MoD bonuses – why the fuss?

Much heat and great indignation in the media today as it becomes known that the MoD (an arm of government that has overtaken the Child Support Agency in the public ordure stakes) is paying £47m in bonuses to its staff. Most of the critics seem not to understand the nature of this scheme. Essentially it uses a pot of money (possibly around 3% of payroll) accumulated by withholding small amounts from earlier pay reviews. It is distributed among staff as a non-consolidated payment based on annual appraisal ratings (it looks as though around two thirds of staff shared the pot). As it is not consolidated into basic, contractual pay it is not an addition to the annual paybill. It should be similar in amount to what was paid in previous years – just (potentially) distributed differently each year.

Staff turnover in the recession – will they never go?

There are lots of comments and articles around at the moment about what may or may not happen to pay rises over the forthcoming period of possibly-getting-even-worse recession. Several of them consider the topic of how to retain staff/key staff/best-performing staff in the event of a pay freeze or, possibly, pay reduction. My suspicion is that, for the most part, the problem will not arise until the economy starts to recover. So no need to panic yet.

Why? Well three reasons. Firstly, there will not be as many opportunities out there for them to move to. Secondly, moving is much riskier in the current climate. Assessing the risks at a potential employer is much harder than for your current one and if you do think your current one at risk do you want to miss out on the redundancy cheque by leaving. Finally, the competitive imperative to keep up by jumping ship will reduce as everyone else bunkers down. I am old enough to have been working in front-line personnel (note to younger readers: that’s what we called HR in those days) during the Wilson-Callaghan years of incomes polices and £6 per week maximum rises. Then too the doom-mongers predicted a surge in staff turnover. It did not materialise and, in spite of raging inflation, turnover seemed to reduce. My personal theory for this was that the government-imposed rises removed any feelings of inadequacy when your neighbour won a bigger rise than you. They mostly did not and people could just stay in their comfort zone without feeling inadequate.

‘Crunched’ – pay & reward in the recession

I have just booked for a seminar that will consider the role of reward practices during the recession. It promises to focus on working out how much you are really spending and how to get maximum ‘bang for your buck’. I look forward to posting some comments after the meeting. The attendance at these seminars tends to be a mix of people from public, private and not-for-profit organisations (plus consultants, of course) and it will be interesting to find how these different sectors are reacting to the new economic environment.

It will also be interesting to see how much things have moved on by the end of March, when the seminar will be held. I have the feeling that, in some sectors, realisation that there will not be much money to go round is dawning only slowly. One straw in the wind is a survey by Smith & Williamson. Back in the summer they surveyed housing associations and, among their findings, was the expectation that 2009 salary increases would average 3.5%. At the end of January they, very sensibly, undertook a quick update by email and found the average expected increase had dropped to 2.5%. Will it even be at that level by April 1^st (a typical pay review date in this sector)?

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.

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.