Reward Bulletin with Standley Associates - June 2015

Pay and reward in UK and Europe
People reading newspapers to reflect 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.  This is the second bulletin (click here if you missed the first one in April) and it covers:

  1. PAY TRENDS - UK, and EMEA
  2. NEW GOVERNMENT AND REWARD
  3. SALES BONUS HEALTH CHECK
  4. CREATING AN ATTRACTIVE WORKPLACE

Here's a copy of what we said:

1. PAY TRENDS

GDP
UK: 2.4%
EMEA: 1.0X%

Inflation
UK: 0.1%
EMEA: 0.0%

Unemployment
UK: 5.5%
EMEA: 11.3%

UK

April is the busiest month for pay awards with 40% of companies conducting reviews. Data from XpertHR shows that median pay awards are stuck at 2% for the 13th consecutive rolling quarter, a trend that is expected to continue.

Behind these high level figures are a number of sector and industry differences:

  • Private Sector awards are 2.2%.  Awards at 3% or above are rare at only 10% of deals. These are mainly connected with companies who have committed to paying the Living Wage of £7.85 (£9.15 London) such as GSK, Crown Estate and Santander
  • Some industries are experiencing a tighter labour market and awarding slightly higher increases: Chemicals, Pharmaceuticals & oil 2.4%, Construction 2.4%, and in the service sector Information & Communications 2.3%
  • Public sector awards continue to lag behind at 1.6%. Again, higher awards have been given to the lower paid.

The labour market is undoubtedly getting tighter. Unemployment fell once again to 5.5% compared to 6.8% a year ago. So the UK is creating more jobs, but is it all good news?

Despite output growing at its fastest pace for six months, official figures show we still produce less per hour than our economic rivals; 30% less than Germany, France and the US. This matters as the more productive we are the more we can earn as individuals and as a country.  As Prof. John Van Reenan of the LSE illustrates:“by Thursday lunchtime the other countries have produced as much as it takes us to produce by Friday afternoon”

Put another way we could work the same hours and increase our wages by 30%.  This poor productivity and under investment has resulted in the Bank of England recently cutting the UK’s growth forecast from 2.9% to 2.5% for 2015.

With CPI at -0.1% employees should be feeling the effects of the first solid pay rises since the recession.  CPI is expected to remain low over the next few months but the negative figure is likely to be short-lived and is regarded as good for growth as it raises customer spending power and helps keep interest rates low.
 
EUROZONE & BEYOND

The Eurozone economy grew by 0.4% in Quarter 1 2015. This is the fastest growth rate for nearly 2 years. It is driven by the European Central Bank’s (ECB) monetary stimulus and increased domestic demand. As ever it’s a mixed picture across the economic area with France, Italy and Spain all recording the fastest growth for some time but Germany growing less than expected.

The forecasts overall for the Eurozone are that growth will continue in 2015 with a prediction of 1.5% (up 0.2% from February) but within that Greece’s forecast has been cut to 0.5% from 2.5%.

Unemployment is still a major problem and remains over 10% for France and Italy and in excess of 20% in Spain and Greece. Germany stands out with a low 4%.
Boosted by the improving economies salaries in Europe are expected to rise in 2015 by 3.1% with Germany, Italy and France predicting 2.8%, 2.7% and 2% respectively and even Spain and Greece forecasting 1.3%. With the exception of Norway (3.2%) those countries awarding more than 3% are in central and eastern Europe with Turkey topping the tables at 9%.

Further afield, data from Hay Group shows a mixed view across the world regions with regards to predicted pay increases this year:

  • Latin America 9.7% 
  • Europe 3.1%
  • Africa 6.9%
  • Pacific 3.0%
  • Asia 6.8%
  • North America 2.8%
  • Middle East 5.6%   

Just like the European data we’ve already discussed each region’s headlines mask variance by country. Read more about data at a country level.

2.  THE NEW GOVERNMENT AND REWARD

Now that the dust has settled on the excitement of the general election result what does the Conservative government mean for reward?

A good starting point is what was in the manifesto:

  • A commitment to increase the National Minimum Wage and support the Living Wage
  • A commitment to increase personal tax allowance thresholds and not raise rates of NICs or Income Tax
  • A requirement for companies with more than 250 employees to publish differences in average pay for male and female employees (Sam covers this in The Shocking Reality of Equal Pay
  • Ban of exclusivity clauses in zero hours contracts (came into effect on 26th May 2015)
  • New workplace entitlement to 3 days volunteering leave per year on full pay for those who work for a big companies and public sector
  • Whilst there wasn’t a commitment on pension, there are expectations of further alterations to tax relief on pension contributions, and reform of public sector schemes 

Only time will tell how these commitments play out.  Whilst they have a majority in the Commons, the Conservatives lack the same in the Lords so there’s the possibility of difficulties or delays in getting legislation through.

For HR this means acting now to understand anticipated workforce requirements, identify talent hot spots and determining your strategy for attracting and retaining employees.  See Julia’s A Government for Working People blog for further insights and ideas.
  
3.  SALES BONUS HEALTH CHECK

An effective sales bonus will motivate the sales team to perform and deliver profitable sales results for an organisation. A good plan:

  • Clearly communicates performance expectations
  • Focuses attention on important strategic and customer goals
  • Reinforces the motivation to produce results
  • Attracts competitive individuals with a sense of urgency
  • Correlates sales expense with overall sales force contributions

Take a look at our 10-point health check to help evaluate your plan:

1.  Take a step back – is it delivering what the business needs?  Are you getting the right:

  • Customers and selling the right products?
  • Revenue levels and profitability(overall, per customer, new product)
  • ROI (revenue or profit/customer investment cost)
  • Customer service (customer satisfaction, retention)
  • People outcomes (impact on turnover, recruitment of candidates

2.  Do you have robust target setting and performance measures to underpin the plan?

3.  Are the plan metrics still the right ones?  How do sales convert to rewards? Is the plan affordable? 

4.  Do the metrics work?  Is the threshold for payment too high/low? What proportion of the profits are being spent on sales reward for differing levels of performance?

5.  Does the plan adequately distinguish between levels of performance? Are you aiming to reward the top performers or motivate all ‘good’ performers? Are you giving too much to under performers?

6.  Is it driving the right behaviours? Or are you rewarding output only?

7.  Is it market-competitive?

8.  Does the balance between fixed salary and ‘pay at risk’ sit well with the company culture, and reinforce the required behaviours?

9.  Do your employees feel the plan is simple, clear, fair, consistent and motivational?

  • Do they understand how it works?
  • Do they feel that it is fair across employee groups and business units?
  • Do they feel that the reward is enough to incentivise changes in behaviour that produce improved business results?

10.  Lastly, would you be happy to explain it to your customers?

If your sales bonus isn’t working, that money is wasted.  Add lost productivity and turnover of your best performers into the mix and the cost is high.

Getting it right is about good design and clear communication.  Is it time to take a closer look at yours?  
 
4.  CREATING AN ATTRACTIVE WORKPLACE

Unemployment is at its lowest rate since the recession and job openings are increasing dramatically.  Employers have to work harder than ever to attract talent and stop key employees from leaving. 

One aspect of reward that has a powerful impact on the workplace, yet is extremely cost-effective, is recognition.  Done well it builds employer brand, reinforce company values, increase engagement and improves performance.

The average cost of recognition programmes in the UK is less than 0.5% of payroll and very informal schemes can cost almost nothing. 

Definitely one to focus on if you haven’t already.  Julia explains more in The Power of Recognition.

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Photo courtesy of John Ragai.