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Decisions – Benefit schemes – the right carrot

Managers are increasingly likely to resign because their salaries are not rising fast enough, according to the latest annual Chartered Institute of Management survey. The research, carried out in conjunction with Remuneration Economics, shows that in the year to the beginning of 2004 resignations rose as average earnings increases continued to slow. Salary increases linked to rates of inflation may once have been enough to retain staff, but this is no longer the case in high employment UK, where skills are increasingly in short supply.

And the trend is continuing. Finance professionals with capabilities in key areas such as international financial reporting standards, and regulatory fields such as those brought forward by the Sarbanes-Oxley legislation in the US, are particularly in demand, according to a salary survey from recruitment firm Robert Walters released in January. Moreover, research from competitor firm Robert Half in October concluded that “half of finance professionals are actively or passively seeking a new job”.

These factors are leading to new strategies designed to attract and retain staff, while motivating them in a focused way. “In terms of compensation packages, we’ve noticed a trend over the past 18 months towards carefully targeted bonus payments,” explains Greg Weido, a senior manager at Robert Half. “Bonuses are on offer of between 10% and 20% of basic pay, referenced to achieving set goals or specific targets, such as company accountants consolidating annual numbers by a specific date, for example.” He adds that businesses are looking at packages where the focus is on the individual member of staff and configuring it to suit and motivate them.

There is also an emerging trend towards businesses thinking strategically in terms of total reward, which can be balanced against the preferences of individual employees. In its annual survey of pay and benefit practices released in early February, the Chartered Institute of Personnel and Development (CIPD) reported that non-financial incentives are something that more employers are promoting.

Charles Cotton, CIPD rewards adviser, says: “Rewards are becoming increasingly important in helping employers compete in the war for talent, as unemployment is so low. Many employers are recognising that non-financial rewards, such as family-friendly work policies, are just as important as wages and bonuses. They help to attract employees from a wider pool and avoid unaffordable pay increases. But organisations must think about how they communicate these benefit programmes to staff and ensure the different elements of total reward, including non-financial, are integrated.”

The CIPD survey shows that 50% of businesses have adopted, or are in the process of adopting, written reward strategies, and that these strategies are geared to the objectives of the organisation. There needs to be a balance between being an employer of choice and offering benefits such as childcare and flexible working, and getting the best business result.

Among the benefits now falling into focus are pensions. This is especially the case with older key employees who are closer to retirement age, and for whom a well-funded old age has become a priority. The public airing of issues surrounding retirement provision and the move from defined benefit to defined contribution schemes have focused the pension debate for many employees.

New research by Deloitte & Touche suggests that pensions have been the Cinderella of benefits for much too long. It reports that among FTSE-350 companies, pension benefits for executive directors can be worth “anywhere between 20% and 70% of their salary or more”. It says that despite the potentially considerable value available to employees from negotiating a well-funded pension, they often fail to understand its worth. At the same time, Deloitte says that pension policies often do not align with other aspects of remuneration, such as salaries.

What becomes clear as you read through the raft of research and survey material available on current trends in remuneration is that lack of good staff, skills shortages and the need to benchmark to corporate objectives are driving the market. But performance is patchy.

The recruitment market, not surprisingly, is buoyant as employers search for staff, while staff seek to sell their labour for the best set of rewards they can achieve. Both parties need to pursue their best interests and the successful businesses will be the ones that are able to align company reward strategy, business goals and the aspirations of individual employees.

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