CIPD is the professional body for HR | My Assignment Tutor

ReportDecember 2019REWARDMANAGEMENTFocus on payThe CIPD is the professional body for HR and peopledevelopment. The not-for-profit organisation championsbetter work and working lives and has been setting thebenchmark for excellence in people and organisationdevelopment for more than 100 years. It has 150,000members across the world, provides thought leadershipthrough independent research on the world of work, andoffers professional training and accreditation for thoseworking in HR and learning and development.1Reward management: focus on payReportReward management:focus on payContentsIntroduction and summary of key findings 2What do the findings mean for the people profession? 4Pay structures and progression 8Variable pay 17Risk, transparency and pay management 22Role of line managers 28Fairness in pay management 45Influences on pay management 59Background to the report 63AcknowledgementsThis report was researched and written by Liz Marriott, Data Analysis Consultant,Stephen J. Perkins, Global Policy Institute, London and Professor Emeritus atLondon Metropolitan University, and Charles Cotton, Senior Policy Adviser forReward, CIPD.We particularly acknowledge assistance from the following: Carol Richardson,Caroline Heslop, Colin Miller, Paula Evans, Jo Capstick, and Michael Robb, who allattended the July round table, and Maria Strid.Thanks also go to all the professionals who invested their time helping to informthe questionnaire, its completion and this survey report. In particular, for researchdesign insights from Professor Ian Kessler, King’s College University of London, andProfessor John Shields, University of Sydney.2Reward management: focus on pay1 Introduction and summary ofkey findingsThe sixteenth annual survey of UK reward management is based on comprehensive responsesreceived from 465 organisations, across private, public and third sectors. These findingsare complemented by findings from an employee attitudes survey, where almost 2,200individuals were polled, and from a senior HR practitioner panel. The main aim is to providereaders with a benchmarking and information resource on current and emerging practice inUK reward management. This year’s focus is on pay, and includes CIPD insights on the possibleimplications for the people profession. A summary of the key findings follows below.The contextEmployers face a variety of challenges when managing the pay of their workers.Traditionally, the focus has been on attracting, retaining and motivating employees tomeet employer needs. Employee reward was structured to reflect the levels of capabilityas well as the responsibility in performing a role, and the levels paid tended to reflectthe combination of what was judged to be the ‘going rate’ for particular skill sets acrossvarious job families as well as what the employer could afford to pay.Of course, these factors still remain important, but as labour markets have deregulated,and greater flexibility has been demanded – by employees as well as employers –attention has shifted towards greater customisation of reward and to implementing payapproaches intended to encourage and recognise particular forms of behaviour andperformance outcome.However, there is a wider set of considerations arising from the social context in whichorganisations are seeking to manage, incentivise and reward their people. In particular,the issue of justice: are people paid fairly for their experience, skills, commitment andcontribution?To help validate such judgements, organisations need to be more transparent about theirapproach to paying people and the relative outcomes. Fairness can be assessed in termsof the pay outcomes and processes for certain groups of employees (such as those withcaring responsibilities). It can also be assessed simply in terms of what is felt fair, such ascomparing the pay awarded to individuals at the top of the organisation with the ‘average’employee – though this does involve judgement as to where value is being created.As well as internal pressure, pressure to be more transparent is coming from outside– most notably the requirements for large organisations to publish their gender payratios and large listed firms their CEO pay ratios. Investors are becoming interested inhow the firms they invest in treat their ‘most important asset’ in terms of management,development and reward, and are looking for further disclosure to inform their decisions. Inthe realm of social media, employees, especially millennials, seem to be more open aboutsharing their terms and conditions through such sites as Glassdoor, as well as talking abouttheir pay experiences and opinions on Twitter and Facebook.In turn, our survey also explores issues around how pay levels and pay managementprocesses are communicated. This is partly because a more sophisticated approach to paymanagement creates technical challenges for HR to explain what’s being rewarded, howand why, but also because reward is emotive, and people make judgements about howthey and their colleagues are remunerated. Because of this, there needs to be a strongnarrative behind the employer’s approach to reward and recognition.Introduction and summary of key findings3Reward management: focus on payIntroduction and summary of key findingsAnother consideration is how pay decisions are made and communicated. In manyinstances, it is front-line managers who are communicating pay decisions, so one wouldexpect HR teams to be giving thought to how they can support their line managers andassess their effectiveness in doing so.This year’s survey was designed with all these considerations in mind. The findingsare presented from a managerial perspective and sometimes in the form of employeeattitudes. All these factors can influence pay management policies and practices, and havesections dedicated to them. However, in focusing on interpersonal and political factors,the point has not been lost that economic context as well as internal strategic drivers oncorporate decision-making on pay remain important. These aspects are also explored.The following summary of research findings focuses first on the issue of pay fairness andthe role of line managers, and then on how employers manage base and variable pay.Summary of findingsHow fair is pay management?• There is a difference between what HR respondents to the reward management surveybelieve is happening and what employees report. Three-fifths (60%) of organisationsclaim they talk about the fairness of pay processes and outcomes. However, when weasked staff a similar question, only 10% reported that their line manager always or oftentalked about both the fairness of the pay process and outcomes.• While most employers claim to talk about fairness, just a third report having a definitionof ‘fairness’ that they use in their communications about pay management.• Few employers survey their employees to check whether they think the pay processand outcomes are fair. The most common methods employers use to test pay equity aregender pay gap (used by 60% of respondents) and equal pay audits (39%).How effective are line managers?• Line managers are the ones most likely to propose a pay increase for their employees,though they are less involved when it comes to endorsing and approving salary increases,for which HR or the board are more likely to be involved. Similarly, they are less likely to beinfluential when it comes to determining the size of the organisation’s budget for wage rises.• There is a stark contrast between the views of HR professionals and employeesregarding the role line managers have in communicating the application of pay policies.While around half of employers say that their line managers have moderate or fullinvolvement in communicating to employees about pay levels and pay rises, nearlythree-fifths of employees claim never to have had an explanation from their managersabout why they get paid what they do.• Where line managers do talk to their staff about pay issues, more employees feel theirline managers are doing a poor job of communicating than those who think theirmanagers are doing a good job.• Among those employers that give line managers a role in making decisions aboutemployee pay, just 38% assess the effectiveness of their line managers in this role.How is risk, transparency and pay managed?• Risk management is an important aspect of corporate governance. However, justunder a fifth of organisations claim to have formal arrangements for risk-managing payprocesses. A further third of organisations, though, while having no formal process, dohave risk mitigation built into their review of the pay process.4Reward management: focus on pay• Only around half of employers communicate about how pay increases are decided,how pay structures work and what staff need to do to get a pay rise. Communicatingon how pay is determined in ways that enable individuals to compare their situationwith others is even less prevalent.• Most employers (60%) use a pay structure to organise base pay, with individualspot rates/salaries, narrow grade pay structures and salary increments being themost common. Pay progression along these grades is usually aligned to individualperformance, competencies and skills. The most common factors determiningwhere jobs should go within pay grades are the knowledge and skills required, thecomplexity of the job and the amount of judgement/decision-making needed.• There appears to be a long-term decline in the use of performance-related variableand non-variable reward schemes, with only 44% reporting their use in 2019, downfrom 65% in 2012. As reported in 2017, HR professionals find increasing resistanceamong line managers to deal with the angst and bureaucracy of performance-payarrangements without the ability to generate significant increases or bonus levels dueto budgetary constraints: as one panellist notably put it, it’s like ‘moving grains of sandin the desert’.• Our survey of employees finds that almost a fifth (23%) of workers have asked for apay rise in the past two years; men (25%) appear to be more confident about askingfor an increase than women (20%).What influences pay management?• Approximately a quarter of employers see sharing the success of the organisation withemployees as a key influence on pay policy, along with being seen to be fair whilesupporting the purpose and values of the organisation. This compares with almostfour-fifths who regard the traditional ‘attract, recruit and retain employees and achievecurrent business strategy’ as most important.• When it comes to external issues, competition with other employers with similarpay rates is the most common factor cited by respondents as a key influence on theirpay policies, followed by regulatory, legal and employment obligations and otheremployment rights legislation and economic conditions.2 What do the findings mean forpeople professionals?The 2019 CIPD Reward Management survey indicates that people professionals spend alot of time on pay management, in regards to structures, levels and progression. But aretheir efforts having a positive impact?To help organisations derive value from their pay system, people professionals shouldfocus on the following:Make sure that pay is fairThere is a disconnect between the views of people professionals and workers on payfairness. While 75% of HR respondents think all or the majority of people in theirorganisation are paid fairly, relative to their responsibilities and achievements, only 33%of workers would agree that this is the case.So how can people professionals help ensure that their organisation’s pay processes andoutcomes are fair? Our research shows that the more money a person receives, the moreWhat do the findings mean for people professionals?5Reward management: focus on paylikely they are to view their pay as fair. Among those who earn less than £20,000, only38% think their pay is fair. But among those who earn between £20,000 and £39,999,the proportion jumps to 50%, and increases further as personal earnings rise.As such, people professionals should help their employers to explore whether theyare paying their staff enough, and as a minimum a liveable wage. Paying a wage thattheir people can live on can actually help organisations, as money worries are a keydriver of employee stress, which in turn impinges on productivity and organisationalperformance. The CIPD has further guidance and resources on supporting employeefinancial well-being.It is recognised, however, that increasing wages can be challenging for employers.People professionals can help by reviewing the organisational design, the roles andfunctions, and how these can be improved to boost productivity and sustain wageincreases – for instance, upskilling employees so that the firm can focus on producinggoods and services that have higher profit margin.Improve employee perception of pay fairnessImproving perceptions of fairness is also important, and one way to do this is to talkabout fairness when communicating about pay processes and outcomes. This enablesemployees to better understand the reward ‘deal’ in terms of what the organisationwants from them and why, and then, in return, how it will reward and recognise theirefforts. Currently, only 60% talk about the fairness of their pay processes and outcomes.A mere 25% survey their employees on what they think about the fairness of thoseprocesses, and just 23% do the same regarding pay outcomes. It is perhaps no surprise,then, that there is a resulting discrepancy between HR perceptions on pay fairness andthose of employees.A useful building block for employers to discuss the issue of pay fairness with employeesis having a definition of fairness. Such a definition may vary from organisation toorganisation depending on their contexts. However, some broader considerations onfairness could be used to guide the establishment of a definition. However, 70% saythey do not have one. Having a definition can be a useful internal aid so that there is anagreed understanding among managers about what being fair looks like in terms of pay.Here, HR has an important role in helping develop one and ensuring that all managersbehave fairly when making reward decisions.Creating a definition and sharing it with employees not only allows them to understandhow they will be treated, but it can also be a useful starting point to get their feedback.For instance, how do they define fairness and how does this compare with themanagement definition? This will help identify gaps in understanding and suggest waysin which these can be closed.Encouraging line managers to talk to their teams about the fairness of pay processesand outcomes is another way to draw feedback from employees, but only a third ofemployers are currently doing this. The rest are missing out on an important opportunityto find out what their people think about how they manage pay. It is reasonable toexpect that line managers will be more effective in this role if they receive suitablesupport from people professionals, but three in ten employers do not offer this.Another way of evaluating pay fairness is to audit actual pay outcomes – for example, byconducting an equal pay audit or an analysis of pay gaps by gender or ethnicity. This canhelp shine a light on the fairness of decisions about pay, but also on other employmentdecisions that can influence pay progression (such as recruitment practices or flexibleWhat do the findings mean for people professionals?6Reward management: focus on payworking policies). While most employers have produced a gender pay gap report (a legalrequirement for firms with 250 or more people), few have carried out an equal pay auditand even fewer have looked at it from the perspective of other protected characteristics,such as ethnicity or disability.Be open about what you’re paying for, how and whyOne of the reasons for the perception gap between what HR thinks is going on and whatemployees report could be due to how much pay information employers are preparedto be open about with their people. Just over half (56%) disclose the factors consideredwhen deciding to increase employee salaries, around 50% also go on to explain howtheir grade structures work, while less than half (45%) explain what employees needto do to increase their pay. However, this means that around half do not give thisinformation, and few within our sample provide any context, such as how an employee’spay compares with the minimum, median and maximum salaries in their grade, or how itcompares with the rest of their team.By helping their employer become more transparent, the people profession can showits value to the organisation. Transparency around pay will enable employers to showemployees and other stakeholders the fairness of their pay approach and how thissupports its people and the business.If employers are not open about their pay practices and outcomes, employees willfind it hard to judge whether they are being treated fairly and whether they can trusttheir organisation to be fair. However, there are several practical concerns that HRneeds to overcome before transparency can be introduced: for example, getting seniormanagement buy-in; dealing with data protection concerns; whether the performancemeasures used to inform pay decisions are ‘market sensitive’, and so on. Nevertheless,doing nothing can’t be an option for most organisations. The direction of travel istowards greater pay openness, and starting early will help them to be better placed toovercome the challenges.In this context, people professionals need to define what is meant by ‘pay’ and‘transparency’ as well as who tells what to whom, why and how. For instance, if linemanagers are going to be expected to communicate about the pay processes andoutcomes to their staff, what support does HR need to provide to them? If the firm isgoing to use technology to aid transparency, who is expected to use it, how accessiblewill it be and what training will be required?Reward professionals also have an important role to play in creating a pay narrative,which can be shared with employees, about what behaviours the employer wants toreward, why and how. They will also need to evaluate this process and look at what theycan improve for next time.Support line managersOur survey says line managers are very influential when it comes to proposing a payincrease, so it is important that their endorsements are fair. Establishing objectivemeasures that align to organisational values and the reward ‘deal’ as discussed abovewill be crucial, as is communicating all of these to employees.Line managers are a key channel of communication and also have a role in dealing withstaff queries and passing on feedback to HR teams. And it is in this communication role,according to our respondents, where the involvement of line managers has increasedand is predicted to grow further soon.What do the findings mean for the people profession?7Reward management: focus on payThese results are also supported by the finding that while only a minority of linemanagers have moderate or full involvement in the design or implementation ofpay systems, such as how salaries are set, the grades used to organise pay rates orperformance-related financial rewards, they are expected to have far more input when itcomes to communicating these systems to staff.However, it is potentially a missed opportunity not to involve line managers more in thedesign and implementation of pay practices. Line managers will have more engagementwith pay processes if they are involved in their design and implementation. Being part ofthe creation and rollout will also help them to be committed to their communication role.As it is, over three in five surveyed employees report that their line manager has neverexplained to them why they get paid the amount of money that they do and, even ifthey do, staff do not rate their ability to do so very highly. Where line managers do havea role in making decisions about employee pay, such as salaries or incentives, 62% ofemployers do not assess the effectiveness of their line managers in this role. If employersdo not assess line management impact, it becomes difficult for them to work out whatneeds to change if their pay approach is not working.HR needs to support line managers to make the pay and/or bonus decisions theorganisation expects them to make. However, only 22% say that they give their linemanagers full support, in terms of training, toolkits, coaching, briefings, and so on,while 20% admit that they give their line managers no support at all. Most only providemoderate support.By investing in the people skills of their existing and potential line managers, they shouldbe in a better position to make fair pay decisions and communicate the rationale behindthese. In turn, this should build employee trust in the system and their commitment tothe organisation.HR should also take the lead in coming up with appropriate measures for evaluating theimpact of line managers in pay decision-making and communications. Factors that canbe used include employee turnover data, management feedback, employee experiencesurveys, and awareness of employees about how pay decisions are made. A usefulstarting point for using people data to make decisions and assess the impact of thosedecisions is the CIPD’s content on data and research evidence.What do the findings mean for the people profession?8Reward management: focus on pay3 Pay structures and payprogressionTo assist you in this and subsequent parts of the report, brief definitions of key terminologyreferred to in categorising information from the survey are given. These are drawn from thecollection of factsheets accessible online from the CIPD Knowledge Hub.Pay structureA pay structure is a collection of wage grades, levels or bands that link related jobs withina hierarchy or series, providing a framework to implement reward strategies and policies.Pay structures have two key characteristics:• the number of grades within the structure• the span of each band (the percentage difference between the lowest and highest payrates attached to each grade).A pay structure is usually designed to:• align reward strategy with the desired shape of the organisation, setting out differentlevels of role and accompanying ranges of salary• bring order and clarity in managing pay rises and career development• help ensure fairness and lawfulness, for example by avoiding gender pay discrimination.To find out the extent to which pay structures are used, respondents were asked whethertheir organisation used them in relation to handling salaries (base pay).Table 1: Who uses pay structures? (%)NOTE: Figures throughout the tables presented on this and the following pages are percentage of cases – that is,percentage of respondents who answered that question/combination of questions. YesNoAllBy sectorManufacturing and production60404753Private sector services, of which:5149Retail, hospitality, catering, leisure and cleaning6338Legal, financial, technology and other professional services4357Other private sector5347Public services937Voluntary, community, not-for-profitBy sizeSME (

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