required competencies – Market rates to recognise that the diverse types of jobs and professional groups within the Managed and communicated as part of an organisation. integrated Employment Value PropositionMERCER© 2011 Mercer (Switzerland) SA 8
    • 9. THE FUTURE CHALLENGES FORREWARD IN LOCAL GOVERNMENT
    • 10. Reward as part of an Employee Value Proposition (“EVP”) Employee gives: Employee wants: • Time • Pride in their work What • Knowledge • Respect is an • Engagement • Material rewards EVP? • Passion • Personal Development Some facts: Generally reward in local government: • Highly engaged employee are 87% less • Is dealt with in isolation, disconnected from the likely to leave their jobs than their less tangible aspects of the EVP disengaged counterparts (The Conference Board) • Does not recognise the wants and aspirations of • Private sector companies with high levels of different groups of employees engagement are more profitable (ISR) • Does not recognise either individual or • Higher levels of employee engagement have organisational performance/contribution been proven to increase customer • Has a history of negative messages: equal pay satisfaction levels (Oakley) claims, pay freezes etc • Engaged employees are far more likely to suggest or develop ways to solve customer And in summary does not make a positive problems and to improve management or contribution to the overall EVP! business processes (Gallup)MERCER© 2011 Mercer (Switzerland) SA 10
    • 11. Where does reward fit in the overall EVP? How important are the following factors in influencing your motivation and engagement at work? % Extremely / Very Important Being treated with respect 81Mercer’s research shows Work life balance 73that 66% of employees The type of work you do 71think base pay is Quality of people you work with 71important or veryimportant in influencing Providing good service to others 71their motivation at work Quality of leadership in organisation 70 Base pay 66 but Long-term career potential 56 Flexible working opportunities 54Being treated with Learning and development 52respect scores 81%! Benefits 47 Promotion opportunities 46 Incentive pay/bonus (if applicable) 44 Source: Mercer What’s Working™ UK 2010MERCER© 2011 Mercer (Switzerland) SA 11
    • 12. Segmentation of reward• Most local authorities have a highly diverse workforce and reward systems need to: – Reflect the nature of the different types of work being carried out; – Support the different career development patterns for different roles; – Be connected with the wider talent management processes.• Different approaches for different groups of employees will not result in Equal Pay issues if they are managed properly. For example: The example shows two different jobs £30,000 Stretch bonus with employees carrying out work of equal On target bonus Base salary £25,000 value. Employee B would not succeed in an £20,000 Equal Pay Claim with Employee A as a £15,000 comparator because on target earnings are the same. £10,000 (Provided that the incentive scheme is £5,000 managed properly!) £0 Employee A Employee BMERCER© 2011 Mercer (Switzerland) SA 12
    • 13. Reward for performance/contribution• Performance-related pay has had limited success in the public sector• The reasons for this are: – Schemes have tended to have over-ambitious/unclear objectives leading to poor design, and then disillusionment; – A “one size fits all” approach to individual performance-related pay does not work; – And (more recently) the political noise about bonuses!• Two simple questions can determine whether performance-related pay is appropriate: – Can the pay system be fair without recognising different levels of performance within the organisation? – Can the organisation achieve high levels of performance if this is not reflected in and communicated through the reward system?MERCER© 2011 Mercer (Switzerland) SA 13
    • 14. Getting clarity on the objectives for performance-related pay¢When designing performance related pay systems it is important to be clear about the objectives that are to be achieved: Easy Objective Comment 1. Reflect market practice and Many bonus and incentive schemes in the private sector recruit and retain talent (including much of Boardroom pay) are designed to achieve this limited objective. 1. Align reward with Ensures people are paid more if the business is successful organisational performance and that employees understand the priorities. Share evel of difficulty and communicate priorities incentives, profit sharing / gain sharing and team bonuses fall into this objective. 1. Reward employees fairly, Provides reward based on individual contribution. This works based on their individual best for jobs where a) individual performance can be easily contribution differentiated and b) where there is the capability to measure performance. 1. Create an incentive for Pay is genuinely used as a lever to enhance individual and improved performance organisational performance (sales incentives fall into this grouping). In addition to the requirements in 3. above it suggests that individuals are motivated by financial reward. Difficult! Performance-related pay in the financial services sector is at level 1, in that its primary purpose is to compete and to support the retention of key staff. Local government should focus on levels 2 and 3: aligning reward with organisational performance and enabling a system that distinguishes betweenMERCER© 2011 Mercer (Switzerland) SA stronger and weaker performers where the job is suitable for individual performance-related pay. 14
    • 15. Individual performance-related pay depends on the type of jobEase with which performance can • Postal workers • Sales roles Individual • Bus and train drivers • Manufacturing/production jobs (where performance-related outputs are simple) pay is best suited to • Manufacturing/production jobs (which Easy these types of jobs require team working) • Managers (with a profit centre) where individual • Cleaners and most other manual jobs • Senior executives performance can be be measured easily differentiated and measured. • Simple back office administrative/ • Teachers and doctors customer service roles • Waiters and similar customer service • Police constables and security staff roles Difficult • Members of the Armed Forces • Managers (without a profit centre) Sometimes individual • Professional services roles performance can be • Manufacturing/production jobs (where differentiated but it is outputs are complex) very hard to measure. High levels of Limited Substantial performance management Extent to which performance can be differentiated capability are needed to link pay to For some jobs it is simply not possible to performance for these differentiate individual performance - these types of jobs. jobs are better suited to team bonuses/gainsharing arrangements. MERCER © 2011 Mercer (Switzerland) SA 15
    • 16. Adapting reward for transformed organisationsThe past: How reward is central to the transformation journey The future: Traditional local government Future local government reward reward Costs managed through national Costs managed by each organisation pay frameworks to fit with unique circumstances Pay systems administeredTraditional delivery through complex and inflexible Pay systems actively managed to respond to the needs of the businessorganisations with processes Smaller leanera large workforce Reward managed in unconnected Reward aligned with an integrated professional groups approach to talent management organisationsorganised around with fewerdepartmental Emphasis on equal pay Achieving equal pay compliance compliance alongside greater flexibility directlyservices Fixed costs, including incremental More flexible reward models which commissioned costs that have limited connection are tied in more closely with services with performance performance Reward for contribution and Reward for tenure performance An integrated “Total Reward” Each term and condition of approach to all terms and conditions, employment managed separately including pensions Reward integrated with the wider Reward dealt with in isolation as “Employment Value Proposition”, a specialist technical area linked to HR and business strategies MERCER © 2011 Mercer (Switzerland) SA 16
    • 17. CONCLUSIONS
    • 18. Some conclusions• We now have a reasonably settled policy position on the management of reward: – Local flexibility and accountability; – Underpinned by more onerous governance/disclosure requirements.• In the future local authorities will need to develop more strategic approach to reward including: – Making reward part of an Employment Value Proposition; – Adapting reward for different types of roles (segmentation) and linking to talent management; – Rewarding for performance/contribution; – Adapting reward for transformed organisations.MERCER© 2011 Mercer (Switzerland) SA 18
    • 19. QUESTIONS AND DISCUSSIONMERCER© 2011 Mercer (Switzerland) SA
    • 20. Mercer contactsChristopher Johnson Daniel HibbertSenior Partner PrincipalMercer | Tower Place Mercer | Tower PlaceLondon EC3R 5BU London EC3R 5BUUnited Kingdom United Kingdom+44 (0) 20 7178 7343 +44 (0) 20 7178 5520+44 (0) 7920 261226 +44 (0) 7557 031371christopher.johnson@mercer.com daniel.hibbert@mercer.comMERCER© 2011 Mercer (Switzerland) SA 20
    • 21. The role of the market in pay determination Market rates of pay should inform pay decisions and this requires careful consideration as to the different markets that should be applied to different types of jobs National, regional or local? Large National markets The question of whether there is a national or local pay market is primarily determined by Size of the job the number of positions that are available nationally and the size of the job as shown opposite: Local markets Other factors, such as supply and demand and the strength of local transport links, also Small have an important role in determining whether the job has a local, regional or national Many Few market. Number of national positionsLocal government, wider public sector or private sector? • For many jobs both markets are relevant and should be considered; • The private sector market is much less relevant for more senior and specialist roles.MERCER© 2011 Mercer (Switzerland) SA 21

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