Welcome to the November issue of Just Rewards, your newsletter from Reward First People Consulting. This month we look at the Annual Salary Review, focusing on Tips to make it work for your organisation and how to manage employee expectations during the economic downturn.

 

Included in this issue

  • Annual Salary Reviews – How Can you Manage Employee Expectations?
  • Tips – What are the Golden Rules of a successful Annual Salary Review?
  • Website of the Month – DirectGov: The Pre-Budget 2008 Report (UK)
  • Question of the Month – The Rewards Topics you Selected for 2009

 

Just Rewards newsletter for December will focus on a preview of the reward landscape in 2009 and a look back on the past year. To ensure that Just Rewards reaches your mailbox each month we recommend adding sylvia@reward-first.com to your ‘safe list’ on email options. Please continue to send us your comments and suggestions by clicking here to e-mail us.

 

Best wishes,

Sylvia Doyle

  
 
 

Annual Salary Reviews – How can you manage employee expectations in a downturn?

 

For most organisations, the Annual Salary Review still represents an important phase in the reward calendar. Ok, it may take weeks or even months to plan, deliver and communicate it. However it gives employees the opportunity to receive a pay increase which recognises their performance and external worth in the market

 

Perhaps the most important development is that just over 50% of all employers in the UK continue to offer a pay increase based on cost of living according to the 2008 CIPD Reward Management survey. Due to the economic conditions this year, some organisations are planning little or no increases to base pay. In some cases, companies such as JCB have gone a step further by asking employees to agree to pay reductions in order to retain their jobs.

 

As organisations face a more challenging business environment and opportunities over the coming year, effective 2-way communications is essential to help keep key staff engaged. For more information on these topics see the past issues of Just Rewards on Communicating Reward - Why Does it Matter? and The Role of Reward in an Economic Downturn.

 

 

Take a look at the Tips section to check out the golden rules to carry out a successful Annual Salary Review?

 

 

Tips:  What Are the Golden Rules of a successful Annual Salary Review?

 

The tips are based on article by Sylvia Doyle in People Management, 8 Feb 2007.

 

1 - Work out your budget – Start by determining the money that needs to be set aside in the financial budgets. A range of external factors e.g. key economic indicators, predicted pay progression and internal factors e.g. company’s stated pay position, ability to pay etc. This year the question of affordability may be high on the agenda for most organisations. 

2 - Review reward principles – Once the budget has been agreed, review reward principles to ensure they are still relevant and aligned to your goals. Establish agreement on key principles, for example adopting a target market position for base pay and total cash. Be specific about principles that apply to scenarios such as pay adjustments for promotions etc. for consistency. Set criteria applicable to who will be included or excluded e.g. new joiners, leavers etc.

3 - Analyse market pay data – Setting pay by reference to external market is critical to the credibility of the ASR. Before starting this analysis, make sure that your internal data is accurate to take account of job changes etc. .It is essential to select relevant and reliable survey sources for your industry sector and reviewing them annually to ensure they are fit for purpose.

 

Establish a selection checklist to assess how effectively each survey’s benchmark jobs match up against those in your organisation. Data should be less than a year old, and typically data of 6 -12 months old may be ‘aged’ to reflect the time lag. Don’t put all your eggs in one basket by relying on a single source – ideally using two sources as standard.

 

4 – Gain budget approval – The market pay analysis provides the hard evidence to cost the budget requirements of the ASR. Where there are pay structures or individual pay ranges, the budget is typically based on getting people to the market pay median. Individual performance is increasingly being used to manage pay progression and needs to be factored into the budget. However as fewer organisations offer ‘cost of living’ awards, then performance or merit based increases may be the sole basis of the ASR. In the current economic climate, some organisations will plan minimal or no increases in 2009 and expectations need to be managed.

 

5 – Communicate the timetable – Ensure that performance and development reviews and associated ratings out’ are available by the time the ASR timetable starts. While this is essential for companies using performance-related pay, for others it completes the review of the previous year and the setting of this year’s goals.  Line managers need to be involved from early on and need sufficient time to meet deadlines. More and more organisations operate on an international basis, with cross-country reporting lines, which need to be factored in. For example, many carry out multi-country and multi-currency ASRs which also impact the planning and timescales.

 

6 – Support line managers  – Ensure that line managers fully understand their role in the process.  In practical terms, this means training them in how to determine the pay of individuals and teams on the basis of established reward principles. This typically includes guidelines on determining pay positions against agreed targets. Where merit or performance-related pay is used, pay models that determine an employee’s pay based on performance and market position need to ensure consistency. Taking time to support and train managers should pay dividends.

 

7 – Fine-tune the process – HR and Reward practitioners need to help manage the company’s internal pay consistently, while taking account of external competitiveness. This means challenging and testing ASR recommendations that drive pay distribution and ultimately affect people’s individual pay and perception of the process.

 

8 – Explain decisions to staff – In many cases, managers do little more than inform employees by letter of any new pay award without explanation. So it is hardly surprising that employee opinion surveys often show that employees do not understand how their pay has been determined. Given the impact on employee engagement ensure that managers are equipped to explain how and why individual pay decisions are made. For performance-related awards, they need to make sure employees understand the decision - this is not a time for surprises.

 

9 – Inform payroll – The final step is to inform payroll to ensure that ASR pay changes are processed in time for the date on which employees receive their review – and that the change actually takes place.

 

  

 

Website of the Month – DirectGov Pre-budget report 2008

 

This month we look at the 2008 pre-budget (UK) on DirectGov, the official government website.

 

Why look at the site? – HR and Reward professional need a clear understanding on how planned and imminent government changes will impact staff and employers. If you want a factual account of the 2008 pre-budget report that excludes commentary and opinion, then check out DirectGov.

It offers a clear and simple account of the UK Chancellor’s speech on 24th Nov 2008. For five

minutes of reading you can quickly assimilate the key points of this year’s pre-budget report.

 

What works well? – The facts have been supported by relevant tables, facts etc. as well as full video coverage of the pre-budget report itself if you are feeling brave!

 

What could be improved? –  With c. 5 million unique visitors per month, DirectGov demonstrates that it is relevant to for visitors. However, the Pre-Budget Report may be of less interest to HR & Reward professionals keen to hear expert opinions on the impact for employers.

 

  

 

Readers’ question – The reward topics you want to see in 2009

 

Last month, we asked what reward topics you want to read in 2009 and here are your top three:

 

  • Reward on a budget – how to keep staff engaged during a recession 
  • How to establish pay structures and make them work  
  • Sales incentives and rewarding sales staff in the current economy

 

Thanks for your feedback and these topics will be covered between January and June next year. If you have a reward questions for the December issue please click here to e-mail 

 

And if you participate in the CIPD Reward Special Interest Group meetings this is a reminder that presentation slides for the latest event are held on the Reward First news page

 

If you have a question for the November issue, let us know by clicking here to e-mail or look at the Just Rewards Blog.

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Please note that the advice provided in this newsletter is for guidance only. If you need specific advice relating to your requirements, please call Reward First on + 44 (0) 1367 710 618
 


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