Reward and the HR Practitioner

1. Andrew Walker Croner Reward April 2009 Reward and the HRPractitioner

2. Subjects covered • Some background • The general landscape and some specific research • Where does reward fit in right now? • Q&A

3. Croner Reward – An Overview • Founded 1972 • Part of Wolters Kluwer (UK) Ltd since October 2001 • Researchers, Publishers and Advisers • Publish 60 – 70 surveys each year • Undertake 100 – 120 Job Evaluation projects

4. Surveys SalarySearch Intellectual Asset Consulting Research Reward services Regional National Sector Specific Online E-commerce Job Evaluation Pay and Grading Executive Remuneration Other Consulting MRR Overseas pay Company Car Benefits Research

5. The Landscape

9. Downward Pressures Inflation Company Performance Problems raising prices Global Competition Equal Pay Economic climate Important pressures on pay rises Upward Pressures • Inflation • Company Performance • Recruitment Problems • Retention Problems • Industry Pay Pressure • Union Recognition • Skill shortages • Equal Pay

10. The Landscape – Autumn 2008 • Survey of 150 employers • Specifically asked about the landscape • Conducted in a 48 hour period in September 2008 • A real snapshot of what employers think

11. The Landscape • Based on their own experience, • 83% said inflation was applying upward pressure to pay right now • 36% told us that company performance was having a down ward effect on pay • Roughly half felt that skill shortages were having an upward effect, but the remaining 50% mostly saw this as having no impact currently • 79% said that trade union activity was having no effect either way on pay setting in their organisation • Thinking about what they have heard anecdotally, • 92% thought inflation was affecting others by applying upward pressure • 44% thought that company performance was pushing pay settlements down • 67% thought that trade union activity was pushing pay levels up in other organisations

12. The Landscape • Asked about their last review • Reasonably even split between more, less, the same • Average 3.92% • Nearly half budgeted for the same as previous year • Asked about pressure on pay 42% said they are under pressure to give more, although 41% don’t know yet for sure • Asked about next pay review • 44% would the same as last year • 25% would give less • Average 3.85% predicted • Only 30% would give more in the next pay round • So despite all of the indicators, more of which pointed to upward pressure, most employers gave the same as or less than they did the previous year

13. The Landscape - Now • Survey of same employers • Asked broadly the same questions about the landscape • Conducted in a 1 week period in April 2009 • A new snapshot of what employers think

14. The Landscape - Now • Based on their own experience, • 43% still said inflation was applying upward pressure to pay right now • 38% told us that company performance was having a downward effect on pay • Roughly two thirds feel that skill shortages are having no impact on pay levels currently • 80% said that trade union activity was having no effect either way on pay setting in their organisation • Close on 50% state that “general market forces” are applying downward pressure • Thinking about what they have heard anecdotally, • Only 26% think inflation is affecting others by applying upward pressure, down from 92% in September • Less than 60%% think company performance is pushing pay settlements down • Around half think that trade union activity is pushing pay levels up in other organisations, compared to nearly 70% last time

15. The Landscape - Now • Asked about their last review • Still reasonably even split between more, less, the same, but with a spike in the “less than” group • Average still at 3%, but that's down from 4% last time • Nearly half budgeted for the same as previous year • Nearly a quarter implemented a 'pay freeze' and 2% gave a pay cut. • 50/50 split on paying bonuses. • Where there was a pay cut, it applied to all staff

16. The Landscape - Now • Some new trends emerging • 65% have implemented a recruitment freeze • Nearly 60% have cut jobs • A further 30% have stopped overtime and/or cut shifts • Looking forward • 62% are planning to cut jobs further • Over 50% plan to stop overtime and /or cut shifts • The recruitment freeze remains in place for the 60% for the time being • Challenges • 66% claim that a drop in revenues is their biggest challenge right now • But a third say that they are at risk because their own customers have gone out of business • Nearly a third say their biggest issue is to carry out a restructure or a downsizing

17. The Landscape - Now “Approach was - if we want to be here tomorrow we need to bite the bullet now” “I think some companies are using the climate to reduce salaries when there is no real need for them to do so.” “It's mostly about sales If no one is buying companies will experience a very tough time.” “The single most significant factor is really the uncertainty about how things are going to impact us. We provide international / expatriate health insurance, and so far seem to be riding the storm.” “impact of NMW on our lower paid workers” “No use of agency staff”

18. Possible actions • Pay freeze – simply stop giving pay rises • Pay pause – commit to current rise, but only when appropriate • Pay cut – Reduce pay for same hours • Reduce hours – cut overall paybill costs • Reduce or stop overtime • Cut shifts • Freeze recruitment • Redundancy

19. So where does this take us in managing reward?

20. Two Questions • What is your biggest strategic reward challenge right now? • What is currently your biggest day to day reward issue?

21. Reward Strategy -A Simple Definition “ A Reward Strategy is a means of using base pay and/or other forms of reward to promote positive behaviours and values which contribute to the achievement of the organisation’s corporate goals.”

22. Operational issues • Historically cumbersome pay structures • Inconsistent and badly designed • Designed to give control over progression, not flexibility • Not integrated into business • Lack of engagement • Often complex and poorly understood

23. Business issues • An HR/Personnel/Finance function • Paper driven • Too much discretion • Lacking transparency • Unequal

24. Opportunities and Challenges • The drivers of change? • What are the opportunities? • How big are the challenges? • How might these impact on reward systems and strategies?

25. What are the Drivers of Change ? • Technology • Thinking and approach • The world in which they and we operate • Legislative framework

26. Better performance More direct involvement Business integration Improved management A genuine ROI model Investment Acceptance/Acceptability Change management Equality Time and resource – in house vs outsourced Opportunities and Challenges

27. Impact • A new way of working • More business focused • Flexible without being chaotic • Tighter without being constrained

28. Two Examples

29. Job Evaluation • Users wanted relevant, flexible tools • Transparency was crucial • Not a “black box” • Simplicity the watchword

30. Job Evaluation • Moves away from vast structures • Local system, local impact • But integrated, flexible, responsive • A business tool

31. Job Evaluation • Job Evaluation as a tool, not a God • Felt Fair, Consistent, Defensible • Linked to market benchmarking • Informed decision making • Equality

32. Job Evaluation • Technology allows for this • Thinking has enabled the process • As the world gets smaller, the links get bigger • Equality and transparency

33. Job Evaluation • PC based and online systems • Paperless Job Descriptions • Roles and competences • Tailored factors • Linked directly to personnel records and other systems • Not a reason not to do something

34. Where does this lead? • Tension between “off the shelf” and flexible systems • Pay systems that reflect reality • Enable companies to pay on contribution, not service • Better visibility on equality

35. Salary Surveys • Reflect the reality in the market (s) • Map to organisational shapes and structures • Have to cope with new and emerging skill sets, jobs and industries • Are dynamic and evolving • Whilst remaining consistent

36. Salary Surveys - Challenges • Job titles – new or just different • Benchmarks must be responsive • More “special” surveys • Sample sizes change • Data groupings alter • Participation model has to evolve

37. Environment • Less about base pay • Measuring the mix • Best practice – is there one ? • Technical design – broadbanding, competencies • How does it all fit together? • Equal pay issues

38. Technology • Allows for more immediate participation • Allows for faster processing • Gives more flexible/relevant outputs • Offers alternative delivery channels • Also gives rise to alternative sources • Face validity issues

39. Where does this lead? • Dilution in survey value • Time/cost/benefit • Smaller, more focused surveys • Spreadsheet, CD and Internet delivery • E-commerce – data as a commodity

40. Consider this • With flexibility comes responsibility • Have contingency plans • Do not be afraid to react to change

41. The Last Word • The drivers allow real change to take place • More flexibility? • More direct participation • Here to stay

44. Question and Answer

45. April 2009 Reward