Pay and Rewards 2020: depression, hope and anger
13 Jan 2020
Duncan Brown, Head of HR Consultancy
My hopes for ‘more of’ and ‘less of’ in the decade ahead
The IES 'UK statistic of the 2010s' award goes to: … (appropriate drum roll)….…. 0.3%!!
Actually, that wasn’t our award, it was the winner of a competition organised by the Royal Statistical Society. The ‘star statistic’ is the average annual increase in UK productivity in the decade or so since the financial crash (output per hour).
According to RSS executive director Hetan Shah, they chose this ‘dull sounding number’ first, because it represents such a sharp contrast to the pre-crisis decade (1997-2007), when productivity growth averaged 2% - 3% per year. But second, looking forward to the next decade, Hetan observes that: ‘productivity is the single biggest key to our shared prosperity’.
The much-vaunted government’s ‘Good Work’ agenda is very much targeted at productivity raising and speaking at our recent IES conference on Progression in Employment, Mathew Taylor gave us good grounds for optimism.
Looking back to when the mass of the workforce was experiencing ‘bad work’, I took my girls over the holiday to see Greta Gerwig’s new production of Little Women. Marmee, the girls’ mother, praises “Your father - he never loses patience, never doubts or complains, but always hopes..”
So rather than inaccurate forecasting, I am better off like Mr March expressing my most optimistic hopes for the year and decade ahead.
Although UK economic growth declined at its fastest pace for five years to a stagnant ‘zero’ statistic in the second-half of 2019, my hopes reflect some optimistic trends I am detecting and hope to see more of.
1. Bigger, ‘inflation-busting’ pay awards
On the last day of the ‘old’ year, the government announced that almost three million employees aged over 25 will receive a 6.2% pay rise to £8.72 per hour from April, more than four times the rate of price inflation.
2019 produced much better news for many employees on the pay increase front with real pay growth. But despite this uptick, the 2010s have marked the weakest decade for wage growth since the end of the Napoleonic Wars. Average pay after inflation is still worth less for most workers than in 2008.
IES research has repeatedly shown over the past decade and more that the productivity crisis is undoubtedly linked to failings in motivation and management. So higher average pay awards to help drive a self-reinforcing cycle of higher motivation and higher corporate and national productivity is my first hope.
2. More collective bonus plans and ‘sharing in success’
More ‘shared prosperity’ is one of Hetan Shah’s objectives for the next decade, and I share his wish, particularly delivered through a much greater use of collective bonus plans. The CIPD’s latest reward management survey finds that individual performance is the most common form of variable pay, used by 62% of those with bonuses.
Yet while their incidence may be lower, collective bonus plans have a much stronger record in research. Our study for an oil company found that greater use collective pay schemes coincides with better site performance (Eurofound, 2015).
Let’s hope more UK employers introduce them in the next decade so that far more employees can share in their employers’ success.
3. More evidence-based pay and reward policies
My third wish for UK reward management practice is for the use of more evidence-based approaches. It is a need echoed throughout my other recommendations.
IES research has highlighted that ‘best fit’/tailored pay scheme designs, rather than copying supposed ‘best practice’ programmes from others, are much more likely to succeed. We also provide models and tools to make the use of such an evidence-based approach more widespread.
4. Fewer low-paid, low-skilled workers without pay progression
The National Minimum Wage has ensured that the UK’s lowest skilled, lowest paid workers have at least enjoyed above-inflation pay increases for the second half of the last decade. The problem now is not the minimum wage level, it is the lack of pay progression opportunities.
IES’ Progression in Employment project funded by the JP Morgan Foundation highlights the range of actions that ‘good work’ employers are taking to support progression of low-skilled workers, ranging from regular career conversations to multi-skill-training and skills-based pay progression.
I hope to see more signs of the return of base pay progression we detected in 2019, in 2020.
5. Lower executive pay levels and pay differentials
My fifth hope is that employers do more to link their reward policies for their senior, middle and lowest income employees and address what even the Financial Times labelled ‘the madness’ of executive pay levels and differentials. The High Pay Centre and CIPD’s annual review of executive pay in 2019 did show some signs of progress, with the median total pay of large company CEOs actually falling.
New regulations now make it a statutory requirement as of this year for listed companies with more than 250 staff to disclose the ratio of their chief executives’ remuneration to the median pay of their UK employees. I am looking forward to working with the High Pay Centre and Standard Life Foundation in 2020 as a member of their steering group investigating the drivers and effects of high pay ratios.
6. Lower gender pay gaps and fewer ‘Little Women’
The frustrated Jo in Little Women tells us: "As a woman, there’s no way for me to make my own money, not enough to earn a living or to support my family".
With the introduction and now two years of gender pay gap reporting, our understanding of the UK’s continuing near-20% all-employee mean gender pay gap and the pressures to address it have undoubtedly increased significantly.
Our research on the IES gender pay hub shows progress is definitely possible, for example with the success of IT resourcing company FDM Group in achieving a 0% median gender pay gap, using a multi-pronged approach.
So we definitely hope for and need more FDM’s in the next decade.
After a life of fighting the social stereotypes of her Age, the wonderfully-kind Marmee in Little Women tells her girls:
“I’m angry almost every day of my life”.
I have spent a lot of the last decade growing angry at the HR and business communities, for what they have allowed to happen and sometimes facilitated by their pay and reward policies.
Even if just a few of my six hopes come true, then we should see further recovering levels of pay, internal career development and employee engagement; and thereby national productivity. With real weekly average earnings tantalisingly close to their pre-crisis levels (there is now just £1 in it), now is the right time to change prevailing reward policies for the 2020s.
Come on HR, let’s get angrier and act on pay and reward.
Any views expressed are those of the author and not necessarily those of the Institute as a whole.