Reward Bulletin with Standley Associates - April 2015

Pay and reward in UK and Europe
Newspaper to indicate News Bulletin

Verditer Consulting have partnered with Standley Associates - executive search and recruitment specialists who recruit HR, Sales, Marketing and Commercial roles across all sectors in UK and Europe. 

As trusted reward partners, Standley Associates have asked us to develop a series of bulletins that provide insight into reward topics their clients are talking about.  The first bulletin has just gone out covering:

1.  PAY TRENDS - UK and EMEA
2.  WHEN A EURO IS NOT A EURO - setting pay across borders
3.  ENGAGING THROUGH REWARD – a cost effective and powerful approach

Here's a copy of what we said:

1. PAY TRENDS

GDP
UK: 2.6%
EMEA: 3.0%

Inflation
UK: 0.0%
EMEA: 1.9%

Unemployment
UK: 5.7%
EMEA: 9.5%

UK
The big message is that pay rates are finally rising faster than inflation.  After six years of falling real-term wages we should all start to feel better off.  We nudged into deflation in April (-0.01%).  The Bank of England calculates the likely effect of deflation is equivalent to a pay rise of 3.5% for the working population over the coming year.

This may affect employee bargaining power.  But the need to attract and secure talent in the face of job creation will remain an important issue for many businesses.

Pay awards in 2014 stood at 2% in the private sector (1.5% in the public sector).  These vary across industry with manufacturing and production averaging 2.8%.  XpertHR predict average private sector awards to continue at 2% throughout 2015 - and this has already been the case in the first three months. Perhaps an even bigger issue is that UK companies are failing to improve productivity (2nd worst amongst G7).  Until this improves, many businesses will struggle with affordability.

Many companies will be affected by the minimum wage which is set to increase from £6.50 to £6.70 (over 21s) in October 2015.  A rise of 3%.  The Living Wage is currently £7.85 (£9.15 London) and is reviewed in November.

EMEA

Europe Middle East and Africa is a region with pockets of countries experiencing very different challenges.

Similar to the UK, GDP grew in 2014 by 3%.  However, inflation was 1.9% overall with Europe at the lower end of that.  Unemployment at 9.5% remains static and is not predicted to change for 2015.   Growth projections for 2015 are 3.65% with most expected in Western Europe.
 
The biggest determinant of salary increase budgets is economic growth giving large variances across the region, but once inflation is excluded, budgets remain low at circa 2%. Salary budgets have been minimal in recent years with priority given to top performers in efforts to engage and retain but as a recovery emerges pay pressure will build, particularly in countries with heavy regulations or unionised environments.
 
The biggest improvements in the labour market are expected in countries worst hit by the economic crisis; Italy, Greece, Portugal and Spain. Cost of living pressures, where there are large increases in job creation coupled with talent challenges, could increase employee job mobility (in previously stagnant labour markets) and impact pay levels.
 
Stronger economies such as Switzerland, UK, Germany and Sweden have low unemployment and face labour pressure for certain skills. Loss of talent at companies that need to retain market share to be competitive could have interesting implications for pay.
 
Read more including the outlook in Central & Eastern Europe, Middle East & Africa and other global regions.
 

2.  WHEN A EURO IS NOT A EURO - Setting pay across borders

Many of us are managing teams and setting pay across borders.  It can be dangerous to think about this as simply converting currencies.  Pay needs to be set at a country level based upon market salary rates, economic environment and internal company structures.

Even within the Eurozone there’s much more to take account of because the value of an earned Euro in Italy differs from that in Germany and Netherlands.

So when recruiting across borders or to get collective single currency view for a multinational team, tax and purchasing power should be factored in. Julia explains more about how this can be done here.

3.  ENGAGING THROUGH REWARD – a cost effective and powerful approach

Making engagement happen is the business challenge of the next decade in order to drive performance in the face of constant change.  Even since The Evidence was published we’ve linked engagement with company performance, customer satisfaction and innovation.
 
Samantha explains how reward impacts engagement. Some say it’s just a hygiene factor, yet Aon Hewitt’s 2014 Trends in Global Engagement rate pay as a top 4 driver.  We can tell you that getting reward right is absolutely critical for employee engagement.  The good news is that this needn’t cost a fortune.  You just need to do two things:
 
First off, get the basics right

It isn’t about paying the most.  It’s about pay decisions being fair, consistent and transparent.   Even high pay will disengage if it doesn’t have these.  This means being clear about how pay will be set in your business:  is it about market rates, internal consistency, or performance?  And then putting in place robust, and transparent, pay and grading structures. 
 
Of course, there may be some initial investment required if you find your pay is not in line with the structure you develop, or to address anomalies.  But the cost of disengaged employees, high turnover, equal pay claims, and negative views aired freely using social media,will be greater.
 
Then, find your differentiator

Consider reward in a wider context and look for low cost, high impact, opportunities to really differentiate you from your competitors.  For example:

  • Is there a unique benefit associated with your business that you can offer that others don’t or perhaps can’t?
  • Can you offer more flexibility so employees can balance work with other life interests such as caring, volunteering, travel or property development?
  • Are you embracing technology and social media?  Young talent in particular will see the way an organisation communicates as a part of the overall deal.
  • Can you offer opportunities to learn aimed at personal growth rather than directly aligned with work e.g. language or creative skills?
  • Do your managers recognise effort?  Research shows 2/3 of employees would prefer a better boss to a pay rise   

These are just some suggestions.   The point is that it isn’t about significant financial investment.  It’s about getting the strategy and structures in place to make consistent, informed and understood decisions about pay - and then creating a compelling overall deal that reflects what your employees really want.

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Photo courtesy of John Ragai.