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Performance-based pay plans come to the fore in negotiations
BUSINESS leaders Australia-wide are meeting the challenges of tough times through creative pay structures that reward performance and help to retain vital staff.
The latest research from Aon Hewitt’s Talent and Rewards division is tracking positive outcomes from creative solutions such as including performance-based pay adjustments as part of enterprise bargaining agreement negotiations.
“This strategy allows organisations to reward top performers with significantly larger increases while keeping the overall remuneration budget stable,” said Shannon Dooley, Aon Hewitt Talent and Rewards senior consultant.
“In this model, top performers can receive increases significantly above the average outcomes, whereas poorer performers may receive lower allocations or no increase at all.
“Companies can contain costs in line with their budgets, while the best employees continue to be rewarded for good performance.” Mr Dooley said.
Aon Hewitt research showed salary increases had been falling since June 2011, and at the current average of just 3.2 percent a year were barely outstripping inflation.
Mr Dooley said this was in stark contrast with highs of 4.8 percent in June 2008. The downward trend is expected to continue for at least a year.
Overall, the Aon Hewitt General Industry Remuneration Report highlighted an issue many employers were facing in tougher times: how to retain top talent despite a decreasing review budget.
Mr Dooley pointed out that, despite rising unemployment reducing the intensity of the battle for talent, ensuring employees were positively engaged remained just as important to an organisation’s success.
“In a market such as this, where the pool of available candidates increases, employers do not necessarily need to increase remuneration to secure or retain employees, and this is what we are seeing reflected in the figures,” Mr Dooley said.
“It’s also true that when times are tough, companies simply can’t afford to increase salaries significantly, meaning focus may be better placed on other areas of the ‘total rewards’ remit and/or truly differentiating performance.”
Mr Dooley said the report revealed that voluntary attrition rates, the measure of the number of employees choosing to leave organisations, had also fallen across most sectors. This could indicate employees were concerned about job security and prospects, so decide to stay with the job they already have.
He said there were no major surprises regarding sectors seeing the biggest remuneration decreases.
Auto-manufacturing, for example, saw some of the lowest salary increases in 2013, and with car manufacturing winding down in Australia, the trend is not likely to reverse.
The remuneration report figures also indicated that the expected slowdown in mining has become a reality, with mining, milling and smelting all soft, “in stark contrast with the results we have seen in the past”. But there was one industry sector trending growth.
“Energy, including oil, power and gas did well in 2013, and are likely to continue in this vein in 2014, although it’s important to remember that their new normal is significantly below boom time levels of the recent past,” Mr Dooley said.
He highlighted some key solutions to employers’ reward and remuneration challenges identified at Aon Hewitt’s recent Reward Think Tank, where 70 reward professionals got together to discuss the key reward issues of 2014.
“When organisations have reduced review budgets they need to get creative, particularly when lower average annual increases may not be enough to retain the best talent,” Mr Dooley said.
“Aon Hewitt’s Best Employer research has consistently shown that differentiating rewards based on a combination of capability and performance leads to higher levels of staff engagement, which translates to a measurably healthier bottom line.”
The report showed the fastest moving sectors in 2014 are forecast to be oil, power, gas, pharmaceuticals and medical. The slowest sectors are tipped to be auto manufacturing and engineering.
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