What’s the Role of Reward in an Economic Downturn?

Open any newspaper in the western world and you're likely to see headlines on soaring oil prices, ‘credit crunch', record debt levels and so on. Of course such regular media attention can result in people talking themselves into a recession.

Meanwhile the economic success of Asia, Brazil and Russia continues, while most of Europe and North America are trying to weather the storm. With less money and greater budget uncertainty, what impact does this have on your reward package? How can you minimise the risks arising from short term decision making? Take a look at the Tips section on the steps you can take to help manage an economic downturn.

Want to find out more? Take a look at McKinseys Quarterly  and The Harvard Business School's Working Knowledge.  

Tips: What Reward Steps Can You Take to Help Manage an Economic Downturn?

• Know your current position – Are you clear on what reward packages you offer people across the whole organisation? Are employees aware of what you offer them? If so, are they relevant to their requirements? And do they represent good value when taking company cost into account? The first step is to analyse what you've got and the cost of providing pay & benefit components including administration, statutory charges etc.

• Define any gaps against your budget and goals – When there is pressure to cut costs, taking a longer terms view will reduce the risk of costly mistakes. The analysis should highlight any duplication of benefits such as insurance relating to life; health cover, income protection etc. which can overlap with sick pay schemes. Consider if an income protection policy that covers 75% of salary to aged 65 is appropriate going forward and in line with your contractual commitments? Think carefully before considering making changes, but don't ignore them.

• Consider salary sacrifice schemes – While the popularity of salary sacrifice or salary exchange schemes has been growing in the UK, now is certainly a time to consider them. Why? The cost savings (national insurance) they offer employers and employees' is worthwhile and the range of benefits such as pensions; childcare vouchers; mobile phones etc. is wide. There is administration to establish and run such schemes though this can be outweighed by cost savings. Salary exchange is not suitable for employees receiving the national minimum wage.

• Recognition still counts – When the pressure is on, the importance of recognition can get overlooked by line managers. This is turn can lead to poor customer service and reduced motivation levels. Ensure that you have a recognition scheme that contributes towards people choosing to use their discretionary effort to ‘go the extra mile'.

• The sum is greater than its parts – When there is less cash around, it pays to focus on the total package when communicating with employees. There is much merit in reward systems such as Total Reward and Flexible Benefits which can be powerful. Also, career progression opportunities or flexible working may prove much more valuable than say a 2% pay rise.

Website of the Month – Economist.com

In keeping with this month's theme we focus on Economist.com  the online version of The Economist, a publication recognised globally for its analysis on world affairs and international business. Produced today by a global media company, the Economist Group was founded back in 1843 by a Scottish hat manufacturer life to further the cause of free trade.

Why look at the site? – Economist.com sticks to what it does best by offering high quality insight and analysis on international business, current affairs in addition to business and country reports.

What works well? – The blend of straight talking and a relatively objective stance makes the online and paper version a refreshing change from the politics that impact many international newspapers.

The Economist has two points of difference – first, its anonymity stance endorses the priority it places on content and secondly, print versions are not tailored for markets such as the USA.

What could be improved? – The Economist.com blogs (all three of them) would benefit from a re-vamp similar to that of FT.com which is 50% owned by the Financial Times parent group, Pearson.

Question of the Month

In last month's issue of Just Rewards we announced that we're starting a ‘Question of the month' where we feature a reward question that you have raised. The question for May comes from a client who also reads Just Rewards. The Question is why do companies listed on the Times ‘Best Companies to Work for' often pay less?

There is evidence from Hay Group and Best Companies' which shows that employers of choice or 'most admired companies' don't have to pay staff more and often pay less. It may not be surprising since salary is just one component of the overall reward package. The main reasons why employers of choice are typically better than their peers include these key factors:

Career progression and development: By growing more talent from within, this reduces the need for external ‘talent' appointments which can be expensive and demotivational.

Effective leaders and managers: For example, Heat, the winner of the Times Best Companies award 2008 scored 80% for managers being "excellent role models and motivate their workforce like no others".

For most industry sectors, pay or salary levels need to be broadly in line with the market. However by ensuring factors such as leadership, development and autonomy are key differentiators will be critical. This will enable organisations to attract and engage talented people without having to pay above the odds.

If you have a question for the next issue, let us know by clicking here to e-mail or look at the Just Rewards Blog the new Blog from Reward First. 

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Please note that the advice provided in this newsletter is for guidance only. If you need specific advice relating to your requirements, please call Reward First on + 44 (0) 1367 710 618.