Reward trends in 2007 – What Were the Highlights?

2007 can be described as a year of contrasts. High profile private equity deals such as Alliance Boots early in the year were countered by the creeping influence of the much cited ‘credit crunch’ in the second half of the year with the potential knock-on effects this has for the economy. Focusing on reward, the past year has been notable for a range of issues such as pensions, equal pay in the public sector and more. Just Rewards takes a closer look at three topics that capture some important highlights of 2007.

• Performance pay implementation lags behind design

While performance pay continues to be a prominent feature of contemporary reward practices today, evidence suggests that performance pay system design has improved over recent years.  This contrasts to sometimes inadequate implementation practices where line managers may be ill equipped to make judgements which directly impact take home pay. 

Check out the November issue of Just Rewards on performance pay by clicking here.

• Executive pay rates begin to reflect non-financial performance targets

2007 has seen an increase in companies using non-financial performance targets such as employee engagement for senior executives with less than 20% pure financial measures. It is likely that this trend continues as companies look to manage shareholder expectations for increased transparency on executive reward and offer greater opportunity for bonus aligned to rigorous performance targets.

Check out the September issue of Just Rewards on Executive Reward by clicking here.

• Job evaluation continues to grow

According to research from CIPD and e Reward.co.uk job evaluation shows no sign of losing popularity with 60% using a scheme for some or all of their employees. With equal pay high on the public sector agenda this year, this may have helped contribute to the growth of employers using job evaluation. Unsurprisingly most organisations use job evaluation to design and maintain a defensible pay structure.  

Check out the October issue of Just Rewards on Job Evaluation by clicking here.

The Year Ahead – What is on the 2008 Reward Agenda?

Here we take a look at two topics likely to feature on the 2008 reward agenda. These are also topics which we plan to feature in Just Rewards over the coming year. 

• Reward customisation and shift away from transactional reward

Despite the rhetoric on strategic reward practices, evidence from CIPD and others indicates that reward practices still remain largely transactional. However, this situation is changing as more organisations compete to attract and retain people from a more discerning talent pool. Employers such as RBS and Nationwide Building Society have taken steps to ‘segment’ their employees taking account of demographics to build an employee value proposition (EVP) which includes reward customisation. We are likely to see more of this in 2008 and Just Rewards will feature reward customisation over the coming year.

• Managing reward in a low inflation environment

While UK inflation rates have risen in the past year, Incomes Data Services (IDS) predict that private sector pay increases are expected to range from 3% to 4.5% next year with the public sector between 2% and 3.5%. While economic uncertainties continue and bonuses in financial services expected to be lower next year, what is the impact of managing reward in this environment? As past experience indicates, the scope for differentiating performance based reward becoming more challenging. While some organisations respond to low inflation by granting unbudgeted ‘special case’ pay adjustments, this typically results in higher pay bill costs and equity concerns. Just Rewards will feature this topic over the next year.

Website of the Month

For this month’s website review we look at e-Reward.co.uk, the UK’s first website dedicated to reward launched over 8 years ago by Michael Armstrong and Paul Thompson, both renowned experts in reward.  

Why look at the site? – A combination of high quality content that is innovative and comprehensive makes this one of the best reward websites around. Access to most of the content is free of charge including e-reward bites, the email newsletter and The Reward Quarter, a quarterly PDF based reward publication.

What works well? – As a long term subscriber to the website, quality content is the starring feature. This includes surveys such as the UK Reward Census 2007 which focuses on the reward function and the role of the reward practitioner. Check out the excellent fact sheet section which also covers less mainstream topics such as the thinking of top US Reward Gurus such as Ed Lawler and the breakthrough ideas that they are renowned for.

What could be improved? – While few reward websites match up to the standard of e Reward.co.uk  it would benefit from getting the forum part of the site up and running and increasing the scope of  international content.

Just News

Below inflation earnings increase for ‘average’ UK worker while gender pay gap progress slows.

According to the Annual Survey of Hours and Earnings (ASHE) the pay increase for the average UK worker was below inflation at 2.9%, below the headline inflation rate of 4.5% for the year to April 2007.

The ASHE report also indicates a slowing down of the gender pay gap from 12.8% to 12.6% or 0.2% as compared to a narrowing of 0.4% and 0.7% over the previous two years. 

India tops the league for expected pay rises in 2008.

Projections for pay increases and inflation rates across 62 countries shows that India tops the league next year with 14.1% pay rises expected, nearly 10% ahead of inflation which is predicted at 4.3%. According to Mercer, who produced the data for the 2008 Global Compensation Planning Report, this indicates the need to consider future pay increases as well as current levels when determining locations for labour sourcing.

By contrast to India, pay rates in North America and most of Western Europe are anticipated to have the lowest pay increases worldwide with the highest in Ireland at 4.7% and the lowest in Switzerland at 2.5%.

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