DON'T SPECULATE – PARTICIPATE

By Alyson Callin

The worst of the recession may be over, but there is no sense that organisations envisage an imminent return to 'business as usual'. One of the biggest questions preoccupying HR managers and reward professionals is how they can best use their limited compensation budget this year in order to retain their talent and ensure they take advantage of the upturn when it comes.

One of the most effective ways to answer that important question is to find out what other companies are doing, and it is at times of volatility and unprecedented change – such as that we have been experiencing over recent months – that market surveys really come into their own.

But organisations gain most value not just from buying surveys, but from participating in them too. The greater the participation, the more robust and reliable the data, and organisations typically reap a raft of other benefits too, including a comparison of their own reward package to their chosen market.

However, when budgets are tight, workforces reduced, pay freezes in place and HR and reward professionals under pressure to do more with less, they might be tempted to view HR surveys as a variable cost that could be temporarily cut.

But this could be a false economy. The strategic and tactical insights to be derived, for example, from Mercer’s Total Remuneration Surveys (TRS) could prove invaluable in the current uncertain and unpredictable climate.

And although ‘pay freezes’ are hitting the headlines, not all companies are imposing them – or certainly not in blanket fashion – and they are, in any case, just one element of the total rewards package. As a result, a company that assumes its relative market position will remain unchanged just because it believes so many other organisations are adopting similar policies, may be misguided.

Indeed, the cost and time involved in participating in the TRS is relatively small compared with the business and financial risk of getting pay strategies wrong. Keeping talent is always important, but organisations need to be mindful of the fact that once the upturn comes, good people may leave for organisations that appear to offer more competitive packages. And while under-paying carries risks, it is just as easy to waste valuable money by over-paying.

In addition to helping to maintain and build the quality of the TRS data, organisations participating in the survey gain a number of other benefits compared to those that don’t.

One of the most significant benefits is that participation allows organisations to run a variety of bespoke reports that allow them to easily and instantly compare their own reward strategy with the market. This not only saves time, but also provides a large degree of comfort and reassurance to HR and reward professionals, who, particularly in difficult times like the present, are under considerable pressure from employers to keep a lid on costs, and from employees to keep salaries competitive. By contrast, non-participating companies have to do a considerable amount of analysis to gain the same level of insight about their own position relative to the overall market.

What’s more, TRS participants also gain the opportunity to receive free quarterly updates on salary movement forecasts based on Mercer’s regular pulse surveys. A further benefit of participation is a 50 per cent discount on the purchase price of the surveys.

Having access to the relevant and timely market data included in the TRS will allow organisations to continue making informed and effective decisions on base pay, variable pay, total remuneration packages, relative market position, restructuring and communications throughout what is set to be another difficult year. (See box below)

Making informed decisions

Base pay. Despite the headlines about ‘pay freezes’, most companies, particularly if they froze salaries in 2009, won’t freeze them again this year. A company that froze its pay last year and awards the standard market increase this year won’t necessarily end up with the same market position it had last year.

Relative market position. Firms will still need to know their relative market position in order to adjust the emphasis on different elements of the package in order to minimise the risk that key people leave.

Variable pay: Policy on base pay may be hitting the headlines, but changes to variable pay are less easy to gauge without relevant market data. Some organisations that implement pay freezes may maintain, or even increase, the potential for variable or performance-related pay – particularly if they are cautious about future growth prospects but believe that enhanced effort from employees can help them buck the trend. Indeed, high performers might find increased variable pay targets even more attractive than across-the-board base pay increases.

Benefits: Even when there are pay freezes, the cost and value of retirement and health care increase because the pricing is outside the control of employers. Organisations that provide benefits at a level above the market median will find the relative value of the total package will increase. Therefore, they could maintain or even improve the relative position of their total compensation/rewards package even during pay freezes. But it will be difficult to establish this with any certainty without data analysis.

Restructuring: Because many organisations have reduced headcount, some positions may carry significantly increased responsibility, or firms may selectively hire to fill newly-created positions in slimmed-down structures. Such posts require quality people, who expect competitive rewards packages.

Communications: Knowing the organisation’s relative market position versus its desired (and perhaps communicated) position enables HR/reward professionals to provide strategic support to managers to retain key employees. Data may show that the organisation is being defensive about its relative market position when it doesn’t need to be – or vice versa.

About the author:
Alyson Callin is Mercer Total Remuneration Survey product Manager for the EMEA region.