1. Reward and the HR Practitioner

2. 2 Programme Background/Context What is reward? Reward for the 21 st Century Some Pay Statistics Questions and Discussion

3. 3 Economic barometers in Europe The impact of economic change, globally and within the EU, is affecting the supply of labour. Organisations are responding to the tightening demand, in some sectors and professions, by using pay, benefits and reward tactics and strategies to attract the ‘right’ employees in difficult operating conditions In western Europe GDP growth and inflation are low Manufacturing is heading east to lower cost centres Skilled workers, such as dentists and doctors, unskilled workers, move west in search of higher paid jobs Source: Mercer website, 2007

4. 4 Market developments up to 1990 Pre 1980s —Unionisation and collective bargaining is the main dynamic in pay negotiations —Pay systems are rigid and highly controlled, and pay is based on employees ‘input’ —There is a one size fits all approach, for the entire workforce —The winter of discontent is the high water mark of union power —In response to economic pressures, a new focus on pay and benefits occurred leading into the 1980’s 1980s —A competitive business environment, economic pressures and a demand for value for money, drive changes to pay and benefits —Pay becomes more dynamic, with performance related pay, and a move towards cash incentives/bonuses. Demonstrated in the social era of the Yuppie, large city bonuses and apparent ‘affluence’ —The Government starts to erode union power, reducing central bargaining in the private sector —Diversification of the workforce becomes more apparent —Outsourcing and delayering, taking out middle management for “simple form – lean staff” Black Monday - 1987 Union power – 1978/9 Source: Open Field – interviews and desk research, 2007

5. 5 Market developments up to 2007 199019952000 Increasing sophistication Socio - demographics Women in workforce DINKys Increase in working mothers Pay Inflation 1990-4 Sandwich generation single parenting Globalisation Multicultarlism War for talent Retirement trends – pensions crisis Responsible generation? Thatchers’ children Downshifting & work life balance Low inflation Performance management Reward developments Variable pay on wider scale Focus on output Increased demand for pay data New pay – broadbanding etc HR devolves control Competencies developed Concept of reward develops Private sector gains expertise in this area, but not public sector Control re-asserted by HR Changing theories - motivation Goal congruency Mergers & Acquisitions Downsizing and delayering Increase in job promiscuity Intellectual capital e-commerce & technology Matrix management and cross Functional teams Market forces become a more important determinant of pay Human capital management Growth of global recruitment Labour market tightens Increase in regionalisation Adoption of social chapter - WLF Migration from EU Focus on getting base pay right Contribution based pay Concept of flex and Total Reward Family friendly rights HR as a partner, not a servant Job families Source: Open Field - interviews and desk research, 2007

6. 6 Influential market forces Market priceFairness Central management control Local/line management discretion RigidityFlexibility StandardisationIndividualisation Earnings stabilityPay inflation GrowthRetrenchment ExpenditureBudget Movement away from market pricing when deciding on pay structure, apart from senior or key positions Movement away from line management control, with HR starting to re-assert central controls. Self service will give the line flexibility, with HR controls in place Movement away from rigid to flexible systems Movement away from one size fits all to a segmented workforce and offerings tailored to specific groups Earnings stability has been established for a number of years Economy enables organisations to grow. Retrenchment in a local market is a result of strategic decision making, to relocate production, for example Professionals are asked to reconcile demand for reward measures with cost control Source: Open Field - interviews and desk research, 2007

7. 7 What is Reward?

8. “All of the tools available to the employer that may be used to attract, motivate and retain employees. Total rewards include everything the employee perceives to be of value resulting from the employment relationship.” “Throughout history, employers have been challenged with attracting, motivating and retaining employees. From the simplest barter systems of centuries past to the current complex incentive formulas of today, the organizational premise has been the same: Provide productivity and results to our enterprise and we will provide you with something of value.” Source: WorldatWork website 2006

9. 9 HR needs – little change over time Improve organisational performance Source: Open Field - interviews and desk research, 2007

10. 10 Organisation aims To attract and retain staff. To manage and reward good performance & incentivise further improvements. To provide equal pay for equal value. To deliver transparency and equity. To control cost/ improve efficiency. To improve organisational performance

11. 11 Why do people look for new jobs? Reward Related29%21%29% Other Aspects poor21%26%23% Current job may end14%11%11% Filling in time10%10%10% Want more hours3%8%5% Journey 4%4%3% Men Women All

12. 12 So cash is only one factor Interest in the job Prospects in the organisation Working conditions Flexibility and balance Is it a “nice” place to work

13. 13 New Opportunities The Pursuit of the Positive

14. 14 New opportunities Background What are the drivers? What are the opportunities? How will these impact on reward management?

15. 15 Background Historically cumbersome pay structures Designed to give control and progression, not flexibility Often complex and poorly understood A necessary evil

16. 16 What are the drivers of change ? Technology Thinking The world in which they and we operate

17. 17 Areas for focus Job Evaluation Payment systems Benefits

18. 18 New Opportunities in Job Evaluation

19. 19 A Definition A systematic process for determining the relative “size” of jobs within an organisation ( internal relativities ) with a view to establishing the worth of such jobs in the outside market (external relativities ) using relevant comparators.

20. 20 Job evaluation Job Evaluation as a tool, not a God Flexible, Relevant and Simple Felt Fair, Consistent, Robust and Defensible Supportive of and contributing to equal pay A help not a hindrance

21. 21 Job evaluation Technology allows for this Thinking is enabling the process As the world gets smaller, the links get bigger

22. 22 Job evaluation PC based systems Paperless Job Descriptions Tailored factors Linked directly to personnel records systems Interactive online JE systems Systems that link explicitly to market benchmarking data

23. 23 Job evaluation Users want relevant, flexible tools Transparency is crucial Simplicity is a watchword

24. 24 Job evaluation Moves away from vast structures Local system, local impact Still integrated, but flexible

25. 25 Where does this lead? Tension between “off the shelf” and flexible systems Pay systems that reflect reality Enable employers to pay on contribution, not service

26. 26 New Opportunities in Payment Systems

27. 27 Definition Pay systems provide the foundation for financial reward systems Pay systems fall into two main categories: —those where pay does not vary in relation to achievements or performance, (basic rate systems), and —those where pay, or part pay, does vary in relation to results/profits/performance (including the acquisition of skills). There are also systems where pay, and any enhancement, is related to the gaining of extra skills or competencies. These systems can provide opportunities for greater job satisfaction - allowing workers to carry out a wider range of work, or work at a higher level. Source: ACAS Advisory booklet – Pay systems. May 2006

28. 28 Payment systems Realism from “both sides” Individual contribution can be reflected and rewarded Move away from increments Markets can be addressed Equality, fairness and transparency

29. 29 Payment systems Technology supports this Thinking is catching up - slowly Global challenges need local responses

30. 30 Payment systems Recruit the right people Continually invest in them Agree objectives Set standards and give examples Reward according to contribution

31. 31 Payment systems Adding value Not just cost neutral Definitely not incremental Partly developmental NMW Watch out - this is flexibility not anarchy

32. 32 New Opportunities in Benefits

33. 33 Benefits – a definition Some form of compensation given to employees in addition to regular salaries or wages. Given at the entire or partial expense of the employer. While some employee benefits are described by law, many employers offer additional benefits in order to attract and retain quality workers and maintain morale. Some types of benefits are also used as incentives to encourage increased worker productivity. Benefit packages can make up between 30 and 40 percent of an employee's total compensation for employment (Total Reward/Reward Statements)

34. 34 Benefits Flexible/cafeteria benefits Flexible for whom? Relevant benefits Choice

35. 35 Benefits Decide what is to be made flexible Benefits can also reflect contribution Give everyone a level playing field Communication

36. 36 Common flexible benefits are buying and selling holidays childcare vouchers advances and loans company cars company shares private health schemes medical insurance

37. 37 Benefits Technology supports flexibility Thinking is on track – but action lags behind The world offers real opportunity

38. 38 What if… With flexibility comes responsibility Have contingency plans Do not be afraid to react to change Make it work for you Communication – never too much

39. 39 The last word There are real opportunities to make big changes…. … but there are also challenges and pitfalls The drivers allow real change to take place It’s up to you/us to make the most of these

40. 40 Pay Statistics

41. 41 Pay statistics Settlements Forecasts Earnings Important Pressures on pay rises

42. 42 R£WARD Index, Settlements & Forecasts March 1998 to March 2008 (12 Month Averages)

43. 43 Important pressures on pay rises Upward Pressures Inflation Company Performance Recruitment Problems Retention Problems Industry Pay Pressure Union Recognition Skill shortages Equal Pay Downward Pressures Inflation Company Performance Problems raising prices Global Competition Equal Pay Economic climate

44. 44 Regional statistics On average, across all levels, pay in West Midlands is 10% behind national (11% in 2007). 8% lower at Director level 9% below at Management level (12%) 13% at Clerical level (12%) and12% below at Operative level (10%)

45. 45 Regional statistics So for example a manager earning £45,000 at national average would be earning £40,950 in Staffordshire The same manager in Greater London would be earning £49,950 And in Central London that rises to £61,500 Director earning just under £60,000 in Staffs could be earning over £90,000 in London

46. 46 Settlements and forecasts - west midlands SettlementsForecasts Management 3.0% (2.8%)3.3% (3.1%) Clerical 3.1% (2.9%) 3.2% (3.1%) Operatives 3.0% (2.8%)3.1% (2.9%) National is 3.2% and 3.3% respectively

47. 47 Benefits Hours of Work Holiday Entitlement Provision of Company Cars

48. 48 Contracted hours of work

49. 49 Holidays per annum

50. 50 Provision of company cars

51. 51 Summing up The world of reward is changing Customers (internal and external) are becoming more sophisticated Pressures are more diverse and growing Equality and the need for equity continue to drive key changes Flexibility is becoming the real keyword Drivers all support change Globalisation just makes things more complex But local issues also play a part

52. Reward and the HR Practitioner