Top of the heap – public sector pay

Today’s Times has an article on the topic of whether any public servant should be paid more than the Prime Minister. It is a two-part article with one writer arguing the case against, another the case for. The question, of course, arises from the fact that quite a lot of them already do.

Once you start debating senior pay in this way, and in public, you end up with all sorts of highly emotive but inappropriate comparisons. Just how many nurses is the Prime Minister worth? How many times the minimum wage should the person running your local council be paid? Once you go down this route you inevitably end up with truncated salary structures, and much bickering.

The salaries paid to public sector chief executives (local government, the NHS, quangos, etc.) should, as in all sectors, be based on: the skills and experience needed; what is paid for such people elsewhere; and the difficulty, or otherwise, of attracting good candidates. Whether or not you think the correct answer has been arrived at for these executives you have to admit that the third part of the test, the ease of finding candidates, goes out of the window if you make the PM’s salary the yardstick. At the very least there are the 300+ MPs who would love to reverse their initials; possibly even take a pay cut for the privilege.

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.

Careful what you wish for – Bonuses

There is much heat, and less light, everywhere on the topic of bonuses. Mostly it is aimed at the banks but now the spotlight has fallen on the CIPD with a decision to allow the Chief Executive to retain her 20% performance bonus (on her salary of £300,000) at a time when the organisation has been reducing jobs and stopping bonuses for lesser staff (qv. articles in Personnel Today). I do not know enough of the facts to comment on this particular issue but there is a general clamour against bonuses. This has its dangers.

Executive bonuses are generally based on achieving quantified targets (in the case of the banks it was the nature of the targets that were wrong, rather than the concept). So what happens if bonuses are banned? Will the executives not try as hard to meet those targets? Well possibly. There are a great many pressures on executives’ time and attention and target-based bonuses help maintain focus on those specific metrics. More significantly what, otherwise, happens to basic pay?

Bonuses are not just a top-up reward for the employee. They also provide a safeguard that an element of cost will vary with a key performance measure, usually income-related. Normally, zero bonus will reflect poor performance and maximum bonus better-than-can-be-expected achievement. Standard performance will lie somewhere in between. So, assuming the CIPD remuneration committee got its research right, the market rate for the job, and the person, under a bonus-free contract is not £300,000 but somewhere between that and £300,000 plus the maximum bonus (possibly 20% in this case). Flat salaries will inevitably cost more than bonus-free contracts; but without the same guarantee of results.

Appraisals – tasks or traits

I recently came across an organisation that would quite like to vary an element of pay to reflect individuals’ performance but felt that they should not do so because their appraisal system was not appropriate. In fact the system did produce a rating (an essential element for linkage) but was based on ‘soft’ factors such as behaviours and values rather than performance against annual targets. They thought this ruled out using the appraisal ratings to moderate pay or calculate bonuses.

Increasingly, organisations are assessing performance against such characteristics because they think this will better drive long-term performance. That is fine but then be consistent and accept them as a valid measure of performance. If the definitions of the softer factors are such that people can score highly against them while performing their duties badly you have the wrong definitions. Change them or appraise against task performance.

The appraisal should be an employee’s main source of formal feedback about their performance – the annual stock take. If major elements of working life such as pay (and, possibly, promotion) appear to be based on factors unrelated to those discussed at appraisal time why should they take the appraisal seriously?

‘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)?

Please sign my Xs, boss – expense claims

Thanks to the shenanigans of our elected representatives, expenses are hitting the headlines as much as bonuses these days. Human Resources Magazine website currently has three contrasting headlines about expenses. “Bogus expense claims average £17 a month per employee” claims a survey by Travelodge; “Business travellers frequently end up out of pocket because of complex expense procedures” claims a survey by KDS and research by CIPD and KPMG finds that “74% of private-sector and 50% of voluntary and charity employers have reduced their travel expenses“.

It would be interesting to know whether the Travelodge findings are the product of staff with fixed overnight allowances choosing budget rooms and pocketing the difference – surely not. The KDS survey has a marketing flavour as they are providers of on-line travel bookings and expenses management. The CIPD survey reflects organisations cutting back on actual journeys.

I have only ever worked for organisations where all expenses required receipts and matched the cash spent; and nowadays I have to be prepared to account for all out-of-pocket expenses to either clients or HMRC. Fixed allowance systems (traditional in the public sector and writ large for MPs) have apparent benefits, avoiding the need to challenge claims and being seen as even-handed. But they take away the need for the employee to be prudent and can, for some, become an income source (MPs again). Significantly they affect the role of the line manager who is also discouraged from being economical, having merely to confirm the trip genuine; leaving HR or Finance to approve or refuse the money claimed. This can encourage line managers to see themselves in the ‘us’ half of ‘them and us’: never conducive to effective leadership.

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.

Third Sector seminar

To a CIPD Reward Forum seminar this week. The session focused on the voluntary sector under the title of Managing Reward in Turbulent Times. I expect that nearly all conferences and seminars over the next few months will be re-badged under one recession-related umbrella or another. In practice the downturn has happened so quickly and so recently that all that really emerged in relating to the recession was a general level of nervousness. In practice, that did not matter and we had a worthwhile seminar about reward challenges in the sector. One element that has changed since previous recessions is the very much higher level of government funding going into the sector. Some of this is for new services but much is to pay for work that previously fell to public sector bodies themselves. Perhaps this will ameliorate the effects f teh recession for some.

In terms of reward structures generally the sector has its own range of problems; but it is also very diverse and gneralisations need to be avoided. I will pick up some of the thoughts generated by the seminar in subsequent posts.

What (starting) price your bonus next year?

Employee benefits magazine reports that BT is planning to offer its top 400 top-level employees (in some businesses) the chance of gambling a minimum of 10% and a maximum of 50% of their contractual rewards in return for the chance of additional bonus. If they meet targets they get their ‘stake’ back. Beyond that they can get up to 200% of the amount gambled on a sliding scale. Obviously, for this to work, BT has to be confident of its target-setting processes and the staff be confident of their abilities (or believe that the targets are somewhat soft).

We do not know how many will take this offer up or how many will risk the full 50%. Many fewer, I suspect, than might have been the case when the scheme was being devised (ie, before the financial world imploded). But it is interesting to think how this might be applied in other areas. MP’s invited to gamble part of their salary, or gold-plated pension, on increasing their majority? Newspaper editors gambling theirs against reducing the number of retractions they have to publish? Bloggers gambling on increasing the number of hits? Maybe we should forget that last one.

HR by numbers – measuring workforce performance

The CIPD has announced the latest in its compendium of toolkits. This one is on Human Capital Management (HCM). Mostly I am very impressed with their toolkits. They provide a good deal of clarity and help people understand what the various topics involve (thankfully, without implying that it is so easy that they do not need professional help!). In this case I am not so sure.

It may just be that I have always reacted badly to HCM as a piece of jargon. ‘Human Resources’ as a replacement for ‘personnel’ was meant to imply a wider, less bureaucratic role but soon became just as easy a butt for jokes (and HR is easier to say than personnel) so some tried to achieve the same end by implying that Human Resource Management (HRM) was the ‘something else’ that could take HR to the centre of organisational life. That never found currency outside the HR bubble. Human Capital Management is a term mostly kept away from the workforce, which is just as well as it is meaningless in everyday life. However employee-centred your company’s approach, do you really want to be referred to as piece of ‘capital’ that has to be ‘managed’. So; putting that little rant aside there is a lot of good stuff in the toolkit. So what’s my problem?