Paydata UK Reward Management Survey 2016

In September and October 2016, Paydata collected information on a number of companies including Balfour Beatty, Arcadis, Lendlease, Nationwide Building Society, Mitie and Atkins. The resulting Autumn 2016 report highlights some important trends for the coming year, including the expected impact of Brexit, gender pay reporting and the increase of National Living Wage.

It may be far from clear what the long term impact of Brexit will be, but organisations still need to meet the immediate issues they face. Ensuring reward arrangements support recruitment, retention and motivation, whilst continuing to work within the constraints of cautiously tight budgets has become the new status quo. The results presented in the report reinforce that picture.

The report received responses from approximately 140 organisations, with an estimated 440,000 people working for them in total. The majority of organisations were in the Construction, Associations and Institutes, and Housing Associations sectors with most employing over 1000 employees.

The overall picture suggests that businesses are relatively optimistic about the future with most expecting their orders, revenues and profits to increase in the next 12 months. However, compared with the previous 12 months, when Brexit may have been an unlikely outcome of the referendum, businesses seem to be more cautious to predict increases. In this survey, fewer organisations expect to see increases in activity with about one third now predicting that business levels will remain the same, opposed to less than a quarter 12 months ago.

The same can be said for their predictions on employment, with the majority of organisations predicting that employment levels will remain the same. 12 months ago more than half (55%) expected an increase in the number of people in operations and service delivery roles, whilst this year only a third (34%) think so. The volume of recruitment is generally predicted to stay the same or rise over the next 12 months in 80% of organisations, which is not vastly different from last year’s figure.

Beliefs on part-time and paid overtime working as well as attrition, remain largely the same. There has been very little change in the expectations for part-time and overtime working since 2013, with over three quarters of businesses predicting that levels will stay the same. Similarly, attrition has followed a general pattern since 2010 with more than half of organisations expecting it to continue at a similar level for the coming year.

When asked about the impact of Brexit upon their HR/Reward operations, most organisations agreed that things would stay much the same across all areas. However, understandably a significant proportion of people did not yet have a clear view on the outcome. The areas that appear to be considered most likely to be influenced by Brexit were skills and labour shortages with 23% expecting an increase, and the employment of young people such as apprentices, technicians and graduates with 16% believing this would also increase.

Similarly, base pay rates are expected to stay the same with the median level of pay reviews expected to remain at 2% and pay review budgets to move proportionately to be in the range of one to two percent rather than two to three. The timing of pay rates is reported to remain at the usual time of year by 94% of respondents.

Looking at the picture since 2010 suggests that the latest expectations for 2017 are continuing a trend. The main features of this longer pattern are:

The prevalence of pay freezes has declined and continues to do so

The most common budgetary increase has gradually moved from between two to three percent to its current position of between one and two percent

Budgets of over four percent continue to be few and far between

In determining the format of the pay review, the majority of businesses chose to include some element of individual merit to determine increases rather than across the board. The trend towards targeting reward towards high performing individuals, mainly doing so with the external market in mind, continues with 66% of employers directing increases at these people. The importance of internal relativities also remains high at 48% of respondents.

Over half (57%) of the organisations involved believed that the number of people receiving bonuses would remain unchanged from 2016, with slightly less (46%) expecting the bonus level to stay the same. These statistics are mainly the same as a year ago and follow the pattern of the most senior roles receiving the highest bonuses and offering a considerably higher potential than those generally available for other employees. This suggests that generally businesses are performing in line with targets.

Just over a third of organisations reported that they offer long-term incentives, with the majority of these being available to senior management.

Gender pay reporting is a very current issue, with little known of its impacts upon organisations. When asked about their gender pay reporting, there was a widespread feeling that there would not be any problems or issues arising from its implementation (49%) or that it was too early to tell (37%), with only 1 in 7 organisations anticipating problems. More than half of organisations (57%) indicated that they already measured differences in gender pay, which is a 7% increase from last year’s results. However, 76% of these do not report on it, only 14% publish the results internally and a mere 3% do so externally.

The main concerns organisations had about gender pay reporting include:

Interpretation and Communication – several comments highlighted the need for good communications in order to put the results into context, with a concern that it may be damaging due to the lack of women in more certain roles

Methodology – there were concerns about the quality of data collected. Furthermore, there was a recognition that current pay structures were unable to provide the level of detail required to interpret the results. Plus, there was uncertainty to how some elements of pay should be handled

Corrective action – a few respondents were unsure of the type of corrective actions required to address any gender pay gap issues which came to light during the process

When asked about the new National Living Wage, which came into force in April 2016 and is due to reach £9 per hour by 2020, a third of employers believe that it will increase productivity both now and in the future. Of those organisations that indicated they were already taking steps or planning to do so, increasing productivity and restructuring base pay are strategies in place. However, it was also discovered that it is expected the cost to customers would increase in the future with 32% anticipating this. There were also expectations that hours would be reduced, number of employees reduced, more under 25 year olds would be hired and there would be less employee benefits as the National Living Wage increases.

With uncertainty evident, HR departments are inevitably concerned with finding and retaining their people. Based on previous date, the picture is likely to very by sector. Areas such as London and the Southeast are significantly more difficult for the retention and recruitment of staff opposed to other areas of the country. South West and Wales, the North and Scotland are, as expected, much easier. This is in keeping with the usual trend. The sectors most likely to suffer from recruitment and retention difficulties are engineering, commercial, construction and IT. However, this may be a reflection of the mix of sectors amongst the survey respondents.

It has also been noted that more than half of respondents (59%) have had to offer new staff higher salaries, which conflicted with those paid to existing employees. Of those who said they had to pay new employees higher salaries, 64% indicated they had to pay up to 10% more, and a further 31% had paid between 10-20% more.

Finally, the pattern of turnover for the last 12 months has been fairly consistent. The roles with the highest turnover were middle management/professionals and lower levels in the structure. These levels are generally expected to stay the same in the next six months.

Paydata is a UK-based reward management consultancy. They provide HR professionals with information, insights, tools and statistics to help them manage their pay and rewards practices. They are also a leading source of UK salary data and reward expertise.

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