Pay Continues To Be On The Up / Reward Levels Continue To Rise

Summary of Private Sector Reward Trends:

Recent data from the Office of National Statistics (www.statistics.gov.uk) and Incomes Data Services (www.incomesdata.co.uk) highlights that overall reward levels are set to increase further this year, particularly for managers and executives but also more broadly for professional employees. This is based on research showing that in 2006, average earnings in the private sector increased to 5.4%, compared with 3.9% at the end of 2005 and that for managers the average base pay increase is 4.0%, the highest it has been since early 2001.

This increase in reward levels is largely the result of higher than average base salary increases, but also generous bonus payments. The base salary increases have been driven mainly by marked recent rises in price inflation, the result of rising interest rates, energy prices, household goods and motoring costs. The rise in bonus awards on the other hand is very much linked to strong business performance across a number of industries, and nowhere more so than in the financial service sector.

Other reward trends include:

• Share-Based Rewards
  • Growth of deferred and matching share schemes that are linked to annual bonus plans
  • A continued shift away from stock option plans to performance-based share plans
• Pensions and Benefits
  • Steady decline of final salary scheme pension plans – according to the CIPD (www.cipd.co.uk), only 43% of private sector respondents still offer a final salary scheme (compared to 87% in the public sector)
  • Slow take-up of salary sacrifice schemes; only 29% of CIPD survey respondents have adopted them

ll in all, rewards in the private sector are definitely on the up and look set to continue that way for this year. Despite this overall positive picture, it is of some concern to us as reward professionals that the CIPD reward study highlights that 65% of respondents do not have a formal rewards strategy in place. Our view is that it is critical for rewards to be closely aligned with the goals of an organisation so that the right behaviours are being driven and at no time more so when the market is relatively buoyant.