Benefits, Bonuses and Rewards in 2009

    LONDON, ENGLAND, October 23, 2009 /24-7PressRelease/ -- So far, 2009 has been a challenging year for HR and Reward Practitioners alike, with many organisations under increasing pressure to make savings wherever possible. Salary and reward is often one of the largest operating costs in most organisations. It is therefore vital that this expenditure brings suitable benefits to the company, particularly in terms of encouraging the recruitment and retention of talented employees against a backdrop of economic uncertainty and reduced budgets.

The 2009 CIPD Reward Management Survey reports that a quarter of employers have a defined reward strategy, along with a further 24% planning to create one in 2009. This underlines the importance now being placed by organisations on planning and structuring their pay policy and benefits in line with organisational objectives.

The CIPD reports that the main purposes of these reward strategies are to:

- Support business goals
- Reward high performers
- Recruit and retain high-performers

The prevailing economic conditions in 2009 are necessitating a focus on cost management, as organisations seek to retain key workers as well as maintain employee motivation in an environment of continued pressure to conform to limited budgets. This has had an impact on pay settlements so far in 2009 as well as bonus schemes and other elements of the total reward package.

Organisations this year have utilised various techniques to manage their pay bill. Some have also used the current economic climate as an opportunity to promote reward initiatives which are still valued by employees, whilst having a reduced cost in comparison to other benefit offerings. Some common trends are:

Salary freezes

Many employers use inflation as a key indicator to determine the size of overall salary reviews. It is predicted that inflation may fall as low as -2.7% in the latter part of the year, with pay awards mirroring inflationary changes as they did in 1991 and 1994 following previous recessions.

"58% of firms plan to freeze salaries this year, with 12% planning to cut wages."

A survey of 400 employers conducted by the British Chamber of Commerce in April 2009 found that 58% of firms plan to freeze salaries this year, with 12% planning to cut wages. This is in conjunction with 50% of employers considering or planning to make redundancies within the next 6 months.

It is more important now than ever for organisations to link pay to the market rate and ensure that offerings do not drift beyond the relative worth of the role.

Bonuses

The CIPD's recent Labour Market outlook reports that 17% of employers are considering cutting bonuses. However, at this time it is still crucial to maintain a pay and benefits offering which is attractive to employees, and which encourages strong performance.

Although recruitment intentions have reduced, employers will still be recruiting to key roles in their organisations and levels of base pay and bonuses, will need to remain attractive to engage the best talent. Discretionary bonuses and variable aspects of the reward package will need to be managed to ensure that they still provide value for money as motivational tools. Given current economic conditions, it is probable that the use of bonuses will decline and that there would be an increased emphasis on employers positioning their base pay against market rates.

Alternative reward solutions

With a reduction in budgets across organisations, employers are considering benefits which have a lower cost whilst still being valued by employees. This has been demonstrated by research showing that 71% of reward practitioners will be making their benefits more cost effective. This is a rise from 64% of practitioners in 2004.

"71% of employers offer benefits through a salary sacrifice arrangement including benefits such as Pensions, Cycle to Work Schemes and Childcare vouchers"

One way of achieving this is through the use of voluntary benefits, where employers negotiate discounts on products and services allowing employees to buy products and services at a discount that they could not achieve elsewhere.

Some voluntary benefits can be offered as a salary sacrifice, as is commonly the case with Childcare Voucher and Cycle to Work schemes. These benefits can deliver tax savings and in the case of Cycle to Work schemes can also be used as a means of promoting workplace health.

A recent survey shows that 71% of employers offer benefits through a salary sacrifice arrangement, with the majority passing on some or all of the tax saving to employees.

The use of benefits which offer the best value for money for both employees and employers is likely to increase, as demonstrated by the growing use of these schemes.

The use of flexible benefits schemes, with employees selecting benefits which match their needs and as a result being cost effective, will also continue to be a key aspect of reward packages.

Salary and benefits offerings in organisations are under increasing pressure which is evident with the number of employers reviewing bonus arrangements and freezing base salaries. At the same time, there has also been a rise in prominence of alternative benefits that offer tax savings whilst being relevant to discreet workforce groups as is the case with Cycle to Work schemes and Childcare vouchers.

If you require more information on this and HR consulting, please visit:

www.reedglobal.com

Adrian Linden
For Further Information:

PR Manager
Reed Press Office
P: +44 (0)845 241 9249
M:+44 (0)7919 967 865
E: [email protected]

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