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UK — More employers struggle to manage risks around how they reward employees

01 September 2010

The proportion of HR professionals who believe that their organisation, or their client, is poorly prepared to manage the risks around how they reward their staff has grown in the past 12 months, according to a survey of Chartered Institute of Personnel and Development (CIPD) members. 'Managing Reward Risks: An Integrated Approach' finds that 15% of respondents think that their organisation is poorly prepared to deal with these risks, up from 9% in 2009, while 15% cite that their organisation is well prepared (compared with 17% in 2009).

The findings reveal that concerns about the overall effectiveness of the pay and benefits package to attract and retain key talent has increased in significance over the past year (reward unable to attract key skills rose in rank from 4 to the number 1 risk faced by employers and reward not retaining employees rose from rank number 12 to 6), reflecting concerns that firms have not been competing effectively in the labour market as the economy has started to show signs of recovery. The ability to change pay and benefit practices (ranked number 4), the ability of line managers to manage reward (ranked number 2) and the ability to engage employees through pay and benefits (ranked number 3) are also high on the list of concerns for 2010.

Pension costs and general reward affordability concerns are higher in the public and voluntary sectors than in the private sector (increasing pension costs are ranked 5 and 3 in the public and voluntary sectors respectively compared to 17 in the private sector, while not enough cash to meet reward commitments is 4 and 11 respectively and 14 in the private sector). The public sector is also more likely to express fears that their approach to reward was causing poor industrial relations (attitudes of the trade unions towards the reward strategy is 10, compared to 13 in the voluntary and 32 in the private sector.

Charles Cotton, Performance and Reward Adviser, CIPD, said "the past 12 months have been a turbulent time for many employers in terms of pay and benefits practice. They are fearful that the way that reward helps them attract, retain and motivate their employees is no longer appropriate."

"While the private sector is concerned that their reward practices will not help them if the economic recovery is sustained, in contrast the public sector is concerned that their reward practices won't help them as their economy starts to decline."

Looking to the next 12 months, the reward risks predicted to become more prescient are increasing pension costs (rank 1, up from 3) and not enough cash to meet reward commitments (2, up from 9), poor industrial relations (3, up from 6) and taxation changes reducing the impact of reward (4, up from 25).

Jonathan Chapman, Management Education Fellow, Cranfield School of Management, and co-author of the report, said "changes to how employee pay and benefits are taxed are of major concern to all employers who fear the changes will make it harder for them to compete effectively to recruit and retain valuable talent. These and other changes have also placed an additional burden on reward professionals, with many struggling to manage. A planned response to increasing risks is now needed by organisations to make sure that reward plays a key role in ensuring organisations thrive in this new economic environment."

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