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.

“My bonus is bigger than yours” – open pay systems

Should everyone know everyone else’s pay? The CIPD have a mini poll on “should you share your pay details in the cause of transparency”. The current tally is 57% saying yes. There are calls from a range of pressure groups for open pay systems either in the cause of equality or to highlight where public sector cash has gone.

In most blue-collar jobs the main variation between employees’ pay arises from either output payments or overtime. Public sector jobs, mostly, have published grades and pay ranges, often with pre-scripted progression through the range; as do many private sector organisations. So where are the ‘secrets’?

Smaller organisations will often pay individual salaries to reflect the employer’s view of the job weight and the contribution of the individual (which does not mean it must be inaccurate or prejudiced). But, for the most part, it is pay differences based on some form of performance linkage that are not made public. Performance assessments can determine pay progression or bonuses; some having mathematical linkages between performance and pay; others based on senior opinion.

In such circumstances, therefore, revealing salaries or earnings is equivalent to revealing performance assessments. It is one thing for individuals to boast about their own high ratings (not very British, though). But should the employer effectively announce who has a good appraisal and, more importantly, who a bad one? Many companies have an employee of the month award. Few have a worst employee award.

Try answering these two questions. Can you logically answer yes to both?

Reward & recession

To a CIPD reward forum this week on the topic of “Rewarding in a Recession”. The scene was set by John Philpott of the CIPD with a number of highly depressing going-downhill graphs followed by general advice on how to get value for your non-pay benefits from Mark Eaton of Personal Group. Chris Johnson of Mercer then gave an all-round view of what is happening in larger companies. I will post some more detailed comments at another date but here are four key points that I brought away with me.

‘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)?

Bonuses – the mark of Cain?

Yet again the press pick up on bonus schemes for staff in newsworthy organisations and write them up as if they have discovered a scandal. The latest was the Agency in charge of the SATs fiasco this summer “Almost every civil servant at the Government’s National Assessment Agency ….. will be awarded performance-related pay next month”

But hang on; why should they get anything after that mess-up? After all, in the commercial world (investment bankers excluded) such a mess up would probably have meant there was no money to pay out anyway. However, we are not talking about Goldman Sachs sized payments and we are not, for the most part, talking about those making the strategic decisions. Subject to performance, these bonuses are going to all staff, many quite junior. The article also reports that staff can get “between £512.50 and £3,905″. If, as the article implies the scheme includes the Chief Executive, that is probably around four or five percent. And, in these schemes, that is not a pay rise it is a non-consolidated bonus that probably costs the same as last year. It just gets distributed differently among individuals according to their appraisal rating.

If there is anything to question about these schemes (brought in as an alternative to linking performance to progression through pay ranges) it is how much they really do reflect relative performance in any realistic way; or are just paid to almost everyone.