Reward Management 2012 Aligning Strategy Pay

Annual survey report supplement 2012
Aligning strategy and pay
in partnership with

2012

REWARD
MANAGEMENT

2012

CONTENTS
Foreword 2
Summary of key findings

5

1 Introduction and theoretical background

9

2 Business strategy and pay management

11

3 Workforce characteristics and pay management

16

4 HR outcomes

23

Conclusions and implications

30

Background to the report

33

References and further reading

35

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1

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FOREWORD

Welcome to the supplementary report based

While one aim of the analysis is to identify some

on the data from the CIPD 2012 annual Reward

of the positive and negative associations between

Management survey. While the 2012 Reward

pay policy, business practice, HR outcomes and

Management survey report was based on

workforce characteristics, the other is to help

descriptive analysis of the figures, this report is

practitioners to consider why the associations may

based on an inferential analysis of the numbers.

exist and what it means for their organisation and
its varied contexts.

This report allows us to examine pay policies,
organisational strategy, workforce characteristics

This analysis is not a one-off. We will examine

and HR outcomes and to explore whether a

these associations over time to see if they change.

certain pay practice is associated with a certain

We will also explore other aspects as well, to see

business strategy or HR outcome.

what other relationships we can uncover. This,
taken together with other CIPD research, will help

For instance, one of the findings from the report

indicate what works and, over time, why.

concerns the use of performance-related reward,
incentives and recognition schemes. The analysis

Once again, I would like to thank all those

reveals positive associations between increased

reward and HR professionals who helped develop

usage of such schemes and better employee

the questionnaire, those that filled in our

relations and reduced levels of employee

questionnaire, those that have reviewed this report,

discontent with pay.

the team at the University of Bedfordshire, London
Metropolitan University, the University of Sydney

cipd.co.uk/rewardmanagementsurvey

2

However, while the research identifies an

and the University of Melbourne that helped create

association between performance-based reward

the report, and our sponsors Benefex.

practices and employee relations and employee
pay discontent, it does not show that performance-

Charles Cotton

based pay will drive these outcomes. It could

CIPD Performance and Reward Adviser

be that employers that have better employee
relations are more likely to be able to successfully
introduce and operate performance-related pay.
Or, it could be that both performance-related pay
and good employee relations are interdependent
and you cannot have one without the other.

2012

Benefex is pleased to be working alongside the

robust reward strategy, it is likely to include the

CIPD on the supplementary report which is based

successful execution and on-going management

on the data from the CIPD 2012 Annual Reward

and administration of reward programmes.

Management survey.

This includes continuous communication on
how reward programmes work, effective

The survey results have enabled the CIPD to

communication in respect of changes to

explore the question of strategic alignment by

employees’ reward packages such as base-pay

identifying the variety of factors that appear to be

increases, bonus awards and so on.

influencing managerial practice in 2012.
Therefore, line managers need to be equipped
The results show links between particular HR

to have open, honest and meaningful discussions

outcomes and certain reward management

with employees on how reward is managed within

practices, for example, there appears to be a link

their organisation. Increasingly, technology is

between transparent pay arrangements and a

playing a key role in the successful execution of

positive employee relations environment.

reward policies and programmes as a means of
communicating and engaging with employees.

One of the survey findings shows that careful
We look forward to working with the CIPD to

by creating positive relationships between

examine the various associations between pay

employers and employees, reducing reward-

and HR outcomes over time to see if they change

related disquiet, and retaining talent.

and what the impact of these changes are.

The definition of careful reward management

Matt Waller

will vary from company to company, but in

CEO, Benefex

addition to having a clearly articulated and

REWARD MANAGEMENT 2012

reward management appears to make a difference

3

REWARD MANAGEMENT

ABOUT US
CIPD

Benefex

The CIPD is the world’s largest Chartered HR

Benefex are one of the most successful online

and development professional body. We’re a

reward and benefits providers based in the UK.

globally recognised body with more than 135,000

We specialise in the creation, delivery and support

members across 120 countries – including 84,000

of strategic employee benefit solutions, providing

professional members.

everything you need under one roof.

Our members include the next generation of

We deliver fully integrated reward and benefit

HR professionals, and many of the world’s most

portals including total reward, flexible benefits,

influential senior HR leaders from world-class

savings, education, broking and our new

organisations.

auto-enrolment solution – Enroller™, which
provides an outsourced, complete end-to-end

We set global standards for best practice in HR and

auto-enrolment service.

its specialisms. It’s our aim to support and develop
professional capability: shaping thinking, leading

The Benefex service proposition is unique in the

best practice and building HR’s profile in business.

market, seamlessly combining the design and
implementation of employee benefit solutions

cipd.co.uk

with the provision of fully integrated reward
and benefit portals, delivering and administering
client-tailored schemes online via the company’s
own RewardHub™ technology platform.
Every aspect of Benefex’s solutions, from consulting
to communications and employee support, are
delivered in-house. As a consequence, the company

cipd.co.uk/rewardmanagementsurvey

4

enjoys an unrivalled reputation for exceptional
service and delivery, and breadth of capability.
Whatever your strategy, Benefex will help
you design, execute, support and evolve your
employee benefits.
benefex.co.uk

2012

SUMMARY OF KEY FINDINGS
The focus of this report is the extent of strategic alignment of
pay management practices and the resulting human resources
outcomes. Intended as a companion piece to, and using data from,
the CIPD 2012 Reward Management survey, this study explores
aspects of the proposition that alignment of reward practices
vertically, with business strategy, and horizontally, with workforce
characteristics, leads to positive organisational outcomes.
Results from the 2012 Reward Management survey have
provided us with a clear picture of organisations aligning
certain reward practices with business strategies and workforce
characteristics. We have also found compelling relationships
between pay practices and specific human resources outcomes.

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5

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Business strategy
Our results have shown that private sector firms
using different business strategies in their chosen
product/service sectors, have adopted markedly
different reward management practices.
Table 1: Business strategies, reward practices and HR outcomes
In organisations with a Prospector
strategy… (that is continuous product/service diversification in
pursuit of high returns)

In organisations with a Defender
strategy… (that is cost- and/or qualitybased competitive defence in a preferred
core product/service market)

Reward practices
Market
positioning of
reward

Reward levels are likely to be positioned in the top 10%
of the market versus competitors.

Base pay
structures

Pay structures are likely to be used for managing base
pay rather than individualised pay systems.
Broadbanding is likely to be used for management/
professional employees (includes senior managers,
middle and front-line managers, professional, technical
and scientific employees).

Base pay
level
determination

Ability to pay is not likely to be considered as the most
important factor in determining pay levels.

Ability to pay is likely to be
considered the most important factor
in determining pay levels.

Market rates (with job evaluation) are likely to be considered
the most important factor in determining pay levels.
Base pay
progression

Base pay
review factors

Competencies and skills are likely to be used as pay
progression criteria.
Length of service is not likely to be used as pay
progression criteria for non-management employees
(includes administrative support, trades and production
workers as well as customer service and sales staff).

Length of service is likely to be
used as pay progression criteria for
management/professional employees.

Movement in market rates was likely to have been
considered an important factor in general pay award
decisions in 2011.

Shareholder views were likely to have
been considered an important factor in
general pay award decisions in 2011.
Ability to pay was not likely to have
been considered an important factor in
general pay award decisions in 2011.

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Performancerelated reward,
incentive and
recognition

Performance-related reward, incentive and recognition
schemes are likely to be in operation.

Performance-related reward,
incentive and recognition schemes are
likely to be in operation.

HR outcomes
Employee
relations
climate

There is likely to be a very good employee relations
climate.

Labour
productivity

There is likely to be far better labour productivity in
comparison with competitors.
It is likely that labour productivity has increased
considerably in the past three years.

Pay discontent

It is not likely that discontent related to pay has been
raised by employees in the past 12 months.

It is likely that labour productivity has
decreased in the past three years.

2012
Workforce characteristics and reward practices
In organisations from all sectors there are
relationships between the composition of the
workforce and the reward practices employed.

Table 2: Workforce characteristics and reward practices
In organisations with high
proportions of female
employees (in one or more
employee category)…

In organisations with high
proportions of employees
under 30 years of age (in
one or more employee
category)…

In organisations with high
proportions of graduates
(in one or more employee
category)…

Pay levels
(base pay plus
performance pay)

The pay of the highest
paid individuals is
lower.*

The median pay is
higher.*

The median pay is
higher.*

Base pay structures

Pay spines or other
service-related structures
are likely to be used to
manage base pay.*

Base pay progression

Length of service is
likely to be used as pay
progression criteria.*

Base pay level
determination

Collective bargaining
is not likely to be used
to determine base pay
levels, rates, ranges and
mid-levels.*

Reward practices

The pay of the lowest
paid individuals is higher.*

Individual performance,
skills and employee
potential/value/retention
are likely to be used as
pay progression criteria.*

Employee potential/value/
retention is likely to be
used as pay progression
criteria rather than
market rates.*

* in associated employee categories

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HR outcomes
Results have also shown particular HR outcomes
are associated with certain reward management
practices.

Table 3: HR outcomes and reward practices
In organisations
with a positive
employee relations
climate…

In organisations
with better labour
productivity than
competitors…

In organisations
that have
seen labour
productivity
increase in the
past three years…

In organisations
that have
experienced
difficulties
retaining
employees in the
past 12 months…

The median
pay for nonmanagement
employees is
lower.

The pay of the
highest paid
individuals
in nonmanagement
grades is higher.

In organisations
that have
experienced
discontent relating
to pay in the past
12 months…

Reward practices
Pay secrecy

Pay
arrangements
are more
transparent.

Pay levels
(base pay plus
performance
pay)

The median
pay for nonmanagement
employees is
lower.

Base pay
structures

Pay spines,
narrow grades
and job family
pay structures are
likely to be used.

Base pay
progression
criteria

Competencies
and skills are
likely to be
used as criteria
for nonmanagement
grades.

Competencies
are likely to
be used as
criteria for
managers and
professionals.

Individualised
and pay spine
structures are
likely to be used.
Employee
potential/value/
retention are
likely to be used
as criteria for
managers and
professionals.
Competencies
are not likely
to be used as
criteria.

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Performancerelated reward,
incentive and
recognition

Performancerelated reward,
incentive and
recognition
schemes are
likely to be
operated.

Performancerelated reward,
incentive and
recognition
schemes are
not likely to be
operated.

2012

1 INTRODUCTION AND
THEORETICAL BACKGROUND
HRM theory has identified two distinct approaches

To operationalise ‘business strategy’, this

to designing HR strategies and practices in

report draws on Miles and Snow’s (1984)

organisations. A best practice approach, which

market competition typologies: ‘Defender’ and

suggests that there is one set of superior HR

‘Prospector’ (see Table 1). Defenders operate in

practices that can be applied in virtually any

relatively stable markets for their products and/

context to achieve competitive advantage and

or services; they offer a narrow range of products

deliver ‘win-win’ for all parties. Researchers are yet

and/or services and invest in maximising efficiency

to agree on a list of best practices (Pfeffer, 1998).

in existing operations. Process engineering, cost
control and functional structures are characteristic

The alternative approach, known as ‘alignment’

in Defender-oriented organisations. Prospectors

or ‘best fit’, proposes an alignment between an

on the other hand are market leaders, continually

organisation’s practices and its strategic purpose,

looking for product and market opportunities,

its external environment and its internal structure,

often in completely unrelated fields. The

culture and resource capabilities (Shields, 2007). In

emphasis on experimentation and innovation

the reward management literature this ‘alignment’

means Prospectors may not always be efficient.

model is reflected in the ‘new pay’ and ‘strategic

Prospector characteristics include a divisionalised

reward’ approaches that have held currency since

structure and attention to market research,

the 1990s. Following the logic of best-fit principles,

research and development.

these approaches propose that by aligning reward
strategy and practice vertically with overall
organisational strategy and horizontally with
internal characteristics, organisations will benefit in
the shape of enhanced individual performance and
outcomes whether they are quality and customer
service or productivity and profitability. In this report
we examine the relationship between business
strategy and a range of pay management practices.

REWARD MANAGEMENT 2012

ultimately in positive organisational performance

9

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Table 4: Defender/Prospector descriptors (based on Miles and Snow, 1984)
Defender

Prospector

Maintains a safe niche in a relatively stable
product service domain.

Leads in innovations in its industry.

Offers a narrower set of products/services than its
competitors.

Periodically redefines its products and services.

Achieves the best performance in a relatively
narrow product/service market domain.

Believes in being the ‘first-in’ the industry in
development of new products.

Maintains a limited line of products/services.

Accepts that not all efforts invested in developing
new products will be profitable.
Responds rapidly to early signs of opportunities in
the environment.

The prescriptive reward management literature

The strategic reward alignment proposition predicts

suggests that enhanced organisational performance

that aligning reward strategies and practices with

will result from achieving a good ‘fit’ between

business strategies and workforce characteristics

the business strategy and reward management

will generate better HR outcomes. This report will

practices. If organisations were responding to

examine this proposition by testing the following

this prescription we would expect to see different

questions:

reward practices being operated by Defenders
and Prospectors. A Defender-type organisation

• To what extent do private sector firms with

might operate clear grading structures, transparent

different business strategies adopt different

pay systems and hierarchy-based compensation

pay management practices?

while a Prospector-type organisation would
take a more market-based approach to pay and
operate performance-based reward systems (Delery
and Doty, 1996, adapted by Marchington and
Wilkinson, 2008).

• To what extent do organisations (from all

sectors) with different workforce characteristics
adopt different pay management practices?
• To what extent are different HR outcomes

associated with different pay management
practices?

In terms of the horizontal alignment of reward
practices with the organisation’s internal

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environment, the ‘alignment’ or ‘fit’ model
is predicated on the ‘resource-based view’ of
human resources and the competitive potential
in an organisation aligning its practices with its
internal workforce capabilities and culture (Wright,
McMahan and McWilliams, 1994).

The statistical analysis undertaken for this report provides a probability value, that is, the likelihood that the result was
due to chance rather than a specific effect or phenomenon. For more information, please see the Background to the
report section.

2012

2 BUSINESS STRATEGY AND PAY
MANAGEMENT
In order to establish the business strategies of

Some organisations may choose to position reward

private sector respondent organisations, we asked

lower than the median, in order to minimise labour

respondents to indicate how their organisations

costs but with the potential cost of higher attrition

prefer to operate in their chosen product/service

rates. Other organisations may choose to pay above

markets using a list of descriptors including those in

the median to attract and retain employees.

Table 4. From this we developed two scales for the
extent of Defender or Prospector orientation, with 1

Figure 1 shows that organisations with a Prospector

indicating a low orientation and 5 indicating a high

business strategy are more likely than not to

orientation. Combining the figures for individual

position their pay in the top 10% of the market

organisations gave us an average (mean) score for

(p<0.05). This result is consistent with the view that

our sample. Overall the mean scores for private
sector organisations in our survey were 2.93 (±
0.72) for the Defender orientation and 3.57 ( ±0.82)

Figure 1: Mean Prospector scores and market
positioning of reward

for the Prospector orientation, indicating that the
5.0

Prospector strategic approach is more common in
our sample.

4.5

We analysed the responses to our survey questions

4.0

on reward management practices to establish if

3.5

by Defenders and Prospectors. This is what we
would expect to find if organisations were applying
an ‘alignment’ or ‘best fit’ approach.

were specific areas of difference in reward practice

3.5

3.5

3.0
2.5
2.0
1.5

between Defenders and Prospectors.
1.0

Market positioning of reward
All organisations have a choice, albeit a constrained
one, regarding where they position their reward
levels (base pay, performance pay and benefits with
a monetary value, for example a company car) in
the labour market compared with their competitors.

0.5
0

Management
grades
Top 10%

Other
grades
Remaining 90%

REWARD MANAGEMENT 2012

Overall, statistical analysis indicated that there

Prospector scores

there was a difference in the practices implemented

4.05

3.86

11

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Prospectors will be more likely to take decisions

Base pay level determination

relating to pay based on market information. It

In determining salary levels, rates, ranges and mid-

would also suggest that Prospectors are choosing to

points, 42.7% of all respondents to the 2012 Reward

pay at the very top of the market to secure the best

Management survey told us that their organisation’s

talent in order to pursue innovation – a decision

ability to pay was the most important factor.

that may outweigh concern for cost control.
Analysing the Defender/Prospector data for the

Base pay structures

private sector only, we found Defender organisations

Our Defender/Prospector data for the private

consider ability to pay to be the most important

sector only show that organisations with different

factor in pay determination of management grades

business strategies take differing approaches to

(p<0.05). The inference here is that Defenders

the management of base pay. Figures 2 and 3

are more likely to consider ability to pay the most

show the mean Prospector and Defender scores for

important factor in determining pay for managers.

organisations using different base pay structures.
Conversely, Prospectors do not consider ability
Prospectors are less likely to use an individualised

to pay the most important factor in pay

approach to base pay for management (p<0.01)

determination (p<0.01). Instead, Prospector-

and other grades (p<0.05) and are more likely to

oriented organisations favour market rates

use broadbanded pay structures for managers and

using job evaluation to determine pay for both

professionals (p<0.05). Conversely, for managers

employee groups (p<0.01).

and professionals, Defenders are far more likely to
use pay spines than broadbanded structures.

These results clearly suggest a difference in
approach between organisations pursuing

These results indicate that organisations pursuing

different business strategies according to the

a Prospector business strategy are more likely

Defender/Prospector model. Whereas Defenders,

to be structuring their base pay than not, and are

being typically more cost aware, will determine

choosing a flexible, non-hierarchical structure

pay largely by what they can afford, Prospectors

for managers.

will use a market-based approach.

Figure 2: Mean Prospector scores and base pay structures
3.80
3.70

3.70

3.71 3.71

Prospector scores

cipd.co.uk/rewardmanagementsurvey

3.63

3.60

3.58
3.52

3.50

Other
3.41

3.40

3.40

3.38

3.30

3.20

Narrow-graded Broadbanded

Job
family
Pay structures

12

Management
3.47

Pay
spines

Individual

2012
Base pay progression

professional staff (p<0.01). Conversely, Prospector

In deciding how to progress employees along a

organisations are less likely to use length of

pay scale or through a pay grade, the 2012 Reward

service for non-management grades (p<0.05).

Management survey found that 78.6% of all
organisations use individual performance as a basis

Figure 4 shows that organisations pursuing a

for pay progression while 56.8% use market rates.

Prospector business strategy are more likely to use
competencies and skills as pay progression criteria

Defenders are more likely to use length of service

for both management and other grades (p<0.05).

as a criterion to progress pay for management and
Figure 3: Mean Defender scores and base pay structures
3.30
3.20

3.20

Defender scores

3.10
3.01

3.00
2.95 2.94

2.90

2.93
2.87

Management
2.92

Other

2.87

2.85

2.82

2.80
2.70
2.60

Narrow-graded Broadbanded

Job family

Pay spines

Individual

Pay structures
Figure 4: Mean Prospector scores and pay progression criteria
3.80
3.74

3.70

3.67

3.66
3.60

3.57

3.58

3.60

3.56

3.52

Other

3.50
3.45

3.40
3.30

3.26

3.20
3.10
3.00

Individual Competencies
performance

Management

Skills

Length
of service

Market
rates

Employee
retention

REWARD MANAGEMENT 2012

Prospector scores

3.60

3.69

Pay progress criteria

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These results are consistent with what we
would expect to find based on the Defender/
Prospector model. Defenders seem to be taking

Figure 5: Mean Defender and Prospector scores for
organisations considering movement in market
rates an important factor in determining outcome
of pay reviews in 2011.

a more cautious approach to progressing pay –
favouring traditional but clear methods of moving

4.0
3.5

presumably those which suit their business needs.

Base pay review factors
We now look at the factors private sector firms
considered most important in determining the
size of the organisation’s base pay award/review
in 2011. Our results showed that Defender

Defender/Prospector scores

– whereas Prospectors seem to be incentivising
employees to gain skills and/or competencies;

3.69

3.66

employees along pay scales with predictable costs

organisations were less likely to have considered

3.0

2.92

2.91

2.5
2.0
1.5
1.0
0.5

ability to pay one of the most important factors
(p<0.05) and more likely to have considered

0

shareholder views important (p<0.01 for
management grades; p<0.05 for others).

Movement in
market rates –
management
Defender

In Prospector organisations, movement in market

Movement in
market rates –
other
Prospector

rates was more likely to be a determining factor
in the size of the general pay award for both
management and other grades (p<0.05); see
Figure 5.

Figure 6: Mean Defenders/Prospectors and operation
of performance-related reward, incentive and
recognition schemes

While we would have expected to find that

4.0

Prospectors are more likely to be influenced by

3.61

3.5

would also have expected Defender organisations
to be more concerned with their ability to pay
than they appeared to be (as they were shown to
be in determining base pay levels, rates, ranges
and so on). The fact that those organisations

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14

considering shareholder views an important factor
had higher Defender scores was perhaps not so
surprising, and it fits with the view of Defenders
as being cautious and favouring cost control.

Performance-related reward, incentive and
recognition

Defender/Prospector scores

the market in deciding on general pay awards, we

3.31
3.09

3.0

2.86

2.5
2.0
1.5
1.0
0.5
0

Defender scores

Prospector scores

Figure 6 shows that private sector Prospector firms

Operates performance reward

were more likely to operate performance-related

Does not operate performance reward

reward, incentive and recognition schemes (p<0.01)
whereas Defender firms were not (p<0.05).

2012
This very clear result is consistent with the

performance (individual, team or organisational)

alignment model. The model anticipates

with pay that is variable and contingent upon

that different business strategies will lead to

certain criteria.

distinct reward practices such as the linking of
Figure 7: Mean Defender scores and types of individual performance-related reward scheme for
non-management employees
3.20
3.16

3.15
3.10

3.11
3.07

Defender scores

3.05
3.00

3.00
2.95

2.95
2.90

2.93
2.88

2.85

2.85
2.80
2.75
2.70
2.65

Ad-hoc Combination Piece
rates

Sales
comission

Merit
pay

Individual Other
Nonbonuses monetary monetary

Individual performance-related reward schemes

Figure 8: Mean Prospector scores and types of individual performance-related reward scheme for
non-management employees
3.80
3.73

3.11

3.67

3.68

3.60
3.53
3.49

3.50
3.40
3.33

3.30
3.20
3.10

Ad-hoc Combination Piece
rates

Sales
comission

Merit
pay

Individual Other
Nonbonuses monetary monetary

Individual performance-related reward schemes

REWARD MANAGEMENT 2012

Prospector scores

3.60

3.68

15

REWARD MANAGEMENT

3 WORKFORCE CHARACTERISTICS
AND PAY MANAGEMENT
The 2012 Reward Management survey asked respondents to
indicate the proportions of women, employees under 30 years of
age and graduates in management/professional and other grades.
We used this data to examine the extent of horizontal alignment
between workforce characteristics and reward practices.
Pay levels

other employees) and median salaries for non-

We asked respondents to provide the total

management employees are also higher where

annual earnings (base pay plus performance pay)

there are more graduates (p<0.01).

for the lowest paid, highest paid and median
paid individual for each employee category

Some of these results are perhaps not unexpected.

(management/professional employees and other

Despite 40 years of equal pay legislation in

employees). Analysing the responses against each

the UK, the gender pay gap and ‘glass ceiling’

of our three workforce characteristics (women,

problems persist. We would also have anticipated

young people and graduates) revealed a number

that the presence of large numbers of graduates

of interesting results.

in employee populations will drive up earnings
as university education still yields a premium

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We found a significant negative correlation

on earnings potential (degree holders earned

(p<0.05) between the proportion of female

an average of £12,000 a year more than non-

management/professional employees and the

graduates over the past decade according to

pay levels of the highest paid individuals in

research published by the Office for National

this category. This means that the highest total

Statistics in 2011). The result for younger workers

earnings in management and professional grades

however is more surprising as we might have

are lower where there are more women.

assumed that young people are paid less. The
National Minimum Wage legislation for instance

Results show that the greater the proportion of

allows employers to pay employees in the 16–20

employees under 30-years-old in non-management

age brackets less than older workers. Human

grades, the higher the median salary for these

capital theories would also suggest that employees

employees (p<0.01). Similarly, lowest salaries in

build valuable knowledge, skills and expertise over

both grade categories are higher where there

time. Perhaps younger people in employment at

is a greater proportion of graduates (p<0.01 for

the moment are more highly valued for specific

management/professional employees; p<0.05 for

skill sets and command higher salaries as a result.

2012
Regardless of the specific reasons, we can deduce

related structures which are least common in

that levels of total earnings in organisations are

organisations with very low numbers of female

related to workforce characteristics; horizontal

managers. We may be seeing a sectoral influence

alignment is, to some extent, evident here.

here. Pay spines are common in public services
which show a marked degree of gender-based

Base pay structures

occupational segregation. However narrow-

The analysis of base pay structures and alignment

grades, which are also associated with public

with workforce characteristics shows that there

sector organisations, do not feature at all in

is an association between how organisations

our sample of organisations with very high

structure their pay grades and the proportion of

proportions of female managers.

female managers they employ and also between
pay structures and the proportion of graduate

Analysis also shows that there is an association

managers employed (p<0.05).

between types of base pay structure utilised and
the proportion of graduates in management/

Figure 9 shows that in all organisations individual

professional grades (p<0.05). Figure 10 shows

pay arrangements are most common although

individual pay arrangements are by far the most

this is especially so in organisations with very low

common amongst organisations with very low

numbers of women (1–20%). Besides individual

numbers of graduates. Conversely, where the

pay, we can see that organisations with high

proportion of graduates is high (61–80%) pay

proportions of female managers/professionals

spines, broadbands and narrow-grades are as

commonly use pay spines or other service-

common as individual pay structures.

Figure 9: Base pay structures and proportion of female employees (management/professional grades)

60
55.0

50
45.5

% of respondents

45.2
40.6

40

37.5

36.4

35.5
31.3

30

28.1

26.4

24.2

20.8

19.2
16.7

20

18.1 18.1

18.1

19.4
17.7

18.8

18.8

18.2

09.1

0

0.0

%

1–20

21–40

41–60

61–80

Proportion of female employees in management/professional grades
Pay spines/service related

Job family

Broadbanded

Individual salaries

Narrow-graded

81–100

REWARD MANAGEMENT 2012

11.7

10

17

REWARD MANAGEMENT

Figure 10: Base pay structures and proportion of graduates (management/professional grades)
70
60

57.9

% of respondents

50

48.0
45.5

40

37.0
32.0

30

29.4
26.5 26.5

28.0

20

15.8

26.5

22.2
18.518.5

16.016.0

14.014.0

25.5
21.8
18.218.2

14.7

8.8

10
0

33.3

%

1–20

21–40

41–60

61–80

81–100

Proportion of graduates in management/professional grades

Pay spines/service related

Narrow-graded

Broadbanded

Job family

Individual salaries

Figure 11: Pay level determination factors and proportion of female employees (non-management grades)
60
54.1

50

48.0

cipd.co.uk/rewardmanagementsurvey

18

% of respondents

44.0
40.0

40
35.6

30

30.1

28.4
22.2

26.7
24.4

23.3

23.3

19.2

18.918.9

20

35.0

34.2

16.7
12.0

10
4.0

0

%

1–20

21–40

41–60

61–80

81–100

Proportion of female employees in non-management grades
Market rates (with JE)

Market rates (without JE)

Collective bargaining

Ability to pay

2012
Pay level determination

Pay progression

The analysis of factors used to determine

We now examine whether organisations align

base pay levels and alignment with workforce

their individual base pay progression criteria with

characteristics shows that there is a statistical

workforce characteristics. Our results show significant

relationship between factors used to determine

associations with the proportion of women in

levels of base pay and the proportion of women

management/professional grades (p<0.01) and

employed (p<0.05).

other grades (p<0.05); the proportion of employees
under 30 years of age in non-management grades

Figure 11 shows that organisations with very low

(p<0.01), as well as the proportion of graduates in

numbers of women are most likely to use ability

non-management grades (p<0.01), indicating that

to pay as a factor in pay level determination.

pay progression practices are aligned with all three

Organisations with high, or very high proportions

workforce characteristics.

of female employees also favour a market-based
approach (either with or without job evaluation).

Figures 12 and 13 show pay progression criteria

Use of collective bargaining progressively declines

choices and the proportions of female employees

as the proportion of female employees increases.

in management grades (Figure 12) and other
grades (Figure 13). Overall, individual performance

While the exact reasons for these results is unclear,

is the most common criterion for pay progression

what is evident is that the proportion of women is a

and its use is consistently high across all categories

workforce characteristic that clearly influences how

although it is not as common in organisations

organisations go about determining levels of pay.

with very high (81–100%) proportions of women
where other factors, notably market rates, are

Figure 12: Pay progression criteria and proportion of female employees (management/professional grades)

90

84.6

80

80.0

77.5

% of respondents

70

65.0
60.6

59.0

60

53.8

50

53.5

52.1
46.5

60.0
53.3

50.0

46.7

42.7 41.0

40

31.7

20

15.4

46.7

38.3
35.0
30.0

36.4
30.0

18.2

18.3
9.1

10
0

27.3

%

1–20

21–40

41–60

61–80

Proportion of female employees in management/professional grades
Individual performance

Skills

Market rates

Competencies

Length of service

Employee retention

81–100

27.3

REWARD MANAGEMENT 2012

30

54.5

19

REWARD MANAGEMENT

Figure 13: Pay progression criteria and proportion of female employees (non-management grades)
90
80
73.3

% of respondents

70
62.9

61.4

60

65.1

61.8
53.5

50.0

50

39.5

40

41.9
37.2

35.7

47.8

27.1

41.7

41.2

39.7

32.4

30

26.5

36.7

35.0

34.8
30.4

25.0

21.7

20.9

20.0

20

52.2

51.7
47.1

13.0

10
0

%

1–20

21–40

41–60

61–80

81–100

Proportion of female employees in non-management grades
Individual performance

Skills

Market rates

Competencies

Length of service

Employee retention

also in frequent use. Conversely, market rates are

This result perhaps indicates that skills-based pay

also commonly used as a pay progression criterion

may be more traditionally associated with male-

in organisations with very low (1–20%) numbers

dominated trade/technical occupations, while

of women in non-management grades. Why

competencies (so-called ‘soft skills’) are perhaps

organisations with workforces skewed towards

more associated with occupations which are more

one gender are more likely to use market rates is

gender balanced.

not immediately obvious but may be due to their

cipd.co.uk/rewardmanagementsurvey

20

operation in specific, competitive industries/sectors

Figure 14 shows that use of individual performance

(which are also gender segregated) leading them

as pay progression criteria increases as the

to pay close attention to market rates in their

proportion of those aged under 30 years in non-

particular segment of the industry.

management grades increases. Every organisation
in our sample with very high (81–100%) numbers

The use of length of service to progress pay is less

of under 30s in non-management grades uses

frequent amongst organisations with very low, and

individual performance to progress pay. Skills,

low proportions of female managers/professionals,

considerations of employee value/retention,

than those with higher proportions, in line with

competencies and market rates are all more

the findings for pay spine use in Figure 9. For non-

common forms of pay progression criteria in

management grades, skills are a more common pay

organisations with very high numbers of under

progression criterion in organisations with low, and

30s than those with fewer under 30s. Length of

very low numbers of women than competencies,

service, although low across the board, is lowest in

which are more frequently used than skills in

this category. Here we have an indication that in

organisations with 41–100% of female employees.

organisations where younger people dominate the

2012
Figure 14: Pay progression criteria and proportion of employees under 30 (non-management grades)
100.0

100
90

% of respondents

80.0

77.8

80
70

70.0

66.2

65.7

60.0

60

60.0
53.3

50

52.3
46.2 44.6

37.8

40

50.0
45.7

45.7

40.0

40.0

33.3 33.3

30

26.7

28.9

20

27.7
22.9

22.2 22.2

16.9
10.0

10
0

60.0

54.3

%

1–20

21–40

41–60

61–80

81–100

Proportion of employees under 30 in non-management grades
Individual performance

Skills

Market rates

Competencies

Length of service

Employee retention

workforce, traditional service-related progression is
being replaced by pay contingent on performance,
skills and the value the individual employee brings
to the organisation.
Figure 15 similarly shows that in organisations with
very few graduates as a proportion of the nonmanagement workforce, individual performance is
less likely to be used as pay progression criterion.
In these organisations the market rates approach
is used just as much as individual performance.
Interestingly, the use of market rates is not as
high (81–100%) proportions of graduates where
assessment of employee potential/value/retention is
more likely to be used. The results overall indicate
that where non-management employees have
been university educated, individual performance,
potential and value are likely to outweigh market
rate considerations in decisions relating to
progressing base pay.

REWARD MANAGEMENT 2012

great in organisations with high (61–80%) and very

21

REWARD MANAGEMENT

Figure 15: Pay progression criteria and proportion of graduates (non-management grades)

90

85.2

81.8

80

75.0
71.4

% of respondents

70
59.1

60

54.1

54.1

50.0

50

50.0
45.5

51.9 51.9

51.9

50.0
45.0

39.3 41.0

40

40.0

42.9
35.7

31.8

30

35.7

30.0

26.2

25.9

25.0

19.7

20

14.8

15.0

14.3

61–80

81–100

10
0

%

1–20

21–40

41–60

Proportion of graduates in non-management grades

cipd.co.uk/rewardmanagementsurvey

22

Individual performance

Skills

Market rates

Competencies

Length of service

Employee retention

2012

4 HR OUTCOMES
In order to assess the impact of business strategy, workforce
characteristics and pay practices on human resources outcomes,
we asked our survey respondents a number of questions
relating to: the general employee relations climate within their
organisations, labour productivity, difficulties in attracting
and retaining staff and the extent of any employee discontent
relating to pay.
Employee relations climate
Respondents were asked to rate their

Figure 16: Mean pay secrecy scores and employee
relations climate

organisation’s general employee relations (ER)

5.0

climate as: ‘very good’, ‘good’, ‘somewhat strained’
or ‘very strained’. Over half reported that employee

4.5

relations in their organisation were good, over

4.0

a quarter said relations were somewhat strained
while one in eight said the employee relations
admitted it was very strained.
Our results show a direct relationship between
the extent of pay transparency and the quality of
the employee relations climate (p<0.01). Figure 16
shows that the more secretive an organisation is
about pay, the more strained the ER climate. This
in light of recent legislation to encourage more
pay transparency, but also in terms of the potential
positive effects of being more open about how
reward decisions are made and implemented
in organisations. However we do need to be
cautious about causality here – the results do not
tell us whether the negative ER climate leads to
the imposition of pay secrecy or whether the pay
secrecy leads to a difficult ER climate.

3.66

3.09

3.0
2.5
2.0
1.5
1.0
0.5
0

Very
good

Good Somewhat Very
strained strained

Employee relations climate

REWARD MANAGEMENT 2012

result has implications for organisations, not only

3.52

3.5
Pay secrecy score

climate was very good and roughly one in twenty

4.23

23

REWARD MANAGEMENT

Figure 17 shows a clear association between
employee relations climate and operation of

Figure 17: Employee relations climate and
operation of performance-related reward

performance-related reward, incentive and

70

recognition schemes (p<0.05). Those without
such schemes are more likely to have strained

60.4

60

or somewhat strained ER climates, while those
operating performance-related reward schemes
are more likely to have good or very good
the sectoral influence here (voluntary and public
sector organisations were also less likely to
operate performance-related reward schemes),
this result may indicate that choices organisations
make about the extent of base pay versus pay
contingent upon some measure of performance,

50
% of respondents

employee relations. While we cannot rule out

43.9

40

30
23.0

20

have implications for employee relations.
Again, we need to be cautious regarding causal
attribution. It may be that use of performance
pay does make for a more positive ER climate.
Alternatively, it may be that a positive ER climate
is required in order to introduce and maintain
performance pay schemes.

36.6

13.1

10

9.8

8.5
3.6

0

Very
good

Good

Somewhat
strained

Very
strained

Employee relations climate

Labour productivity

Operate performance-related reward

Respondents were asked about their labour

Do not operate performance-related reward

productivity compared with competitor

cipd.co.uk/rewardmanagementsurvey

24

establishments. The majority thought productivity

Figure 18 shows organisations with far better labour

in their organisations was average or somewhat

productivity than their competitors are more likely

better than their competitors, with one in

to use competencies and skills as pay progression

ten saying productivity was far better than

criteria (for non-management grades) than any

competitors and one in twenty saying it was below

other group. Individual performance as a pay

average for the industry. We also asked about

progression criterion is high in all groups but lowest

productivity compared with three years ago. A

in below average organisations. Conversely, use of

quarter of organisations surveyed said labour

length of service to progress base pay, while low

productivity had increased considerably in the past

across all groups, is highest in these organisations.

three years and a third reported productivity had
increased slightly. One in five thought productivity

Figure 19 shows use of competencies informing

had remained the same and one in twelve that it

pay progression for managers and professionals

had decreased since the financial crisis.

is higher in organisations that have increased
labour productivity considerably in the past three

Results show a significant association between

years and is lowest in organisations where labour

labour productivity (compared with competitors)

productivity has decreased.

and pay progression criteria for non-management
grades (p<0.05) and between labour productivity

These results provide strong indications that the

(compared with three years ago) and pay

criteria organisations use to inform base pay

progression criteria for management and

progression through pay grades or along pay

professionals (p<0.05).

scales have implications for labour productivity.

2012
Figure 18: Labour productivity (compared with competitors) and pay progression criteria for
non-management grades
80
70.6

70.0
66.766.7

70

66.0
61.5

60.0

% of respondents

60
50
40

46.7

45.0

43.3

41.0

40.4

40.4 40.4

46.7

38.0

36.7

30

26.7 26.7
23.3

20
12.8

13.3

12.0

13.3

10
0

%

Far better

Somewhat better

Average

Below average

Labour productivity (compared with competitors)
Individual performance

Skills

Market rates

Competencies

Length of service

Employee retention

Figure 19: Labour productivity (compared with three years ago) and pay progression criteria for
management/professional grades
100
90

85.9

83.1

84.4

83.3

80

60

66.7

64.9
57.6

54.5

53.2

56.3

50.5

50

43.4

40

54.2

50.0
42.2

41.7

37.4
32.8

30
20

14.3

13.1

16.7
12.5

10
0

Increased considerably

Increased slightly

Remained same

Labour productivity (compared with 3 years ago)
Individual performance

Skills

Market rates

Competencies

Length of service

Employee retention

Decreased

REWARD MANAGEMENT 2012

% of respondents

70

75.0
70.1

25

REWARD MANAGEMENT

Results also show that decreased labour productivity

Employee retention

is correlated with higher median total earnings for

Respondents were asked to what extent their

non-management grades (p<0.05) suggesting that

organisations had experienced difficulties retaining

reward levels in organisations may also have some

employees in the past year. Half said they had not

impact on labour productivity although not always

had any retention difficulties, only one in fourteen

in the way we might anticipate. However, further

had experienced difficulties to a great extent; the

analysis is needed in order to establish whether

remainder said their organisations had experienced

other factors, such as establishment size, sector and

retention difficulties to some extent.

industry, may also be of significance here.
Figure 20: Difficulties retaining employees in past 12 months and base pay structures (management/
professional employees)
60

55.0

% of respondents

50

49.6

47.8
39.1

40

Narrow graded
30

Broad-bands

28.8

26.1 26.1

Job family

21.2

20

17.4

16.8

17.9

16.8

Pay spines

15.9

Individual salaries
10
0

5.6

To a great extent

3.3

To some extent

Not at all

Retention difficulties in past 12 months
Figure 21: Pay discontent in the past 12 months and base pay structure (management/
professional employees)
70
60.0

60

53.8

% of respondents

cipd.co.uk/rewardmanagementsurvey

50
40.3

40

Narrow graded
Broad-bands

30
24.0
20.0

20

25.4 25.4

25.3
18.0

16.5

17.0

Pay spines
Individual salaries

12.0

10
3.3

0

To a great extent

To some extent

1.5

Not at all

Pay discontent in past 12 months

26

Job family
19.4

2012
Results show an association between employee

Pay discontent

retention difficulties and base pay structure for

Respondents were asked to what extent their

management/professional employees (p<0.01).

organisation had experienced discontent related

Figure 20 shows organisations not experiencing

to pay levels or pay systems in the last 12 months.

retention difficulties are more likely to use

The majority, around six in ten organisations,

individual rates/ranges/salaries and are less likely

experienced some pay discontent last year.

to use pay spines. Conversely, organisations

Just under a quarter experienced no employee

experiencing retention difficulties in the past year

discontent relating to pay, whereas nearly one in

are more likely to use pay spines, narrow-grades

five reported pay discontent to a great extent.

and job family pay structures than any other group.
This could be because these types of pay structure

Results show that extent of pay discontent and

are not as effective in satisfying and therefore

type of base pay structure for management/

retaining employees. Or, we could also be seeing

professional grades are connected (p<0.01). The

some sectoral influence: public services where pay

spread of results (Figure 21) points to individual

spines and narrow-grading are more common could

pay arrangements and pay spines being possible

be losing employees due to the public sector pay

causes of pay discontent. While individual salaries

freeze and general employment uncertainty.

can be perceived as unfair if pay decisions are
made arbitrarily, pay spines are usually thought of

Interestingly, results also show that the higher

as a fairer and more transparent way to manage

the highest total earnings (for non-management

base pay. Perhaps the determining factor here is

grades) in organisations the more retention

ongoing public sector pay issues.

difficulties have been experienced (p<0.05).
We might speculate that organisations that are

Results also show an association between the

experiencing retention difficulties are pushing up

extent of pay discontent and criteria for base pay

salaries in an attempt to retain people.

progression (p<0.05 for management/professional
grades; p<0.01 for other employees). Figures 22
and 23 show organisations not experiencing pay

Figure 22: Pay discontent in the past 12 months and base pay progression criteria (management/
professional employees)
100
90

87.8

86.8

83.6

80
63.3

62.1
58.8

60

40

Skills

32.7

30
20

Individual performance
Competencies

41.2

40.8
34.7

52.2

50.7

49.5

50

61.2

61.2

Length of service
Market rates

16.3
11.0

10

13.4

0
To a great extent

To some extent

Pay discontent in past 12 months

Not at all

Employee retention

REWARD MANAGEMENT 2012

% of respondents

70

27

REWARD MANAGEMENT

Figure 23: Pay discontent in the past 12 months and base pay progression criteria (non-management
employees)
80
74.0

70

% of respondents

60

60.1

59.6

50

46.8
43.9

62.3
59.0
49.2

46.2

45.9
40.5

40

Individual performance

36.2

34.0

Competencies

30
20

Skills

26.2
19.1

Length of service

18.0
14.9

Market rates

12.7

10

Employee retention

0
To a great extent

To some extent

Not at all

Pay discontent in past 12 months

discontent more commonly use competencies
as base pay progression for both employee
groups, and skills as pay progression criteria for

Figure 24: Pay discontent in the past 12 months
and operation of performance-related reward,
incentive and recognition schemes

managers. This group is also less likely to use

90

employee potential/value/retention as criteria for

81.2

progressing pay.

80

Extent of pay discontent is also associated

70

with whether or not organisations operate
recognition schemes (p<0.01). Figure 24 shows that
while operation of performance-related reward
is high in all groups, usage is highest in the group
not experiencing pay discontent and lowest in the

cipd.co.uk/rewardmanagementsurvey

28

group with the most pay discontent. Equally, the

60
% of respondents

performance-related reward, incentive and

75.4

56.9

50
43.1

40
30

24.6

reverse is true for non-operation of performancerelated reward practices. This suggests the absence
of performance-related reward may create pay
discontent and performance-related reward,
incentive and recognition practices may lead to
more pay satisfaction.

18.8

20
10
0

To a great
extent

To some
extent

Not at all

Pay discontent in past 12 months
Operate performance-related reward
Do not operate performance-related reward

2012
HR outcomes and business strategy

Figure 25: Mean (±) Prospector scores and
employee relations climate

Results show that Prospector firms (Figure 25) are
more likely than Defenders to have better labour

5.0

productivity than their competitors (p<0.01).

4.5
4.0

Figure 26 shows Prospectors are also more
4.01

likely to have seen labour productivity increase

Prospector scores

considerably in the past three years (p<0.01)

3.56

3.5

3.37

whereas those with higher Defender scores have
seen labour productivity decrease in the same

3.03

3.0

period (p<0.05).

2.5

Higher Prospector scores are also positively/
2.0

negatively correlated with lower levels of
employee discontent relating to pay levels and pay

1.5

systems expressed in the past 12 months (p<0.01);
see Figure 27.

1.0
0.5
0

Very
good

Good Somewhat Very
strained strained

Employee relations climate
Figure 26: Mean (±) Defender/Prospector scores and
labour productivity compared with three years ago

Figure 27: Mean (±) Prospector scores and
pay discontent in past 12 months
5.0

5.0
4.5

4.5
3.75

3.0

2.82

3.37

3.36 3.30

2.89

2.88

4.0
Prospector scores

3.47

3.5

2.5
2.0

3.69
3.55

3.5
3.23

3.0

1.5
1.0

2.5

0.5
0

2.0
Increased
considerably

Increased
slightly

Remained
same

Decreased

Labour productivity (compared with 3 years ago)
Defender

Prospector

To a great
extent

To some
extent

Not at all

Pay discontent in past 12 months

REWARD MANAGEMENT 2012

Defender/Prospector scores

4.0

29

REWARD MANAGEMENT

CONCLUSIONS AND IMPLICATIONS

A number of years ago we asked a sample

reward management does make a difference

of UK-based multinational employers about

– in some respects surprisingly so – in terms

the influences they perceived on their reward

of creating a positive climate of relationships

management strategy (Perkins, 2006). We were

between employer and employees, reducing

intrigued to discover that while claiming that

reward related disquiet, and retaining talent.

respondent businesses prioritised shareholder

These findings offer HR practitioners an evidence

value creation and customer satisfaction, these

base from which to engage their corporate

factors did not universally correlate with how they

managerial colleagues in a dialogue for the

set reward strategy: instead uncontrollable factors

purpose of systematically weighing choices of

such as economic climate and what competitors

how best to apply scarce resources matched to

were doing came to the fore (Brown and Perkins,

an understanding not only of what the business

2007). So there were some strategic choices

wishes to achieve, but also the circumstances

being made – in simple terms, to accommodate

within which to organise proactively.

environmental factors – although not the ones
prescriptive reward management commentary

We structure our concluding comments around

would have predicted.

the three questions posed in the introduction:

The design of the present study has enabled us

• To what extent do private sector firms with

to pursue the question of ‘strategic alignment’ in

different business strategies adopt different

more granulated detail, teasing out the variety of

pay management practices?

factors that appear to be influencing managerial
practice in 2012. The study has also illuminated

cipd.co.uk/rewardmanagementsurvey

30

the likely consequences of competitive strategy,
workforce composition and reward practice in

• To what extent do organisations (from all

sectors) with different workforce characteristics
adopt different pay management practices?
• To what extent are different HR outcomes

terms of HR outcomes. What we have discovered

associated with different pay management

is that many UK-based organisations are choosing

practices?

actively to manage rewards, using base and
incentive pay in ways their corporate focus would

Business strategy

imply, influenced not only by sectoral ‘big picture’

Our results have shown that private sector

factors, but also by the characteristics of the

firms using different business strategies in their

workforces particular employers may assemble.

chosen product/service sectors have also adopted

And there is clear evidence from what survey

markedly different reward management practices.

respondents have told us suggesting that careful

Firms pursuing Prospector-oriented business

2012
strategies are taking a more competitive approach

awareness, something the CIPD has long

to positioning reward levels in the market versus

advocated through its ‘thinking performer’

competitors; they are more likely to approach

model. Our findings beg the question: how can

pay decisions prioritising market information as

HR professionals make sound choices about

opposed to affordability, and are more likely to

reward practices and their intended consequences

operate performance-related reward, incentive

without fully understanding the strategic business

and recognition schemes. Prospectors are also

imperatives their organisation is pursuing?

using broadbanded pay structures for managers
and to progress base pay through pay structures,

Workforce characteristics

and they favour using competencies and skills as

Our results indicate that organisations (from all

criteria rather than length of service.

sectors including public and voluntary) differ in
their approach to reward management according

In contrast, private sector firms pursuing a

to different workforce characteristics.

Defender-oriented business strategy are taking
a more cautious approach to pay choices

Our results showed organisations with high

based on the organisation’s ability to pay, and

proportions of female employees have lower

shareholder views. Defenders are less likely to use

highest total earnings (base pay plus performance

performance-related reward and are more likely

pay). Base pay is more likely to be structured in

to use length of service as pay progression criteria

organisations with more women managers, and

for management/professional grades.

individualised salaries used less where there are
very low numbers of women. Pay spines are more

Findings for Prospectors and Defenders in relation

common where there are more female managers

to human resources outcomes would suggest that

and length of service is used more commonly

their differing approaches to reward management

as a criterion to progress base pay. While we

do lead to different HR outcomes. Prospector

have speculated that this may be due to large

firms are more likely to have a very good

numbers of women working in public services

employee relations climate; have far better labour

where these pay practices are also common, it

productivity in comparison with competitors; have

was also interesting to see that organisations with

seen labour productivity increase considerably

high proportions of women in non-management

in the past three years. Defender firms have

grades were less likely to use collective bargaining

seen labour productivity decrease in this period.

to determine base pay levels.

Prospectors are also less likely to have experienced
discontent related to pay raised by employees in

In organisations where the greater proportion

the past 12 months.

of employees are under 30 in non-management
grades, the higher the median salary is for these
employees. Organisations with high numbers of

From an academic perspective, our findings lend

younger workers in non-management grades

support to the strategic alignment proposition.

were more likely to use individual performance,

We have found organisations choosing reward

skills and employee potential/value/retention

management practices that ‘fit’ with their business

to progress base pay and were less likely to use

strategies and, for Prospector-orientated firms at

length of service suggesting a shift away from

least, there are indications that these choices may

traditional forms of pay progression in the

have positive consequences for HR outcomes.

younger workforce.

Implications for HR and reward management

In organisations with high proportions of

practitioners centre on developing business

graduates we found higher lowest and median

REWARD MANAGEMENT 2012

Implications of these findings

31

REWARD MANAGEMENT

total earnings virtually across the board. We

Organisations that have experienced discontent

also found an approach to pay progression that

relating to pay levels or pay systems in the past

considered employee potential/value/retention as

12 months are more likely to use individualised

key criteria rather than market rates.

and pay spine base pay structures; more likely to
use employee potential/value/retention as pay

So what do these results tell us? We find some

progression criteria for management/professional

support for the alignment model – it is clear that

employees; less likely to use competencies as pay

the organisations in our sample were approaching

progression criteria for both employee categories

reward differently according to the different

and less likely to operate performance-related

characteristics of their workforce – whether

reward schemes.

they were related to gender, age or education
level. And once again there are implications for

In brief, our findings for the associations between

practitioners here too. Some of these differing

reward management practices and HR outcomes

reward approaches may not always be ethical or

very clearly indicate that the choices organisations

indeed legally compliant. So, while practitioners

make about rewarding employees and the systems

might be sensitive to the different reward needs

and techniques they use to do so, are likely to

of different sections of the workforce, they also

have significant consequences for organisational

need to be mindful of the legal implications of

HR outcomes. By way of conclusion, we now

their pay practices.

highlight one key choice.

HR outcomes

Our findings carry clear implications regarding the

Our results imply that transparency of pay

use of performance-related reward, incentive and

arrangements in respondent organisations was

recognition schemes. The results for HR outcomes

associated with more positive employee relations

showed associations between increased usage of

climates. Organisations with good ER climates

such schemes and a) better employee relations

were also more likely to operate performance-

and b) reduced levels of expressed discontent

related reward schemes but have lower median

with pay. The debates around performance-

total earnings for non-management grades.

related reward have been deep and long running
and we do not intend to reiterate them here.

cipd.co.uk/rewardmanagementsurvey

32

For labour productivity, our findings show that

However, our results may offer some contribution,

organisations with better productivity than

suggesting that the use of performance-related

competitors are more likely to use competencies

reward practices can have positive associations.

and skills as pay progression criteria for non-

There must be some caveats about the wide

management grades. Organisations that have seen

divergence of performance-related schemes being

labour productivity increase in the past three years

operated, and statistical correlation between

are also more likely to use competencies as pay

factors should not be read as indicating causality.

progression criteria for managers. However they

But, despite these qualifications, our results do

were also more likely to have lower median total

point towards the likelihood of performance-

earnings for non-management grades.

related reward practices having positive outcomes
in UK organisations.

Organisations that have experienced difficulties
retaining employees in the past 12 months are more
likely to use pay spines, narrow-grades and job
family base pay structures and have higher highest
total earnings (for non-management grades).

2012

BACKGROUND TO THE REPORT

The data for this report were gathered as part of

if their organisations operated in more than

the CIPD Reward Management survey in February

one of the four traditional sectors; 6.6% of

and March 2012. The survey was sent out to senior

respondents did so – 63.3% of these operated

reward/HR practitioners in the public, private and

in both manufacturing/production and private

voluntary sectors. The number of respondents was

sector services; 13.3% operated in public services

455 in total.

and voluntary/community/not-for-profit; 10%
indicated they were representing an organisation

The following tables provide a breakdown

operating in public services and private sector

of percentage of respondents by sector, by

services; 6.7% were from manufacturing/

ownership and by size of organisation (number of

production and public services; and 6.7% said their

employees).

organisations operated in all four sectors.

Table 5 shows that 43.7% of respondents were

In terms of ownership (Table 6), 58.9% provided

from private sector services; 15.8% from the public

responses relating to mainly UK-owned

sector; 20.7% from private sector manufacturing

organisations; 5.9% to divisions of mainly UK-

and production and 12.3% from voluntary,

owned organisations and 31.2% to divisions of

community and not-for-profit organisations.

internationally-owned organisations.

This year, respondents were able to indicate

Table 5: Survey respondents by sector (%)
Private sector
services

Public services

Voluntary, community
and not-for-profit

Multiple sectors

20.7

43.7

15.8

12.3

6.6

Table 6: Survey respondents by ownership (%)
Mainly UK-owned
organisation

Division of mainly UKowned organisation

Division of internationallyowned organisation

Did not respond

58.9

5.9

31.2

4.0

REWARD MANAGEMENT 2012

Manufacturing and
production

33

REWARD MANAGEMENT

Table 7: Survey respondents by organisation size (number of employees) (%)
SMEs (<250)

Large (250 –9,999)

Very large (10,000+)

Did not respond

44.2

47.9

5.3

2.6

Table 8: Survey respondents by demographic composition (mean %)
Female employees (Management and professional)

32.2

Female employees (Other)

45.1

Under age 30 (Management and professional)

14.0

Under age 30 (Other)

31.3

Graduate employees (Management and professional)

51.0

Graduate employees (Other)

31.9

Table 7 shows that 44.2% of respondents were

Note on statistical analysis

responding on behalf of small and medium

The analysis undertaken for this report involved

sized organisations (less than 250 employees);

various statistical tests from which were derived

47.9% for large organisations (between 250 and

probability values, that is, the likelihood that a

9,999 employees); and 5.3% from very large

result is merely due to chance. In these tests the

organisations (more than 10,000 employees).

lower the probability, the more likely it is that the
result is due to a specific effect or phenomenon.

The survey asked respondents about the

It is conventional to consider results statistically

demographic breakdown of the employee groups

significant if the probability of the result being

in their organisations. Table 8 shows the results

due to chance is less than 5%. If the test shows

from those who provided responses.

that it is 95% certain that a result is not down to
chance, the probability is less than 5% (expressed
in the text as p<0.05); if the test shows that
it is 99% certain that a result is not down to
chance, the probability is less than 1% (expressed
as p<0.01). We use these terms in this report
to indicate where our results are statistically
significant and at what level.

cipd.co.uk/rewardmanagementsurvey

34

The team that designed the questionnaire, carried out the analysis and wrote the report were:
Sarah Jones and Liz Marriot from the University of Bedfordshire, Michelle Brown from the
University of Melbourne, Stephen J. Perkins from London Metropolitan University and John Shields
from the University of Sydney.
We would like to thank all the reward professionals who helped inform the questionnaire and
report as well as those who completed the survey.

2012

REFERENCES AND FURTHER
READING
BROWN, D. and PERKINS, S. J. (2007) Reward

PERKINS, S. J. (2006) Research report: international

strategy: making it happen. World at Work

reward and recognition. London: Chartered

Journal. Vol 16, No 2. pp 82–93.

Institute of Personnel and Development.

DELERY, J. E. and DOTY, D. H. (1996) Modes

PFEFFER, J. (1998) The human equation: building

of theorizing in strategic human resource

profits by putting people first. Harvard, Mass:

management: tests of universalistic, contingency,

Harvard Business School Press.

and configurational performance predictions.
Academy of Management Journal. Vol 39, No 4.

SHIELDS, J. (2007) Managing employee

pp 802–835.

performance and reward: concepts, practices,
strategies. Cambridge: Cambridge University Press.

MARCHINGTON, M. and WILKINSON, A.
(2008) Human resource management at work.

WRIGHT, P. M., McMAHAN G. C. and McWILLIAMS,

London: Chartered Institute of Personnel and

A. (1994) Human resources and sustained

Development.

competitive advantage: a resource-based
perspective. International Journal of Human

MILES, R. E. and SNOW, C. C. (1984) Designing

Resource Management. Vol 5, No 2. pp 301–326.

strategic human resources systems. Organizational
Dynamics. Vol 13, No 1. pp 36–52.
OFFICE FOR NATIONAL STATISTICS. (2011) Labour
force survey. Newport: ONS.

REWARD MANAGEMENT 2012

35

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Issued: July 2012 Reference: 5909 © Chartered Institute of Personnel and Development 2012

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