Pay budgets expected to increase

More than half (53%) of respondents expect their pay budgets to increase by the end of the year, according to research by the Chartered Institute of Personnel and Development (CIPD).

Its Reward management survey 2013, which surveyed senior reward and benefits professionals across 444 private and public sector organisations, found that many respondents would like to see variable pay play a greater role in total pay packages.

The research also found:

  • The top two drivers for increased pay budgets were pay rises (84%) and rises in employee numbers (51%).
  • 26% of respondents reported that variable pay represents between 20% and 30% of total pay, whereas in an ideal world, 38% of respondents would like such a split.
  • 45% of private sector respondents would like to see this ratio in future, compared to the current reality of just 30%.
  • 34% of private sector respondents forecasted an increase in variable pay, but only 15% of those questioned in the public sector said the same.
  • 29% of public sector respondents said that they are more likely to report a reduction in benefits spend.

Charles Cotton, rewards adviser at the CIPD (pictured), said: “If appropriately designed, variable pay can help align organisational reward practices with the employer’s strategy, as well as assisting to communicate what behaviours, skills, values and attitudes the organisation values and how it will reward and recognise these.

“However, employers should be wary of an over reliance on the conventional carrot-and-stick approach to reward.

“Research has shown that ‘if, then’ rewards, which see financial incentives attached to specific behaviours or projects, can have a detrimental impact on intrinsic motivation by creating transactional relationships between employees and their organisation.

“If more emphasis is going to be placed on variable pay, other benefits may have to be expanded to counteract possible employee insecurity fed by more uncertainty around pay.

Communicating collective benefits to employees can also serve to remind them that they are part of a social endeavour with a stake in the success of their organisation.”