What is keeping HR managers awake in 2014?

Cost control, differentiation and performance management in the remuneration package are the three most important points for reward managers to consider in 2014. This is highlighted by the results of the Reward Barometer, an annual survey for members of the Centre for Excellence in Strategic Rewards and alumni of the Compensation & Benefits Management programme.

The survey chiefly gauges which factors are of strategic importance to HR professionals, and how satisfied they are with them. The results identify a number of important trends and challenges for the future in the area of reward management. These challenges expose a number of issues with current remuneration systems, which shows that there is a clear need to think about a new remuneration structure. The survey also asks what this ‘remuneration structure for the future’ should look like.

Highest priority at a strategic level

The research shows that HR managers have identified three big reward challenges for the future. These are areas that they perceive to be of strategic importance, but which currently score less well.

  • The first key challenge relates to the sense of fairness about remuneration both internally within the company and externally with regard to the market. According to researcher Femke Dhont, we need to consider two factors to get to the cause of this. Femke explains: “On the one hand, it is hard to differentiate using remuneration within the current limited budget. There is no scope to give high performers that little something extra. On the other hand, the use of remuneration systems based on years of service means that there is a big gap between younger and older employees. These exacerbate the sense of unfairness.”
  •  Cost management is also a thorny issue for HR managers. The majority of respondents clearly state that keeping a lid on salary costs is high up on their list of priorities. However, the still-common practice of quasi-automatic salary increases, such as those based on years of service, mean that it is more difficult to keep personnel costs under control. Indeed, these systems ensure that personnel costs rise exponentially year on year, without being linked to a parallel increase in productivity.
  • Finally, there are also a number of challenges in the area of performance management. During annual evaluations, all too often the discussion is influenced by the link with the remuneration package. There is a danger that an evaluation turns into a salary negotiation rather than a coaching discussion about future development possibilities for the employee. Femke remarks: “From the survey, we notice that companies are looking for a way to reshape the evaluation so that it goes back to being a true discussion about evolution.”

Remuneration structure for the future

The aforementioned challenges bear out the need to rethink the current reward systems. The survey also asked HR professionals for their vision of the ‘remuneration structure of the future’. They clearly advocate:

  • Systems whereby incremental rises to a fixed salary are linked to individual performance. Xavier Baeten believes: “This is a good evolution because it limits the (too) large salary gap between older and younger employees. Once the reference salary has been reached, a system of variable remuneration can be put in place whereby the counter is reset to zero each year.”
  • There also seems to be a demand for profit sharing systems. This enables a stronger link to be made between a company’s results and its employee rewards. If business is good, then employees share in the good times. If business is less good, then there is always the option for this element of the salary to revert to zero.
  • Finally, the concept of the mobility budget also seems to be very popular. This entails making a budget available to the employee and giving him the flexibility to use it as he sees fit. A company car, petrol card, public transport, company bike, etc. can all be a part of this. This enables greater attention to be paid to the environment, but also to the individual wishes of employees.

For more information, take a look at the presentation on Slideshare.

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