Publish and be damned – local government pay

I read that the Government is proposing the remuneration of senior local council employees be published in the annual accounts. The intention is that “…. this will put a brake on spiralling pay packets and perks” (John Healey: Local Government minister). Well, I wonder. I suspect the law of unexpected consequences will have something to say about that.

The idea that publishing the fact that Council Chief Executives can get more than the Prime Minister will generate an unstoppable public backlash, or shame them into accepting less, is optimistic at best. Highlighting the differences in senior salaries between councils is just as likely to result in claims from those in the less ‘generous’ authorities as restraint among the ‘fat cats’.

Salary benchmarking is the basis of all good reward practice but, once you have the data, it must be moderated by a whole range of specific factors such as the true demands of the posts, the quality of the individuals and affordability. When the jobs in question are your most senior executive ones there is a natural tendency to overestimate the demands, avoid facing down the individuals and, as the salaries represent a small percentage of overall costs, play down the cost issues.  Local authorities are probably more susceptible to these tendencies than many other organisations.

Communicating the reward package

One aspect of reward that came up several times, from both speakers and delegates, in this week’s Reward Forum seminar was that of communications to employees about the true extent of their reward package. Never easy, but charities and voluntary organisations (the focus of the seminar) can have their own set of difficulties in this area.

In many cases employees are personally and emotionally involved with the organisation’s work in a way not found in the private, or even public, sectors. This, together with their typically longer service, can lead staff to assume a greater right to have their say, if not their way, on matters of pay and conditions. Coupled with, in many charities, a workforce that is geographically spread this makes getting the message across more than usually difficult. In particular, all those non-pay benefits, terms and working conditions can be taken for granted and their actual cost, or true worth, dismissed. This is often accompanied with an exaggerated view of what is on offer in the private sector: all contributing to a general feeling of dissatisfaction.

Many organisations in the sector are some way off introducing a full-blown total reward system but that is no excuse for not trying to get the message across. There is lots written on this subject but one key factor is language. Avoid HR speak. For example, avoid the word ‘reward’ in communications to employees. This is another of those everyday words that HR has appropriated and assigned a different meaning to. It is fine amongst us professionals but to most people a reward is something akin to a prize and certainly nothing contractual. Talk about ‘pay and benefits’ or the ‘employment package’.

One element that can always cause trouble is not coming clean about where you position yourself in the pay market. Aiming to pay at around the median is sound practice for many charities but do your staff understand this? Or do you have to explain this means you expect their to be higher payers every time someone runs into HR waving a better-paying job ad? But do not talk about the median. It is a well-known fact (well, an urban myth at any rate) that only 30 per cent of the population know what a percentage is so guess what percentage understand ‘median. Just say you pay around the average. It is only a white lie.

Nobody really knows

A poll of 540 private sector employers by Industrial Relations Services (IRS) has found that the median forecasted pay rise for 2009 was 3.5%. This is the same figure as the corresponding survey found last year. Will that really be what happens in the private sector over the up-coming pay round? Was the survey taken just ahead of the time when the full horror of the World’s financial problems came to light? Do they think that retaining key staff will still be the critical factor even though any sensible employee will stay where they are for the next few months (years?)? Will they really be able to pass on cost increases?

In practice, I do not think anyone in the private sector really knows what commercial and salary pressures there will be when this season’s pay review comes around.

Bonuses not all bad – hold the front page

Yet again bonuses are attracting a bad press this summer. Nothing new there but, in the current financial climate, payouts to the popularly undeserving – City fat cats, BBC executives, civil servants and the like, are especially tasty targets for the red tops.  Bonus payments are reported as though they are a discretionary, additional cost. However, they only represent extra cost to the extent that they exceed previous levels and are only discretionary if they could simply be cancelled without any adjustment to basic pay. But many would have to be consolidated to maintain pay market competitiveness and motivation: incurring extra pension costs and raising the starting point for future percentage pay awards.

Good schemes help focus effort on key priorities but for many commercial organisations bonus and incentive systems also provide a mechanism for reducing costs when sales and profits dip. Very valuable in difficult times and hard to achieve otherwise without headcount reductions and redundancies.

Much of the bad publicity attaches to payouts that appear to reward failure or to be giving away taxpayers’ money. The first can be difficult to avoid. Private sector executive bonuses are inevitably announced some months after the year to which they relate by when fortunes may have changed. Other popular targets, such as BBC executives or civil servants, suffer the double whammy of working in easy-to-criticise organisations and of being paid from public funds. For the most part their bonuses relate to achieving targets that, however demanding, are usually based on spending money rather than earning it so they do not have an easy ‘pays-for-itself’ defence.

Rewarding technical staff

Last week I attended a CIPD forum on the topic of reward, retention and motivation of professionals and technical specialists. My feeling was that not much has changed over the years and that ‘techies’ present many of the same problems that they always have. In particular that many grading structures still value managing people and resources above technical skills with the consequent loss, or demotivation, of seasoned professionals who cannot progress to senior grades. Professional specialists are, apparently, deemed to be too involved in detail to be any good at delegation and management of teams. A cynic might point out that if those who are so good at delegation had paid more attention to detail we might not have had the lost tax disks, the T5 fiasco or the overrunning Liverpool Street closure. So what are the real issues for rewarding professional and technical staff?

More reward facts

It is obviously survey season. This time it is Thomsons Online Benefits’ “Employee Rewards Watch 2008″. Covering some 755 organisations they claim it is the UK’s largest reward survey. The survey ranges quite widely across the reward environment and provides some useful insights into the business and HR challenges respondents face. Some of the findings that I picked up on include:

• that more than a third of companies believe their basic salaries to be in the second quartile (ie, below the median) which is pretty much what you would expect statistically;
• more telling is the finding that a quarter did not know where they stood in the market;
• two thirds of respondents are planning to pay a bonus over the next twelve months;
• the commonest factors on which bonuses are to be paid include company performance (80%), individual performance (75%) and business unit performance (45%) which means that most are paying on business success but flexing the amount to individual performance;
• around a third of respondents also thought their reward strategy was not valued by employees or not well communicated to them – so communicate it then.

Will you get a pay rise this year?

Most of what you hear in the news about pay settlements centres around whether this or that group of (usually public sector) workers is getting a big enough pay rise this year. Consequently, you might be surprised by one statistic in the summary table of the CIPD’s annual reward survey. It finds that only 54% of the 600+ organisations surveyed apply an annual general pay rise.

So what is happening in the other 46% of organisations? Some of them, of course, will just not give rises if the business cannot support the extra cost. Some will base pay levels on movements in market rate and only adjust pay when they need to, and then not necessarily treat all staff the same. Others will give non-consolidated bonuses instead (usually based on company performance). Many will give annual rises determined on an individual-by-individual basis to reflect market movement and personal performance in a single, undifferentiated increase.

The survey breaks this down by sector (table 8). This shows that annual general rises are, unsurprisingly, most common in the public sector with over 85% of employers in the public services and over 80% in the voluntary sector paying them. Manufacturing and production are in the 45% – 50% range. The lowest proportion is in the category ‘private sector services’ at around 35%. This group will include the City banks and large professional services firms together with lots of smaller owner-managed businesses and partnerships – the organisations most sensitive to individual contributions.

Minimum Wage

The National Minimum Wage (NMW) moves to £5.73 in October – over 50% up on the original 1999 value. The British Retail Consortium are warning that, although this particular rise is in line with inflation, further significant rises will have a disproportionate affect on small retailers in particular. Whether they are crying wolf is not for me to comment and the large influx of young, single immigrants certainly strengthens the case for a minimum. But there are aspects of the minimum wage that do not get as much comment as they should.

One is the pernicious effect on staff morale of working in a job where it is the government and not their employer that sets your pay rate. This does not just apply to those on the minimum but on anyone earning up to, say, 130 per cent of the NMW. At these levels any employer is bound to maintain the differential, even if not via an explicit formula. There is a natural tendency for creep relative to other pay rates so that, over time, more and more people become ‘dependent’ on the NMR pay level.

This happened last time we had a minimum pay regime. By the time the Conservative government (in 1981) abolished the wages councils the regulations for the retail industry (where I was working in at the time) called for Oxford Street levels of pay to apply nationally.

Best of the Bunch – regional salaries

AllTheTopBananas is a job search website that produces a running analysis of advertised salaries on a six-month rolling basis. The latest one shows the London regional average (at £39k) to be some £10k above the average excluding London – a 37% lead.

Of course, London is an expensive place to live and has an atypical range of jobs. What is perhaps more interesting are the local variations around the country. At a regional (RDA) level, excluding London, the highest is, surprisingly, Wales; at 13% above the average. Less surprisingly, the lowest region is the North East at 92% of average. However, when you look at the breakdown by larger towns (excluding Inner London) Cardiff is only 5% up on the average and some 8% below the best-paid town, Reading. Back up in the North East, Newcastle is 35% up on the average for towns and some 11% up on the average for its region. The worst paid town, at only 85% of the average is Blackpool (they really did need that casino). Similar fun can be had with the county-by-county breakdown, which shows that the best place to be is Orkney at 34% above average, and only 5% down on Inner London. At the other end of the list you really suffer for the pleasures of living in the Isle of Wight, which is the lowest county at only 79% of average.

Of course advertised salaries are a notoriously unreliable way to do your market pricing but this does illustrate the difficulty of organising any sensible location-based supplements within your salary structure.