A new dawn of transparency for pay management?

Pay management is entering a new era of transparency and openness according to the CIPD.

The 2017 Reward Management Survey of more than 700 employers finds that more than two-thirds (68%) say that they are open about how pay levels and pay increases are set, with almost a third (31%) favouring ‘great’ transparency. This suggests a greater openness about reward management, given that in the CIPD’s last Reward Management Survey (2015) only half of respondents were in favour of pay transparency unless compelled by legislation.

Almost three in four (71%) employers in the 2017 survey say they are open about how pay rises have been calculated and more than half of organisations (59%) are transparent about the size of wage increases awarded as a result of those processes. Very large organisations (10,000+ employees) are most likely to be open on pay and that this is most evident in the public services sector.

This openness, particularly amongst larger employers may, says the CIPD, be in part driven by the introduction of practices such as gender pay gap reporting. Two-thirds (70%) of employers surveyed by the CIPD believe that gender pay gap reporting will help to reduce the gender pay gap. More than two-thirds (67%) felt it would help to reduce the gap ‘to some extent’, 3% felt it would reduce the gap to a ‘great extent’ but 30% don’t believe it will have an impact. Very large organisations are more likely to expect gender pay gap reporting to reduce the gap to ‘a great extent’ (9% of very large organisations).

Charles Cotton, Senior Reward and Performance Adviser at the CIPD, comments: ‘While we’re still some way off from seeing full disclosure on pay and reward, there are strong indications that employers are increasingly willing to be open about the processes behind their pay decisions, and in some instances, the outcome of these. This trend is part of a much wider shift in business accountability which we’re seeing through gender pay gap reporting and calls for greater transparency on executive pay. Fairness, inclusion and equal opportunity are at the heart of good work and increased transparency gives organisations the chance to explore their pay practices, as well as shed light on wider workforce issues. We expect the Financial Reporting Council’s latest proposals for a revised UK Corporate Governance Code to add further momentum to this trend’.

Among the other highlights from the data are:

• Performance management: most employers are still proving quite traditional with the vast majority of employers (91%) choosing to assess performance against individual goals. Of that number, more than half (53%) use this approach to inform salaries and other reward decisions. In contrast, take-up of less traditional methods of performance assessment is much lower. Just 27% of employers have adopted 360-degree assessments and only 24% use peer assessment.
• Increased creativity: there is evidence that employers are becoming more creative in some areas of reward in an effort to improve their organisation’s performance. Where group reward schemes are in place, there has been dramatic growth in the use of gainsharing, where employees receive a bonus of linked to productivity improvements or a cut in production costs. This was in use by 41% of organisations in 2017, compared to 20% in 2015.
• Market rates key determinant: as competition for talent in key sectors becomes more apparent, companies are paying more attention to market rates and this is now the most important factor in determining wage levels, according to 70% of employers. However, market-based pay is far less frequently used to inform subsequent pay rises once a person is in their role - those decisions are more likely to be based on performance, competencies and skills. This, warns the CIPD, could lead to a mismatch in salaries for people in the same role.