Six key trends in pay and reward for 2017

In our eighth year of running our UK Reward Management Survey, we captured the views of over 170 organisations across a range of industries and sectors, who employed around half a million people in total.

A consistent picture since 2008 has emerged which shows a general lack of confidence amongst businesses in long-term planning. Ensuring reward arrangements support recruitment, retention and motivation whilst continuing to work within cautiously tight budgets remains the status quo. Meeting the immediate needs of the organisation appears to be the priority. 

With Brexit negotiations underway, it feels particularly important to capture the market at this moment. It will be interesting to see what the impact of the ongoing Brexit negotiations will be in the autumn survey. Here are the six key trends captured in the 2017 spring survey that are likely to play a significant role in HR agendas across all sectors and industries in the coming months. 

1) Pay review budgets remain consistent

Expectations for future pay review budgets have been relatively consistent over several years. Whilst there have been occasional signs that pay and reward was set to increase, this has yet to happen. In 2016 our surveys, combined with observations from other commentators, suggested that pay review budgets were if anything getting smaller. The median predicted level of pay reviews decreased in 2016 by 0.5 per cent to 2.0 per cent and has remained at this level so far in 2017, as our autumn survey predicted. The interquartile range is widening slightly but not enough to draw any significant conclusions from this. For historical data, sign up to participate in our autumn survey. 

Wider HR budgets reflect the fact that HR teams are being asked to deliver the same services to the business with increasingly tightened budgets. Less than 20 per cent expected a budget increase for the day-to-day HR activity costs.

2) Targeting pay actions focuses on high performing individuals

Pay continues to be used to recognise and reward high performing individuals. Key talent is retained by paying competitively. Organisations increasingly recognise the mixture of desired outcomes that can be achieved from targeted pay reviews. One third of organisations used a combination of across the board and individually determined pay reviews, whilst one quarter individually determined increases. 

Respondents reported that the pay review process was their top priority in 2017. 100 per cent featured this on their agenda for the year to come, followed by salary scale development and performance management. In previous years, the top priority has been benchmarking and more externally-focused priorities. The refocusing on pay and performance may suggest that employers are ensuring the hallmarks of HR are met within the organisation. By ensuring all annual processes are simplified, HR teams can be given more freedom to push new and strategic projects.

3) Bonuses continue to reflect seniority and performance

Bonus levels are significantly higher for Directors. Maximum bonus levels are higher than previous years and are twice the on-target levels. This continues the trend we captured in spring 2016, especially for more senior roles. Payments are generally close to the on-target levels, suggesting performance is in line with targets.

Similarly, Long-Term Incentive Plans (LTIPs) were only relevant to around 50 per cent of respondents, but for those who did operate these schemes, they were predominantly linked to senior roles and responsibilities.

4) Gender Pay continues to feature on the ‘to do’ list of many HR teams

There has been a great deal of interest in this topic as people consider what the new reporting requirements mean for them. The publication of data regarding the pay gap between male and female employees will be obligatory for employers with over 250 employees by April 2018, yet many organisations did not seem to be much further than the planning stage for gender pay reporting. 

Respondents flagged issues that might come into play with gender pay reporting including:

  • Methodology: gender distribution across different levels and grades which could potentially complicate the reporting; 
  • Logistical challenges: under-representation of women in some sectors and roles; and
  • Interpretation: how to meaningfully communicate what the gap means in context to avoid creating a false impression of pay inequality. 

Read more about the 5 ways employers are managing Gender Pay Gap Reporting.

5) The apprenticeship levy has just been introduced

The levy is in its first few months of operation and this is clearly a period of adjustment for affected employers. Employers were mainly neutral in their initial reaction to the levy which applies to employers in England who have an annual pay budget over £3 million. It seeks to create three million new apprentices by 2020 and one third of respondents said that their numbers of apprentices would increase because of the levy. 

Whilst typical starting salaries varied greatly amongst respondents, apprenticeships appear to be a positive investment for employers in general, with an average 90 per cent retention rate reported once the apprenticeship is complete. Furthermore, 70 per cent of employers reported that they intended to expand the range of jobs trained for via apprenticeships, whilst nearly half are looking to provide apprenticeships at a higher level. 

Whilst the picture undoubtedly differs in each sector, some did raise concerns that the levy was an additional cost whereas others felt it was extra money complicating existing apprenticeship funding.

6) Recruitment and retention remains stable

Organisations were split as to whether this issue imminently affected them. The latest survey confirms that the traditional hotspots of London and the South East continue to be prone to recruitment and retention difficulties. Commercial, engineering, IT and construction again topped the list of roles presenting recruitment and retention challenges. Employee turnover remains highest at roles below mid-management level and, over the next six months, 25 per cent expect employee turnover to increase across the board whilst 20 per cent expect it to decrease. 

A full report of the findings of the Paydata UK Reward Management Survey is available free of charge for participants. We would like to thank all participants and those of you who recommended this survey to others. We continue to grow the report as an authoritative source of information in the world of reward. 

To register and take part in future editions of the survey for free, please click here. An autumn edition of the Paydata UK Reward Management Survey will be launched in September 2017.