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• Tailoring a reward strategy to suit each region in which an employer operates can help to target labour issues, such as recruitment and retention, resulting in a more efficient reward spend.
• Regional pay variations have been used by some employers for years.
• There are several ways employers can structure a regional pay strategy, including regional pay bands, location payments and zonal pay systems.
• Regional benefits packages are less common, but employers can source local discounts for staff or tailor perks such as payroll-giving schemes.
• The workforce profile in particular areas will also indicate which benefits would be most suitable there.
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Case study: CPI plays local variation card
CPI Card Group operates regional variations in base salary, premiums and incentive schemes.
The plastic cards and services supplier also offers local discounts alongside national deals in its voluntary benefits scheme. The plan, introduced in 2009 and provided by Lealta Benefits, is available to 250 staff across two sites.
Alec Smith, HR manager at CPI Card Group, says: “Employees have the choice of going to their favourite local places, in turn supporting local businesses, rather than being limited to national brands which are often geographically limited to the south, thereby distorting any benefit.”
Staff can also recommend businesses where they would like to receive a discount.
This approach has a number of advantages for the organisation. “The positive psychological impact of constantly
displaying exciting and relevant local offers helps tremendously, generating positive messages and providing a competitive edge when recruiting in challenging job markets,” says Smith.
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How much can reward and benefits be tailored on a regional basis? Debbie Lovewell reports
When the coalition government came to power last year, it set out its intention to promote “the radical devolution of power and greater financial autonomy to local government and community groups”.
In December 2010, the Localism Bill set out proposals to achieve a lasting power shift away from central government towards local people. These include: new freedoms and flexibilities for local government; new rights and powers for communities and individuals; and reform to make the planning system more democratic and more effective.
In theory, passing power back to the regions enables local policies and services to be targeted better to meet the needs of each area, potentially resulting in funds being spent more efficiently. By adopting the same principles, employers could place similar importance on regions when setting pay and reward strategies.
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Taking a regional approach gives employers the flexibility to tailor pay levels to address issues in local markets, such as recruitment and retention needs, or to adapt to changes in these areas. Charles Cotton, adviser, performance and reward at the Chartered Institute of Personnel and Development (CIPD), says: “[Employers] can target money to where it is needed the most. There has been research in the public sector, for instance, which found that because the NHS was not able to vary pay as much as it should be able to, hospitals in tight labour markets had higher death rates and lower productivity. In the public sector, you tend to have national agreements, so staff get the same pay rise whether working in local government, the NHS or civil service. Some commentators have suggested local authorities or hospitals should be free to set their own pay increases at a time when resources are very limited.”
One advantage of this approach, especially when employers have limited pay budgets, is they can focus their reward spend on areas where they may have difficulty recruiting staff. “It could be an issue especially in the private sector if the areas where they have high levels of staff turnover also correspond to stores or branches that generate most of their income,” adds Cotton.
Moving away from regional strategy
Many organisations have taken a regional approach to pay for a number of years, although some previously moved away from such a strategy. Stuart Hyland, UK head of reward consultant at Hay Group, says: “In the 10 years pre-recession, from the mid-1990s to 2005 or 2006, a lot of companies moved away from regional variation. Companies used to have a number of regional premia, so they had a national strategy, then had, say, a £3,000 allowance if they asked an employee to work in the Thames Valley or £5,000 in London. Some of the equal pay pressures and a genuine desire to simplify reward arrangements meant a lot of companies moved away from those practices.”
Employers that do have a regional pay strategy tend to be in the private sector, but some public sector organisations have begun to follow suit. However, even where this occurs, pay and reward decisions are still usually made centrally. “In the private sector, it is common practice among large multi-site employers such as banks, retail stores and restaurant chains,” says Cotton. “But what is interesting is that it is not so much pay determination as pay variation. Essentially, the head office determines what the national rates will be, then varies these regionally taking into account things like recruitment rates, local pay rates, the cost of living locally and travel-to-work costs.”
Employers can also achieve local pay variation using methods such as regional pay bands; lump-sum location payments, for example a London weighting allowance; and zonal pay systems. Zonal pay systems work by extending the concentric circles used to calculate London allowances across the UK, typically dividing the country into three to six zones. All an organisation’s sites will fall into one of these zones, which helps group together locations with similar market conditions rather than imposing geographical boundaries. The Prison Service, for example, bases salary levels on six pay zones.
Andrew Walker, head of the reward business unit at Croner, says: “If an employer benchmarks itself regularly, knowing what it is competing against in its region is sensible. There is an obvious financial benefit to tailoring and cutting your cloth to your own situation. For the employer, regionalisation is merely using its money more wisely.”
Attracting specialist staff
Even if employers do not reward staff on a regional basis, they may find it necessary to pay additional lump sums in some areas to attract and retain specialist staff, or in tight labour markets where potential employees are in short supply. “I am working with a client that has quite a large operation in Scotland and has been trying to recruit marketing expertise and marketing talent,” says Hay Group’s Hyland. “It has struggled with the local market and is having to try to import expertise from the south. That means it is having to pay quite a significant premium to attract and encourage people to relocate from London up to Scotland. The moment employers need specialist skillsets that the local market is going to struggle to fill, costs will climb pretty quickly.”
Less common is the concept of varying employee benefits by region. Michael Dougherty, operations director at Lealta Benefits, says: “In the employee benefits and reward market, localisation is still at an immature stage.”
In some cases, employers may find their perks evolve naturally to encompass regional differences. For example, a local gym may offer discounted rates to staff based nearby, while other sites belonging to the same organisation may not have such facilities.
Employers may also find they are located in certain hotspots where some benefits are more relevant for employees. The CIPD’s Cotton says: “A benefit that may be a bit more common is season ticket loans where people in London who tend to use the tube and trains are more likely to take up this benefit than people in areas where there is more reliance on their own cars.”
Bikes-for-work schemes, meanwhile, are not typically popular in rural areas where it is not always feasible or practical for staff to cycle to work. But in cities such as Oxford and Bristol, bikes schemes can work well.
Andrew Woolnough, head of flex at consultancy Enrich, says: “It is giving employers the tools to understand their employees. It is important to segment a workforce. Region is key as it distinguishes [workforce] cultures. But it is important not to take out all the other things as well. Say in year one employers look at regions, then there is also length of service, gender, age and seniority. All help to build up the workforce profile.”
Implementing voluntary benefits
Voluntary benefits schemes are among the most straightforward to implement regionally. As well as identifying which perks are best suited to staff in a particular area, employers can also source discounts at local retailers and businesses to include in a scheme. Tailoring plans in this way may help to boost staff engagement, says Lealta Benefits’ Dougherty. “With the localisation of benefits, employees can feel some effort and thought has gone into putting something together [tailored] for them. Employees can see and recognise the efforts of the HR department to recognise local regions.”
Local discounts also tie in with the government’s focus on boosting local economies in the UK by encouraging employees to spend locally, adds Dougherty.
But he warns that where employers offer local discounts, they should do so for all the locations in which they operate. “There is an assumption that local flexibility is about saving money for employers,” he says. “With the best will in the world, it is a limiting concept. A strategy like that could discriminate.
“Employers cannot control levels of employment in their local areas. We are in a rapidly evolving employment market. Unless an organisation can increase or decrease benefits in line with the employment market, it may not be able to keep up with it in some areas. If the employer wants to incorporate local benefits, it should be all or nothing.”
Employers could also tailor some core benefits according to region. Payroll-giving schemes, for example, could enable staff to donate to local charities. Other benefits relating to an employer’s corporate social responsibility strategy, such as volunteering schemes, could be tailored similarly.
However, most other perks tend to vary little between regions. Hay Group’s Hyland says: “A lot of [organisations] are a bit worried about doing anything too different in entitlement and provision because they do not want to be seen to discriminate.
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London-centric perception
“Many are worried about being perceived as a bit London-centric and try to involve people from regions in projects so it does not create a culture of ‘them and us’. I suspect that while [organisations] might be able to do something that gives them cost savings or focuses on the reward side, they do not want to segment the workforce too much because of the impact it could have on their culture.”
Employers looking at a regional reward strategy should also consider the amount of preparation needed. Duncan Brown, director of HR business development at the Institute for Employment Studies, says: “How much effort do you want to go to to define and measure all those structures? There is quite a lot of evidence that if you are not [an organisation such as] Tesco, with loads of different locations, in many ways there is as much variation within the regions as between them, depending on where you are based.
“Unless you are a very large multi-sited employer, generally, from a management point of view, two or three structures are probably sufficient. There is some question whether, over the long term, employers really do get the cost savings.”
Employers must also consider how they will deal with employees who move between locations. “One of the things to be very careful of is if [employers] differentiate too much between different parts of the organisation based on geography,” explains Hyland. “If they need to move talent around, they do not want to create any blocks or barriers within the business. What they would have to do is separate people out from the local reward structure and do something unique for them and, all of a sudden, the structure becomes very complicated because they have lots of exceptions.”
Although the concept of regional reward strategies (other than pay) is still in its infancy, certain factors could push employers to take a fresh look at the idea. Matt Norton, senior reward consultant at JLT Benefits Solutions, says: “The recession encouraged a lot of positive thinking around reward. The regional aspect will start to come to the fore as the Regional Development Agency starts to get more power to encourage organisations to come to work in their region.” Median gross weekly earnings for full-time employees, broken down by government office region
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