reward management annual report (cipd) 2010

Annual survey report 2010

Reward management

Reward management 1

Contents

Summary of key findings 3

Strategic reward 6

Base pay 8

Bonuses, incentives and recognition 16

Pensions and benefits 21

Reward measurement 24

Total reward issues 25

Conclusions and implications 29

Background to the survey 32

Reward management 3

Summary of key findings

The ninth annual survey of UK reward management is based on responses received

from 729 organisations, across all industrial sectors. The main aims of the research are to

provide readers with a benchmarking and information resource in respect of current and

emerging practice in UK reward management.

Strategic reward

• Just over a third of respondents report having a

reward strategy. A further three in ten plan to

create one in 2010.

• A total reward approach has been adopted by one-

third of the sample, while a further two in ten plan

to take this approach up in 2010.

• One in twelve respondents have abandoned their

reward strategy and one in twenty have ditched

their total reward approach.

Base pay

• Overall, the most common approaches to managing

base pay are to use individual pay rates/ranges/

spot rates and broadbands. For setting salary levels

the most important methods are to use market

rates (not using a job evaluation database), market

rates (supported by a job evaluation database) and

an ability to pay. For managing pay progression,

the most common approach is to use individual

performance (either solely or, more typically, in

combination with other factors, such as competency).

• The key factors influencing the size of this year’s

annual pay review are ability to pay, inflation and

movement in market rates.

• Some reward specialists will be busy in 2010

amending the way that their organisations structure

pay, attaching salaries to these structures and

managing pay progression. However, there is less

change planned for 2010 than there was for 2009.

• In 2010, half of respondents predict that their salary

spend will increase, two-fifths believe that it will

stay the same, one in seven forecast that it will fall,

while one in ten don’t know.

Bonuses, incentives and recognition

• Cash-based bonus and incentive schemes are

widespread in the private sectors. The most common

types are individual-based schemes and ones driven by

business results, such as profit or customer service.

• The most popular reasons for having a bonus

are to enhance the connection between pay and

performance, to motivate employees and reward

high-performers.

• Around two-fifths of all respondents use employee

recognition schemes, while three in ten use non-

cash incentives.

• Just under half of private sector employers have

a long-term incentive scheme and/or employee

share plan. The most common arrangements are

executive share options, share incentive plans and

executive restricted/performance share plans.

Pensions and benefits

• Virtually all respondents have an employee pension

plan. The most common types of arrangement

are final salary schemes, group personal pensions

and stakeholders with an employer contribution.

However, outside the public and voluntary sectors,

most of the final salary pension schemes are

now closed to new entrants, while a significant

proportion are closed to future accrual as well.

• Just under one-fifth of employers are planning

changes to their pension arrangements in 2010,

with the most popular options being to introduce

salary-sacrifice arrangements, increase employee

contributions and amend the existing final salary

pension scheme.

• In 2010, two-fifths of respondents predict that their

employee benefit spend will remain the same, one-

third say that it will increase, one in ten predict that

it will fall, while the remainder don’t know.

4 Reward management

Table 1: Summary of key findings

Reward approachesPercentage of

respondents using

Written reward strategy 35

Adopted a total reward approach 33

Pay structures Individual pay rates/ranges/spot salaries 36

Broadbands 26

Pay spines 18

Job families/career grades 16

Narrow-graded pay structures 11

Factors used to determine salary levels

Linked to market rates (not using a job evaluation database)

40

Linked to market rates (using a job evaluation database)

31

Ability to pay 25

Owner’s/managing director’s views 13

Collective agreement 11

Factors used to manage pay progression

Individual performance 68

Market rates 48

Competency 38

Organisational performance 34

Skills 32

Employee potential/value/retention 32

Key factors predicted to influence the size of 2010 pay review

Ability to pay 78

Inflation 39

Movement in market rates 37

Recruitment and retention issues 33

The going rate of pay awards elsewhere 28

Level of government funding/pay guidelines 13

Union/staff pressures 11

Employers with cash-bonus or incentive plans 71

Types of bonus and incentive plans Individual-based 58

Scheme driven by business results 47

Combination 44

Team-based 21

Ad hoc/project-based 11

Department/site based 11

Employers with recognition schemes 40

Employers with non-cash incentive schemes 30

Private sector long-term incentives 46

Reward priorities in 2010

• The total reward issues predicted to be key for 2010

are: ensure alignment with the business strategy;

ensuring reward is market competitive; cost

minimisation; and ensure reward is internally fair.

Reward management 5

Table 1: Summary of key findings (continued)

Reward approachesPercentage of

respondents using

Types of long-term incentives Executive share option scheme 37

Share incentive plan 31

Executive restricted/performance share plan 26

Company share option plan 24

Save as you earn 21

Reward management changes planned for 2010

Amend the existing bonus and incentive arrangements

33

Introduce a reward strategy 31

Change pension arrangements 22

Introduce total rewards 21

Increase the pay award differential 19

Amend existing recognition/non-cash incentives arrangements

17

Pay progression 15

Pay structure 15

Introduce a new job evaluation scheme 14

Way pay levels are determined 12

Factors determining the annual pay review 12

Introduce a recognition/non-cash incentive arrangement for the first time

12

Increase the bonus differential 11

Introduce another new bonus scheme 9

Introduce a bonus for the first time 9

Change an existing job evaluation scheme 7

Total reward priorities for 2010 Ensure alignment with the business strategy 52

Ensuring reward is market competitive 51

Ensure reward is internally fair 44

Cost minimisation 44

Salary spend predictions for 2010 Increase 53

Decrease 15

Stay the same 21

Don’t know 11

Benefit spend predictions for 2010 Increase 34

Decrease 9

Stay the same 40

Don’t know 16

6 Reward management

Strategic reward

Having a strategic approach towards reward is back after the recent economic turbulence.

Table 2 shows that 35% of our respondents have

adopted a reward strategy, while a further 31% intend

to adopt one in 2010. It also reveals that 33% of

employers have adopted a total reward approach while

another 21% plan to do so this year.

Compared with last year, we have seen a jump in the

proportion of employers adopting a strategic approach

to reward. In 2008, 26% of respondents claimed to

have a reward strategy while 20% said that they had

adopted a total reward approach. Even the

percentages of respondents planning to introduce a

reward strategy and/or total reward are up on 2008:

24% and 22% respectively.

So what’s happening? This increase may be due to:

sampling or that more employers have adopted them as

they perceive that the economic situation is starting to

stabilise. As Table 2 shows, the proportion of private

sector employers with a reward strategy are almost back

to the levels seen in 2007, the last year of the economic

boom, and 2006. In the voluntary sector, the proportion

of employers with a strategy has almost returned to

levels seen in 2006. However, the proportion of

employers with a reward strategy in the public sector

has increased to an even higher level than in 2007.

Regarding total reward, Table 4 shows that the decline

in this approach since 2006 has been reversed.

We have also asked employers to indicate whether

they do not have a reward strategy (57%) or, for the

first time, whether they don’t now but did once (8%).

Manufacturing firms (11%) and public sector

employers (9%) are more likely to have once had a

reward strategy that they have since abandoned.

Similarly, 5% of respondents report discarding their

total reward approach. Interestingly, it is voluntary

sector employers (9%) and public sector organisations

(8%) that have been more likely to have dumped their

total reward approach than employers in the private

sector. As this is the first time that we have asked

these questions, we are unable to say whether the

default rate for reward strategy and total reward is

high, low or normal. However, these figures do

suggest that some employers are prepared to abandon

their strategic approach if they think that it no longer

adds value to the organisation.

Reward management 7

Table 2: Prevalence of reward strategies and total reward approaches (%)

With a reward strategy

Adopting a reward strategy

With a total reward

approach

Adopting a total reward

approach

All 35 31 33 21

By sector

Manufacturing and production 30 29 30 18

Private sector services 36 29 37 23

Voluntary sector 36 32 26 22

Public services 39 40 29 21

By size (employee numbers)

0–9 22 43 44 14

10–49 32 23 32 23

50–249 25 26 24 16

250–999 31 31 34 26

1,000–4,999 54 45 47 22

5,000+ 60 38 39 31

Table 3: The fall and rise of reward strategy (%)

2006 2007 2008 2009

All 35 33 26 35

By sector





Table 4: The fall and rise of total reward (%)

2006 2007 2008 2009

All 41 29 20 35

By sector





8 Reward management

Base pay

The recession has impacted on base pay practices in 2009 and is set to influence the pay

outlook in 2010.

Pay structures and levels

Tables 5 and 6 examine how our survey respondents

manage their pay structures. The most common

approach is to use individual pay rates/ranges and spot

salaries. However, there are variations by sector and

occupation. Public sector employers and, to a lesser

extent, voluntary sector organisations, are far more

likely to use pay spines/increments, which provide for a

greater degree of control and certainty. When it comes

to occupation, senior managers are far more likely to

be on individual pay rates/ranges/spot salaries.

Table 5: Pay structure management, by sector (%)

AllManufacturing and production

Private sector services

Voluntary sector

Public services

Individual pay rates/ranges/spot salaries

36 41 44 28 11

Broadband pay structures 26 28 29 21 18

Pay spines/increments 18 6 4 35 66

Job family/career grade structures 16 15 19 12 8

Narrow-graded pay structures 11 14 10 7 14

Table 6: Pay structure management, by occupation (%)

Senior management

Middle/ first-line

management Technical/

professionalClerical/manual

Individual pay rates/ranges/spot salaries 52 33 31 27

Broadband pay structures 25 30 27 24

Job family/career grade structures 12 15 18 17

Pay spines/increments 12 18 21 19

Narrow-graded pay structures 7 10 11 18

Reward management 9

Table 7 shows that the most important factors used by

employers when attaching salary levels to these grades

are market rates (not using a job evaluation database),

followed by market rates (using a job evaluation

database) and ability to pay. There are variations by

sector, with market rates being more important among

private sector firms, while collective bargaining is more

important in the public sector employers. By

occupation, clerical and manual staff are more likely to

be covered by collective bargaining (16%) than senior

managers (5%), while the views of the owner or

managing director is more of an influence for senior

staff (21%) than clerical and manual workers (10%).

By size, the views of the owners or managing director

is more of an issue in micro, small and medium-sized

organisations than in large ones, while the opposite is

broadly true for job evaluation.

Pay progression

The most popular criterion used by our sample in

progressing someone along their pay scale is to use

individual performance. Table 8 shows that there are

variations towards pay progression by sector. For

instance, public service employers are more likely to

take into account length of service than private sector

services firms. Also, employee potential, value or

retention is far more important as a factor in pay

progression in both of the private sectors compared

with the voluntary and public services sectors.

Table 9 shows the variations by occupation, with

senior managers far more likely to have their

progression linked to individual performance than

clerical/manual employees.

Table 7: Most important factor used to determine salary rates/ranges/mid-points, by sectorm (%)



Voluntary sector

Public services

Market rates (not using a job evaluation database)

40 38 47 38 24

Market rates (using a job evaluation database)

31 34 30 35 30

Ability to pay 25 25 24 34 23

Owner’s/managing director’s views 13 14 19 1 5

Collective bargaining 11 10 5 4 39

Table 8: Pay progression criteria, by sector (%)



Voluntary sector

Public services

Individual performance 68 73 77 43 50

Market rates 48 51 59 39 17

Competency 38 42 43 25 23

Organisational performance 34 39 44 14 8

Skills 32 37 39 16 15

Employee potential/value/retention

32 37 43 13 4

Length of service 15 8 8 20 46

Team profit/performance 12 14 14 7 4

10 Reward management

Table 10 reveals the most common ways of

progressing an employee along their pay band by

occupation. It shows that linking pay progression

solely to individual performance is the most common

of the various approaches.

However, instead of relying on just one factor to

progress their employees along their pay grades, 77%

of respondents use a combination of factors, such as

market rates or skills, a progression method that we

term as a combination approach.

Table 11 shows the most common combination

approach used, by sector and occupation. Given that

the most popular approaches are used in no more than

8% of cases, this indicates that there is no one

particular set of combinations that dominate a

particular sector, suggesting ‘best fit’ practice rather

than a ‘best practice’ approach to pay progression.

Pay awards

Against a backdrop of economic decline, Table 12

reveals that just over half of private sector service firms

have not increased pay for some or all of their

employees in 2009, compared with just under a half of

Table 10: The most common pay progression methods, by occupation

Senior managementMiddle/first-line management

Technical/professional Clerical/manual

Individual performance only (15%)




Organisational performance only (5%)

Length of service only (7%)



Market rates only (4%) Market rates only (5%) Individual performance, competency, skills, market rates and employee potential (6%)

Market rates only (7%)

Individual performance, competency, skills, market rates and employee potential (4%)

Individual performance, competency, skills and market rates (5%)

Individual performance and market rates (4%)


Percentage of respondents in brackets

Table 9: Pay progression criteria, by occupation (%)

Factors usedSenior

management

Middle/ first-line

managementTechnical/

professionalClerical/manual

Individual performance 76 70 67 58

Market rates 48 48 49 47

Competency 37 38 40 36

Organisational performance 44 34 29 28

Skills 30 31 36 31

Employee potential/value/retention 36 34 34 24

Team profit/performance 13 15 10 9

Length of service 12 15 16 17

Reward management 11

Table 11: The most common combinations of factors used in a combination approach, by occupation

Senior managementMiddle/first-line management

Technical/professional Clerical/manual

Manufacturing and production






Individual performance, competency, skills, market rates, organisational performance and employee potential (6%)




Voluntary sector


Individual performance and competency (3%)

Individual performance, market rates and employee potential (3%)

Individual performance and competency (3%)

Public services Individual performance and market rates (4%)

Individual performance and length of service (4%)




Table 12: Pay decisions, by sector and size (%)

Pay increase Pay cut Pay freeze Pay deferral

All 48 4 41 11

By sector



Voluntary sector 68 – 22 10



0–9 50 12 35 4

10–49 44 5 43 12

50–249 40 5 49 11

250–999 54 4 36 9

1,000–4,999 57 2 33 11

5,000+ 58 1 32 19

manufacturing and production firms. This contrasts

with the public and voluntary sectors, where most

employers have awarded a pay rise. By occupation,

senior managers and above have been slightly less

likely to have received a salary increase (45%)

compared with clerical and manual workers (50%).


Table 13: Elements of the overall pay increase, by sector (%)

Across-the-board increases Pay progression increases

Manufacturing and production 66 63

Private sector services 51 66

Voluntary sector 85 56

Public services 92 61

Table 13 indicates that the overall pay increase is often

made up of two elements, an across-the-board increase

(or a flat rate increase linked to the cost of living) and a

pay progression increase (such as a performance-related

pay rise). For instance, in manufacturing and production

66% of respondents say that their pay award consists of

an across-the-board rise while 63% say it consists of

pay progression increases.

Of those private sector service firms that did make an

award, they were more likely to give a pay progression

increase than an across-the-board rise. This may reflect

the state of the economy in 2009 in that such firms

did not have to increase wages in line with the cost of

living as inflation was negative, or that they could not

afford to award all staff a flat rate increase because of

falling revenue. It may also reflect their reward

philosophy and they prefer to reward progression,

which allows them to better reflect individual

contribution rather than give a cost-of-living rise that

spreads the pay budget around indiscriminately.

Overall, in 2009, the median pay award made by those

employers who did increase salaries was 2.5%,

ranging from 2% (lower quartile) to 3% (upper

quartile). By sector, those private sector employers that

were able to afford a pay increase gave higher rises

(manufacturing and production (3%) and private

services sector (2.5%)) than the not-for-profit sectors

(voluntary (2%) and public services (2.05%)).

Table 14 shows the three factors that were predicted in

2008 to be the most influential in 2009 in determining

the size of the overall pay review budget (taking into

account both individual base-pay progression and, if

applicable, general or cost-of-living pay rises) compared

with what respondents in 2009 have said has been the

most influential. The 2009 data is in italics.

The biggest difference is around the rate of inflation,

which respondents in 2008 tended to overestimate in

importance, and ability to pay, which they have tended

to underestimate. The gap around inflation may be

due to the Retail Prices Index (RPI) measure (which is

traditionally the measure used to inform the annual

pay review) being relatively high in 2008, driven by

energy, fuel and food costs, while in 2009 it was

negative, driven by falling housing and energy costs

and the temporary VAT reduction. The gap around

ability to pay may be that in 2009 many respondents

simply did not have the cash to increase salaries so

ability to pay has become more of an issue.

Table 14 also highlights variations by sector. For

instance, in the private service sector recruitment and

retention has been more of an issue than was

originally predicted, indicating that even during the

recession some firms have had an eye on the coming

recovery and the people who they need to attract and

keep to ensure that they take advantage of the growth

in the economy. In the public sector staff and union

pressures have turned out to be less of an issue in

2009 than was originally predicted, which could reflect

that many employees in this sector have enjoyed

above-inflation rises over this period.

Table 15 shows what our respondents predict will be

the most important factors in the determination of the

annual pay review in 2010. For instance, compared

with Table 14, it shows that in 2010 movement in

market rates and recruitment and retention factors are

likely to become more of an issue for private sector

employers, presumably an indication of confidence

among our sample in the outlook for 2010. In the

public and voluntary sectors, the factors that were

important in 2009 are likely to carry through into 2010.


Table 14: The most important factors for employers when determining their annual pay review, by sector, 2009 (predicted in 2008 for 2009 versus actual)

Manufacturing and production Private sector services Voluntary sector Public services

Ability to pay (52%; 83%)


Inflation (46%; 53%) Level of government funding/pay guidelines (62%; 61%)

Inflation (63%; 45%) Movement in market rates (46%; 39%)

The ‘going rate’ of pay awards elsewhere (27%; 27%)

Union/staff pressures (38%; 24%)

Movement in market rates (37%; 33%)

Inflation (54%; 33%) Ability to pay (67%; 86%)

Inflation (41%; 31%)


Recruitment and retention issues (22%; 31%)





Movement in market rates (20%; 27%)


Percentage of respondents in brackets; 2009 actual data in italics

Table 15: The most important factors for employers when determining their annual pay review, by sector, 2010


Ability to pay (83%) Ability to pay (81%) Ability to pay (88%) Level of government funding/pay guidelines (60%)

Inflation (45%) Movement in market rates (47%)

Inflation (48%) Ability to pay (54%)

Movement in market rates (44%)

Recruitment and retention issues (42%)

The ‘going rate’ of pay awards elsewhere (31%)

Inflation (34%)


Inflation (34%) Movement in market rates (25%)

Union/staff pressures (28%)







Table 16 shows the proportion of respondents who

report that their salary spend has increased, decreased

or remained the same since 2008. Against a backdrop

of economic contraction, Table 16 reveals that three in

ten employers in both of the private sectors have seen

the amount of money they spend on salaries drop in,

or during, 2009.

Table 17 reveals what respondents predict will happen

to their total salary spend in 2010. It shows that public

sector employers are more likely to predict a decrease

to their salary pay bill, possibly a reflection of political

concerns about the cost of public sector salaries.

Table 16: How the salary spend has changed since 2008, by sector (%)



Voluntary sector

Public services

Increased 61 56 53 75 85

Decreased 24 31 30 10 4

Stayed the same 10 9 12 8 7

Don’t know 5 3 5 8 9

Table 17: How the salary spend is predicted to change in 2010, by sector (%)



Voluntary sector

Public services

Increased 53 53 56 49 51

Decreased 15 16 13 12 18


Don’t know 11 10 10 14 13


Table 18: Organisations planning to change their pay arrangements in 2010, by sector (%)



Voluntary sector

Public services

Increase the pay award differentiation between ‘normal’ and ‘high-performing’ staff

19 19 21 15 13

Changing the way that employees progress within their pay ranges

15 13 14 20 15

Changing the way the pay structure is organised

15 13 14 26 15

Introducing a new job evaluation scheme

14 15 11 18 15

Changing the way that pay rates/ranges/mid-points are attached to the pay structure

12 10 12 18 13

Changing the factors that determine the size of the pay review

12 13 13 16 7

Changing the existing job evaluation scheme

7 6 7 5 11

Changes planned

The most popular reward change for private sector

employers in 2010 is to increase the pay award

differentiation between employees, possibly as a

reflection of tight pay budgets and a desire to reward

those who have contributed most a greater proportion

of the overall pay rise. By contrast, the public and

voluntary sectors are more likely to be amending their

pay structures and progression arrangements.

The overall proportion of employers planning changes

in 2010 is down on the number that planned changes

in 2009. For instance in 2009, 29% were planning to

change the way the pay structure is organised; in

2010 just 15% are planning to do likewise. Similarly,

the proportion planning changes to pay progression

has fallen from 30% to 15% and the percentage

amending the way that pay levels are determined have

dropped from 23% to 12%. That less change is

predicted for 2010 may be because HR is trying to get

more value out of their existing systems rather than

changing them wholesale.


Bonuses, incentives and recognition

Employers in 2010 will be busy reviewing existing bonus, incentive and recognition plans to

ensure that they meet the needs of the business as the economy, hopefully, improves.

Short-term bonuses and incentives

The use of variable pay is a popular method of reward,

with 71% of our respondents using it. Table 19 shows

the variations by sector and size, with these

arrangements being far more common in both parts of

the private sector. Interestingly, the voluntary sector

has a low incidence of incentives of any kind.

The most common arrangement for those using a

bonus scheme is an individually based plan (such as

commission), followed by a plan driven by business

results (such as customer satisfaction) and then a

combination scheme (which takes into account both

individual and collective performance), according to

Table 20.

Table 21 reveals the key objectives behind the use of

cash-based bonus and incentive schemes. It shows that

the most popular objective in both parts of the private

sector and among public services is to enhance the pay–

performance connection. In the voluntary sector, by

contrast, the most important objective is to encourage

high productivity. Another significant variation by sector

is that public service employers are more likely to use a

cash bonus to reward performance through a non-

consolidated pay award. This is probably due to the

inflexibility of pay structures to reward individuals at the

top of their grade, especially high-performers, and/or a

desire to move more of the pay increase from a fixed

cost to a variable cost.

Table 19: Use of cash-based bonus/incentive plans, recognition schemes and non-cash incentive plans, by sector and size (%)

Cash-based bonus or incentive plan

Recognition scheme

Non-cash incentive plan

All 71 40 30

By sector

Manufacturing and production 83 39 23

Private sector services 86 41 38

Voluntary sector 25 23 16

Public services 44 59 33


0–9 67 22 13

10–49 69 28 23

50–249 68 30 23

250–999 73 44 29

1,000–4,999 75 55 44

5,000+ 71 72 48


Table 20: Types of cash-based or incentive plans on offer, by sector (%)

Type of planAll



Voluntary sector

Public services

Individual-based 58 50 57 78 83

Schemes driven by business results 47 52 50 30 13

Combination 44 50 48 13 17

Team-based 21 17 23 9 32

Ad hoc/project-based 11 10 10 4 21

Departmental/site-based 11 13 11 9 6

Gainsharing 1 3 1 – –

Table 21: Key objectives behind cash-based bonus and incentive schemes, by sector (%)


Enhance pay–performance connection (52%)


Encourage high productivity (44%)


Motivate employees (32%)


Reward high-performers (39%)

Reward performance through a non-consolidated pay award (47%)







Recruit and retain high-performers (30%)


Improve financial results (25%)




Support business goals (24%)









Against a backdrop of tight reward budgets, Table 22

reveals that a large proportion of those employers with

bonus schemes plan to review or amend them in 2010

to ensure that they align to the organisation’s objectives,

with a lot of respondents with existing plans amending

them this year, such as changing the measures,

coverage or targets. Within the private sector, a

significant proportion of firms will be increasing the

bonus differential between ‘normal’ and ‘high-

performing’ employees, presumably to ensure what little

financial rewards they have go to those who have

contributed the most. As Table 18 shows, a similar

proportion is also planning to increase the differential

when it comes to 2010 salary awards.

Due to the low coverage of bonus plans in the

voluntary sector, a significant proportion of these

employers are looking to introduce a bonus scheme for

the first time, or examine the case for introducing a

scheme for the first time.

Recognition and non-cash incentive schemes

Table 19 shows that 41% of employers operate a

recognition scheme (such as employee of the month),

while 30% have a non-cash incentive plan (such as

sales incentive where the award has a monetary value,

such as a travel package, but is not paid in cash). This

is a significant increase on the proportion using them

in 2008, when 31% used recognition schemes and

17% used non-cash incentive plans.

By sector, the proportion of employers using

recognition schemes has risen from 26% to 39% in

manufacturing and production, 14% to 23% in the

voluntary sector and from 35% to 59% in the public

sector. Those using non-cash incentives has jumped

from 24% to 38% in the private services sector, from

8% to 16% in the voluntary sector and from 17% to

33% in the public sector.

Part of the increase over the year in the use of these

low-cost plans may be attributable to the state of the

economy and many employers having a tight budget

from which to reward and recognise individual and

team contribution.

Like cash bonus and incentive plans, many employers

will be reviewing existing non-cash incentive and

recognition arrangements in 2010, according to Table

23. Interestingly, while private sector employers are

Table 22: Bonus and incentive reviews and changes planned in 2010, by sector (%)


Private sector services Voluntary sector Public services

Examine existing bonus arrangements

47 57 25 31

Amend existing bonus plans 40 48 16 27

Increase the bonus differentiation between ‘normal’ and ‘high-performing’ staff

17 22 6 12

Examine the case for introducing a bonus for the first time

9 11 19 10

Introduce another new scheme 8 13 4 10

Examine the case for removing a bonus or incentive arrangement

10 10 11 11

Remove an existing bonus or incentive scheme

7 11 7 11

Introduce a bonus for the first time

5 7 11 8

Deferring cash into long-term vehicles

5 7 – 2


Table 23: Non-cash incentive and recognition reviews and changes in 2010, by sector (%)



Voluntary sector Public services

Examine existing non-cash incentive and recognition arrangements

24 30 23 34

Examine the case for introducing recognition and non-cash incentive plans for the first time

17 18 23 16

Amend existing recognition and non-cash incentive arrangements

12 20 11 25

Introduce a recognition or a non-cash incentive scheme for the first time

13 12 11 12

Increase the recognition/non-cash differentiation between ‘normal’ and ‘high-performing’ staff

7 9 8 8

Introduce another recognition or a non-cash incentive scheme

7 7 6 11

Remove an existing recognition or a non-cash incentive scheme

5 3 1 11

Examine the case for removing a recognition or non-cash incentive plan

2 3 5 5

more likely to increase the bonus differential between

‘normal’ and ‘high-performing’ workers, they are less

likely to do this for recognition and incentive

schemes. Possibly employers believe such rewards

should be awarded in a more egalitarian manner than

cash bonuses.

Share schemes

Just under half (46%) of private sector respondents

have some sort of employee share plan or other long-

term incentive arrangements. Table 24 shows the most

common arrangements.

Overall, the proportion of employers offering a share

plan has increased slightly from 43% in 2008 to 46%.

However, there are significant changes within this

figure. On the all-employee front, the percentage of

private service sector firms offering a save as you earn

(SAYE) plan has dropped from 33% to 23% while the

percentage offering a company share option plan

(CSOP) has fallen from 32% to 26% in the

manufacturing and production sector. While on the

executive front, the proportion of manufacturing and

production firms with a restricted/performance share

plan has risen from 25% to 35%.

Table 25 shows the changes to executive long-term

incentive plans (LTIPs) between 2008 and 2009. It shows

that a similar proportion of employers have increased

the number of individuals who participate and the size

of the potential award as have done the opposite. The

only significant difference is that employers have been

far more likely to have increased the LTIP performance

requirements than have reduced them, which should

please the shareholders if not the executives.


Table 24: Common types of long-term incentives, by sector (%)

SchemeManufacturing and

production Private sector services

Executive share option schemes 33 40

Share incentive plans (SIPs) 38 27

Company share option plans (CSOPs) 26 23

Save as you earn (SAYE) 17 23

Executive restricted/performance share plan 35 20

Executive deferred annual cash-based bonus 14 16

Other 7 14

Executive deferred/co-investment share plan 5 5

‘Phantom’ share scheme 3 7

Share appreciation rights (SARs)/Equity-settled SARs 3 2

Enterprise management incentives (EMIs) 4 6

Table 25: Changes to executive long-term incentive plans, 2008 to 2009 (%)

Reduced the number of individuals who participate 18

Increased the number of individuals who participate 18

Increased the performance requirements 15

Reduced the size of the potential award 14

Increased the size of the potential award 10

Reduced the performance requirements 1



While pension provision remains a common employee benefit, there have been significant

changes in the types of scheme offered. Overall, the benefit spend has been less responsive

to the economic downturn than the salary spend.

Virtually all of our sample (95%) provides their

employees with access to a pension scheme. Table 26

shows that final salary schemes are the most common

type of pension provision, followed by group personal

pension (GPP) schemes. Since last year, the proportion

of employers with final salary pension schemes has

fallen from 52% to 46%, while the percentage of

those with group personal pensions has increased from

34% to 41%.

Among manufacturing and production firms the

proportion of employers with final salary pension

schemes has dropped from 50% to 43%, while the

percentage with group personal pensions has

increased from 38% to 45%, indicating that such

employers may be switching away from expensive final

salary pension schemes to lower-cost group personal

pension arrangements. That said, other forms of

defined contribution (DC), such as stakeholder (no

employer contribution) and trust-based schemes, have

also seen a decline, suggesting a shift in the type of

DC provision. The concept of risk-sharing in pension

provision remains a minority interest, with just under

1% of employers using a hybrid pension scheme.

Within private sector services, the proportion of

employers with group personal pensions has also risen

from 45% to 53%, while the proportion of those with

stakeholder with no employer contribution has fallen

from 24% to 19%. We can speculate that automatic

pension enrolment from 2012 onwards and the

national employment savings trust (NEST) are

encouraging some employers to shift to pension

arrangements that exempt them from NEST.

Table 26: Pension provision, by sector (%)

Type of arrangement TotalManufacturing and production


Voluntary sector

Public services

Final salary scheme 46 43 32 52 89

Group personal pension (GPP) 41 45 53 34 9

Stakeholder pension (with employer contribution)

32 29 34 45 17

Defined-contribution (DC) plan 26 37 29 15 10

Stakeholder pension (no employer contribution)

16 16 19 9 10

Contribution to personal pension 8 7 10 7 8

Career-average scheme 5 4 2 7 12

Group self-invested personal pension (SIPP)

3 3 5 – 1

Hybrid 1 2 – 1 1


Further analysis of final salary pension schemes shows

that while most public sector employers still have them

open to new employees, they are now mostly closed

to new entrants or future accrual in the private sector

(Table 27). Interestingly, despite the media hype, we

have not seen a large increase in the proportion of

employers that have closed their final salary schemes

to existing employees between 2008 and 2009. This

may be because many employers that are planning

such a move were still going through staff

consultations at the time of the survey and we can

expect an increase in schemes closed to future accrual

in 2010.

Changes planned for 2010

Around one-fifth of employers (22%) will be amending

their existing pension arrangements this year. By sector,

voluntary sector organisations (26%) are more likely to

be making changes, followed by manufacturing and

production firms (24%), private sector service firms

(22%) and public sector employers (14%).

Among those changing their existing arrangements,

the most common amendment is to introduce salary

sacrifice (33%), followed by increasing employee

contributions (23%), increasing employer contributions

(20%), amending the existing final salary pension

scheme (19%), closing the final salary scheme to

existing members (16%) and introducing automatic

workplace pension enrolment (15%).

Interestingly, employers (especially those in the private

services sector) are now more likely to close their final

salary pension arrangements to existing employees

than new employees (9%), suggesting the end of

traditional final salary pension arrangements in the

private sector.

Benefit spend

By sector, Table 28 indicates how the employee benefit

spend, including pensions, has changed between 2008

and 2009. Given the state of the economy over the

past 12 months, we find that around one in five

private sector employers have cut back on their benefit

spend since 2008. This compares with three in ten

private sector employers who reported that their salary

spend was smaller during this period, indicating that

the benefit spend is less responsive to economic

changes than the salary spend. Another interesting

find is the high proportion of respondents, especially in

the public sector, who just didn’t know what had

happened to their benefit spend over this period,

indicating that unlike the salary spend, the benefit

spend is a grey area for such employers.

Looking ahead to the next 12 months, employers in the

private sector are more likely to predict that the benefit

spend will remain constant than increase or decrease,

while the opposite is true in the voluntary and public

sectors, according to Table 29. Interestingly, while

public sector employers were more likely to predict a

Table 27: Final salary pension arrangements, by sector (%)



Voluntary sector

Public services

Open to all 37 19 9 40 81

Closed to new employees but not future accruals

43 51 62 44 15

Closed to new employees and future accruals

14 20 22 10 3

Wind up 6 10 6 6 1


shrink in the size of their salary spend over this period,

they are less likely to predict that this will happen for

the benefit spend. Also of note is that while the future

of benefit spend is less of a grey issue for public and

voluntary sector employers, it is more of a grey area for

private sector respondents, with an increase in the

proportion of them answering ‘don’t know’.

Table 30 shows the size of benefit spend as a

percentage of the payroll in 2008, 2009 and what is

predicted for 2010. By 2010, the inter-quartile range

for the benefit spend in both manufacturing and

production and private sector services is estimated to

range from 5% to 17% with the median pitched at

10%, for the voluntary sector the range is 3% to

15% with an 8% median, and for the public sector

the range is 2% to 23% with a 12% median.

Table 28: How benefit spend has changed between 2008 and 2009, by sector (%)



Voluntary sector

Public services

Increased 40 39 40 48 39

Decreased 16 21 19 5 5


Don’t know 15 9 11 19 36

Table 29: How benefit spend is predicted to change in 2010, by sector (%)



Voluntary sector

Public services

Increased 34 31 33 44 36

Decreased 9 11 11 4 7


Don’t know 16 15 12 15 33

Table 30: The benefit spend as a proportion of payroll, 2008–10, by sector (%)

2008 2009 2010

Lower quartile 4 4 4

Median 9 10 10

Upper quartile 15 15 16


Just under half (49%) of respondents claim that they

calculate the size of their total remuneration spend (that

is pay, benefits and other financial rewards, plus

National Insurance Contributions).

By sector, public service employers (55%) are more likely

to calculate this, followed by private sector service firms

(51%), manufacturing and production firms (48%) and

voluntary sector organisations (38%). Smaller employers

are more likely to, or be able to, calculate their total

remuneration expenditure than larger organisations. While

67% of firms with organisations with fewer than ten staff

calculate their total remuneration spend, only 50% of

employers with more than 5,000 staff do likewise.

Compared with 2008, there has been a drop in the

proportion of respondents who calculate the size of

their total remuneration spend from 54% to 49%. The

most significant drops are in private sector services

(60% to 51%) and the voluntary sector (44% to 38%).

Possible explanations for this decline may be due to

sampling, that some respondents thought that their

employer did calculate the size but now realise

otherwise, that for some reason a number of employers

have simply stopped calculating the size of their total

remuneration spend and that it has become harder to

calculate this total.

However, while many employers know the size of their

total pay and benefit spend, most are unable to break it

down into its constituent parts. When we asked for

these employers to break down their total remuneration

expenditure into fixed pay, variable pay and benefits as

a percentage of their annual turnover or revenue,

around 80% were unable to.

Of the 20% that are able to give a breakdown, Table 31

reveals the mean findings by sector. It shows that in the

public, private and voluntary service sectors the total

remuneration spend represents more than two-thirds of

organisation turnover or income. By contrast, in the

capital and physical-resource intensive manufacturing

and production sector, total remuneration accounts for

a lower proportion (48%) of organisational turnover.

It is surprising that in the depths of a recession so many

employers do not know the size of their total

remuneration spend and of those that do, most are

unable to express this as a percentage of their total

revenue or income. Having such data to hand allows

employers to work out how much they need to increase

income, or reduce labour costs, so as to maintain or

increase profits.

Reward measurement

This year’s survey finds only a minority of employers know the size of their total

remuneration spend.

Table 31: Elements of total remuneration expressed as a percentage of organisation turnover, by sector (%)




Fixed pay 30 52 58 69

Variable pay 6 8 – 3

Benefits 12 13 11 16


This year we asked respondents what were the key total

reward issues that they had focused on in 2009 and

what issues they predicted they would be facing in

2010. Figure 1 reveals that cost minimisation, followed

by ensuring alignment with the business strategy and

ensuring reward is market competitive were the three

most common reward priorities in 2009.

Figures 2, 3, 4 and 5 show the differences by sector.

Unsurprisingly, given the state of the economy, cost

minimisation has been more of an issue in the private

sector than the public or voluntary sector. By contrast,

possibly as a consequence of political and media

concerns over paying women less than men, ensuring

pay is internally fair is more of an issue in the public and

voluntary sectors. Similarly, pay transparency is more of

an issue in the public (32%) and voluntary (21%)

sectors than in manufacturing and production (9%) and

private services (8%).

In 2010, the three key reward priorities in order of

preference are predicted to be ensuring alignment with

the business strategy, followed by ensuring reward is

market competitive and then cost minimisation and

ensuring reward engages employees in equal place. We

can speculate that the jump in the priority given to

ensuring that reward is market competitive may be a

reflection of pay freezes and cuts in the private sector in

2009 and the belief among individual firms that as the

economy picks up reward will need to be competitive if

they are not to lose key talent. This assumption is also

supported by the increase in the importance given to

rewarding talent by our private sector sample and a

drop in the proportion of employers regarding cost

minimisation as a key priority in 2010.

Within the public sectors, cost minimisation is predicted

to grow in importance, but possibly less than one may

have expected given the spending constraints predicted

for the public sector. Given a lack of money for

employee reward, ensuring employee reward engages

employees will become more of a priority in 2010.

Other less common total reward priorities for 2010

include: decreasing pay at risk (2%); tax planning (5%);

increasing pay at risk (5%); reward administration (6%);

rewarding innovation (7%); evaluating return on reward

investment (8%); executive reward (10%); developing

line manager buy-in to reward (10%).

Total reward issues

The total reward priorities of employers reflect the state of the economy in 2009 and

what is predicted to happen in 2010.


Figure 1: Key reward priorities in 2009 and 2010, percentage of respondents – all.

Figure 2: Key reward priorities in 2009 and 2010, percentage of respondents – manufacturing and production

Cost m

inim

isatio

n

Ensu

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ignm

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Rewar

ding

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t

2009 2010

40

30

50

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51

4448

52

44

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3941

32

39

25

30

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28

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19

26

10

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Rewar

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talen

t

2009 2010

40

30

50

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56

4846

51

44

53

39

44

38

45

35

40

29

34

17

27

1921

23

28

10

20

0


Figure 3: Key reward priorities in 2009 and 2010, percentage of respondents – private sector services

Figure 4: Key reward priorities in 2009 and 2010, percentage of respondents – voluntary sector

Cost m

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n

Ensu

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ignm

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e

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Rewar

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2009 2010

40

30

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57

43

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46

56

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31

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2123 23

28

16

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2009 2010

40

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33

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Figure 5: Key reward priorities in 2009 and 2010, percentage of respondents – public services

40

30

50

60%

4044

4852

3638

50

44

28 29 29

38

30

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2009 2010


Conclusions and implications

CIPD Performance and Reward Adviser Charles Cotton gives his personal views on some

of the implications from this and other research for reward and HR professionals.

Our survey shows that the longest economic recession

since the Second World War is having an impact on

UK reward practices. Within the private sector, this

research reveals widespread use of pay freezes and, in

some instances, pay cuts as employers have tried to

avoid big job losses.

There are a number of reasons why employers have been

able to keep a lid on pay rises during 2009. The first is

that the measure of inflation traditionally used to inform

the annual salary review, the Retail Prices Index (RPI), has

been negative for most of 2009. This has meant that

while many employees may not have seen their pay

increase, or only received low increases, negative inflation

has meant that their wage packet has gone further.

Two other key factors determining the size of the pay

review are the going rate of pay awards elsewhere and

movement in market rates. Employers who waited a

few months before making a pay decision were able to

give zero increases, as that is what other firms had been

doing, while those that were using market-based pay

approaches found many market rates had not changed

and so their own rates did not require uprating.

Finally, ability to pay was another crucial factor. Most

employers reported that they simply did not have the

money to fund a pay rise when their revenues were falling.

Pay freezes and employee acceptance

Our 2009 Employee Pay Attitude survey found that 51%

of private sector employees had seen their pay frozen, yet

while employees were dissatisfied with this pay decision,

the difference between those who were satisfied and

dissatisfied was –19%, compared with –36% in the public

sector. Those who accepted the pay decision believed that

their pay freeze reflected the state of the economy and

how much their organisation had available to spend on

their increase. Those who were dissatisfied with the

decision felt this way because it did not keep pace with

inflation or reflect their individual performance.

This suggests that employers who will have to freeze

pay in 2010 need to pay attention to managing pay

expectations among their employees. They need to be

able to communicate the business rationale for the

decision if they are to gain their acceptance. However,

they’ll also need to give employees a vision of a better

future resulting from this decision and that all

employees, not just the workers, are expected to

tighten their belts. Again, our pay attitude survey

found that leaders had accepted this and have been

more likely to see a pay freeze (47% compared with

38%) or a pay cut (8% compared with 4%).

Those private sector employers that were able to afford

a pay award uplifted salaries by between 2.5% and

3%. Unsurprisingly, our 2009 Employee Pay Attitude

survey found those private sector employees who were

lucky enough to receive a pay rise were far more

appreciative of their increase (a net appreciation score of

69%) than public sector workers, who got an increase

typically worth 2% (a net appreciation score of 48%).

Another indicator of the impact of the recession is

what has happened to the salary spend over the past

12 months, with around three in ten employers

reporting their fixed pay spend has fallen as the

recession hit. Unfortunately, as our 2009 Employee Pay

Attitude survey has found, those who have lost their

job in the past 12 months have usually had to take a

25% pay cut to price themselves back into work.


Private sector pay in 2010

Looking forward to 2010, employers report that if they

do make a pay rise in 2010 they are more likely to

differentiate the pay award between high and normal

performers. A similar percentage is also planning to do

the same for bonuses.

Reassuringly, respondents to our 2009 Employee Pay

Attitude survey were reasonably confident in their

employers’ ability to assess their individual (a net

satisfaction score of 22%) and their team’s (a net

satisfaction score of 21%) performance. However,

while employees may feel that their employer is able to

differentiate between star and good performers, what

impact this has when they realise that they are not

regarded as star material remains to be seen. Again, if

employers are going to increase the differential, they

need to be able to justify this to employees if they’re

going to gain acceptance of this change and not lead

to a collapse in self-worth among the good performers

and a disintegration of employee engagement.

According to our winter Labour Market Outlook survey

report, 35% of employers believe that they will

increase pay in 2010, while 14% predict that they will

freeze it and 2% plan to cut it (49% report that it’s

too soon to say). Of those 35% who are predicting an

increase, the median award is 1.5%.

However, if inflation rises over this period, and the RPI

measure is expected to be between 2.6% and 3% in

the first half of the year, then employees who have had

a pay freeze or a 1.5% increase will feel worse off

financially and may be less likely to accept the pay

decision. Whether this feeling impacts on their decisions

to stay with their employer may depend on the state of

the jobs market, but economic growth is expected to be

small during 2010. If this is the case then employees

may be more accepting of their pay awards.

Public sector pay

While the private sector was buffeted by the economic

downturn in 2009, the public sector largely escaped.

Most public sector employers made a pay award – a

flat rate increase, or a pay progression rise, or both –

while between 2008 and 2009, just 4% of public

sector employers reported that the amount of money

they spent was on fixed pay had fallen.

However, despite most public sector workers seeing

their pay go up in 2009, many were not as

appreciative as those private sector workers who got a

pay increase. The most common reason given for pay

dissatisfaction was that the increase did not keep with

the rate of inflation. Given that RPI was negative for

most of 2009, either public sector workers started

using a different measure of inflation to judge their

pay rise, such as the Consumer Prices Index (CPI), or

they were looking back over a longer period over

which they perceive that their pay did not keep pace

with RPI. And while they did well in 2009, they believe

that this did not make up for 2007 and 2008 when

they did less well when compared with inflation and

private sector pay awards.

Another interesting finding from the 2009 Employee

Pay Attitude survey is that most public sector workers

are expecting a pay rise in 2010 that is the same or at

least higher than the one they enjoyed in 2009.

However, many public sector workers, such as NHS

employees, police officers and Scottish school teachers,

are covered by multi-year deals, some of which were

front-loaded, so their 2010 pay award will be lower

than their 2009 pay increase. Those that are covered

by long-term pay deals that are due to expire in 2010,

or are under annual pay agreements, may come in for

a shock if they believe that their 2010 pay rise will be

higher than 2009’s.

Rather like the private sector, public sector employers

will need to focus on employee reward communication

over the next few years to better manage staff pay

expectations by articulating what values, attitudes,

performances and behaviours they require and how

they will reward and recognise given that budgets will

be constrained.

Another key source of grievance for the public sector

workers regarding their pay award is that it did not

reflect their performance, according to the 2009

Employee Pay Attitude survey. Yet this report reveals

that linking pay and performance is not widespread in

the public sector. However, this may be a good thing

as the pay attitude survey finds that most public sector

employees don’t believe that their employer is able to

assess/measure good performance. If reward is going

to recognise an element of individual or collective


performance, then public sector organisations are

going to have to revamp their existing systems so that

employees believe that their performance will be

rewarded or recognised by their employer.

Reward changes planned for 2010

Interestingly, the number of employers planning

changes to their base pay systems has fallen,

compared with previous years, with fewer employers

planning to amend their pay structures or change the

way they attach salaries to them. This may indicate

that employers are trying to do more with existing

arrangements, which may reflect the state of the

economy and that the organisation doesn’t have the

time or resources to embark on widespread changes.

The sector planning most base pay change in 2010 is

the voluntary sector.

By contrast, when it comes to variable pay, it is the

private sector that is planning most change, with 48%

of private sector service firms and 40% of

manufacturing and production employers planning to

amend their existing bonus programme, such as raising

targets or adding new ones.

When it comes to non-cash incentives and recognition,

it is public sector employers who are more likely to be

making changes in this area, perhaps a reflection of

future pay budgets being tighter in that sector and

employers looking at other ways to drive employee

engagement.


2009 has seen a decline in the proportion of

employers with final salary pension schemes to just

below half. However, in the private sector, many of

these schemes are closed to new employees. Looking

to 2010, more private sector respondents are planning

to close final salary pension plans to existing staff than

are closing them to new employees, indicating that

from now on we will see a shift from schemes that are

just closed to new employees to closed to all

employees and raising issues around how this change

is communicated.

Within defined contribution (DC) pensions, employees

are switching away from trust to contract-based

arrangements as trust-based schemes become less

attractive, especially with the end of contracting out

for DC. The proportion of employers offering access to

a pension but not contributing to it has also declined,

despite the tough financial year in 2009. This increase

may be due to employers wishing to sort out their

pension arrangements prior to automatic workplace

pension enrolment from 2012, or a concern that with

the probable end of default retirement that they will

need to help their staff build up a pension pot on

which they can retire.

While around 30% of private sector employers

reported that their salary spend fell in 2009, only

around 20% said this was also happening to their

benefit spend, while 30% reported that it had

remained the same. This suggests that the benefit

spend has been less adaptable to economic decline.

Part of the reason for benefit-spend inflexibility may

have been because many firms have had to pump

extra money into their pension funds so as to meet

their obligations. However, this may not be the

explanation for all employers, so HR should review

their current benefit spend to ensure that it does not

become a millstone around the firm’s neck.

Overall, while cost minimisation has been the most

significant reward issue for employers in 2009, private

sector firms believe that it will decline in importance.

Instead, ensuring reward remains market competitive,

that employees find the rewards engaging and rewarding

talent will grow in relevance, indicating that they believe

that the economy will improve in 2010, or at the very

least, it will not get any worse. We can only hope.


This is the ninth annual survey of reward management

by the CIPD. The main aims of the survey are to:

• inform the work of the Institute on reward

management

• provide readers with an information and

benchmarking resource in respect of the changing

face of UK reward management.

The research was carried out between August and

October 2009 and questionnaires were sent to reward

specialists and people managers in the public, private

and voluntary sectors. Replies were received from 729

organisations; this is up on the 520 employers who

responded in 2008.

The following figures give breakdowns of the

respondents to this survey by organisational size and

by sector.

If you need further information or have any suggestions

for next year’s survey, please contact Charles Cotton at

[email protected]

Background to the survey

Table 32: Participants by sector

Sector Percentage of respondents

Manufacturing and production 27

Private sector services 46

Voluntary sector 13

Public services 15

Table 33: Participant breakdown, by sector and size (%)

Number of staffManufacturing and production



1–9 1 2 1 1

10–49 10 14 12 6

50–249 44 40 46 8

250–999 28 23 26 26

1,000–4,999 14 13 15 36

5,000+ 3 8 – 24

Chartered Institute of Personnel and Development151 The Broadway London SW19 1JQ Tel: 020 8612 6200 Fax: 020 8612 6201Email: [email protected] Website: www.cipd.co.uk

Incorporated by Royal Charter Registered charity no.1079797 Issu

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We explore leading-edge people management and development issues through our research.

Our aim is to share knowledge, increase learning and understanding, and help our members

make informed decisions about improving practice in their organisations.

We produce many resources on reward management including guides, books, practical tools,

surveys and research reports. We also organise a number of conferences, events and training

courses. Please visit www.cipd.co.uk to find out more.

reward management annual report (cipd) 2010

Documents

strategic reward

reward strategy

reward measurement

reward specialists

total reward approach

base pay

pay progression

total reward issues