The sixteenth annual survey of UK reward management focuses on pay, and provides a benchmarking and information resource on current and emerging practice in UK reward management. The survey is based on comprehensive responses from 465 organisations across the private, public and third sectors; findings complement those drawn from an employee attitudes survey and a senior HR practitioner panel.
Explore the findings in detail by downloading the report and appendices below:
Below you’ll find a top-level summary of our research findings, focusing on the issue of pay fairness, the role of line managers, and how employers manage base and variable pay.
Management of risk, transparency and pay is critical
- Risk management is an important aspect of corporate governance, yet under a fifth of organisations claim to have formal arrangements in place to risk-manage pay processes.
- Only half of employers communicate how pay increases are decided, how pay structures work, and what staff need to do in order to get a pay rise.
- Most employers use a pay structure to organise base pay, with individual spot rates/salaries, narrow grade pay structures and salary increments being most common. Pay progression along these grades is typically aligned to individual performance, competencies and skills.
- There appears to be a long-term decline in the use of performance-related variable and non-variable reward schemes, with only 44% of employers reporting their use in 2019 (down from 65% in 2012).
- Almost a fifth of workers have asked for a pay rise in the past two years, with men (25%) appearing to be more confident about asking for one than women (20%).
Line managers could play a more effective role in pay management
- Line managers are the ones most likely to propose a pay increase for their employees, though they’re less involved when it comes to endorsing and approving salary increases. Similarly, line managers are less likely to be influential in determining the size of the organisation’s budget for wage rises.
- There’s a stark contrast between the views of HR professionals and employees when it comes to the role line managers play in communicating the application of pay policies. While half of employers say their line managers have moderate or full involvement in communicating information on pay levels and pay rises, more than three-fifths of employees say they’ve never had an explanation from their managers about why they receive the amount they are paid.
- Of those employers whose line managers play a role in making decisions about employee pay, only 38% assess the effectiveness of them in this role.
To read more about the role of line managers in reward management, see pages 28-44 in the full report.
Pay management practices can be fairer
- There’s a difference between what HR respondents believe is happening, and what employees report. 60% of organisations claim to talk about the fairness of pay processes and outcomes, while only 10% of staff report their line manager talking about such matters.
- While most employers claim to talk about fairness, only a third report having a definition of ‘fairness’ that they use in their communications about pay management.
- Few employers survey their employees to check whether they think the pay process and outcomes are fair; the most common methods employers use to test pay equity are gender pay gap and equal pay audits.
To read more about the fairness of pay management practices, see pages 45-58 in the full report.
Both internal and external factors influence pay
- Around a quarter of employers believe that sharing the success of the organisation with employees, and being seen to be fair while supporting the purpose and values of the organisation, are key influences on pay policy.
- Respondents cite competition with other employers offering similar pay rates as the most common factor influencing pay policies, followed by regulatory, legal and employment obligations, other employment rights legislation and economic conditions.
To read more about the internal and external factors influencing pay, see pages 59-63 in the full report.
What these findings mean for people professionals
The survey results indicate that people professionals spend a lot of their time on pay management (with regards to structures, levels and progression), but are their efforts having a positive impact? Below we unpack the implications of these findings for people professionals, as well as some top-level recommendations to help organisations derive value from their pay system.
Make sure pay is fair
There’s a disconnect between people professionals’ and workers’ views on pay fairness. While 75% of HR respondents think all (or the majority of) people in their organisation are paid fairly, only 33% of workers believe this is the case. To help make your organisation’s pay processes and outcomes fairer, we recommend the following:
- Help your employer explore whether they’re paying their staff enough. Money worries are a key driver of employee stress (impinging on productivity and organisational performance); a liveable wage benefits both employee and organisation.
- Review organisational design, roles and functions, and how these can be improved to boost productivity and sustain wage increases (by, for example, upskilling workers).
Improve employee perceptions of pay fairness
Currently, only 60% of employers talk about the fairness of their pay processes and outcomes, while 70% of employers don’t have a definition of fairness in the first place. It’s no surprise, then, that such a discrepancy between HR and employee perceptions exists. To improve perceptions of fairness, we recommend the following:
- Talk about fairness when communicating pay processes and outcomes. This helps employees understand what the organisation wants from them, why it wants it, and how it will reward/recognise their efforts.
- Develop a clear definition of fairness, and share it with employees. This fosters an agreed understanding amongst managers about what ‘being fair’ looks like.
- Encourage line managers to talk to their teams about the fairness of pay processes and outcomes.
- Evaluate pay fairness by auditing pay outcomes. This helps shed light on the fairness of decisions made around pay, as well as other employment decisions influencing pay progression (such as recruitment practices or flexible working policies).
Be open about what you’re paying for, how and why
Just over half of employers disclose the factors affecting employee salary increases, while less than half explain what employees need to do to increase their pay. If employers are not transparent about their pay practices and outcomes, employees will be hard-pressed to judge whether they’re being treated fairly or whether they can even trust their organisation to be fair. To help your employer be more transparent in this respect, we recommend the following:
- Tackle practical concerns first by, for example, securing senior management buy-in, dealing with data protection concerns, investigating whether the performance measures used to inform pay decisions are ‘market sensitive’, and so on.
- Define what we mean by ‘pay’ and ‘transparency’ in the first place, as well as who tells what to whom, why, and how. For instance, if line managers are expected to communicate pay processes and outcomes to staff, what support does HR need to provide them with?
- Create a pay narrative – which can be shared with employees – about what behaviours the employer wants to reward, why and how.
Support line managers
Line managers are a key channel of communication, dealing with staff queries first-hand and passing feedback on to HR teams. While only a minority of line managers have moderate or full involvement in the design or implementation of pay systems, the grades used to organise pay rates or performance-related financial rewards, they’re nonetheless expected to have far more input when it comes to communicating these systems to staff. To support line managers, we recommend the following:
- Establish objective measures aligned with organisational values and the reward ‘deal’. Communicate these measures to employees.
- Involve line managers more in the design and implementation of pay practices. Being part of their creation and rollout helps enhance their commitment to their communication role.
- Provide line managers with the support they need to make the pay and/or bonus decisions the organisation expects them to make. By investing in the people skills of line managers, you put them in a better position to make fair pay decisions and communicate the rationale behind these. In turn, this builds employee trust in the system and their commitment to the organisation.
- Come up with appropriate measures to evaluate the impact of line managers in decision-making and communications around pay. Consider using employee turnover data, management feedback and employee experience surveys.
To read more about what these findings mean for people professionals, see pages 4-7 in the full report.
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