Bosses must improve how they talk about pay to boost productivity, says CIPD

02 April 2015 -

Helping staff to understand reasoning behind salary decisions could raise flagging UK output through job satisfaction

Jermaine Haughton

Managers could turn around poor UK productivity by greatly improving how they communicate pay decisions to their staff, according to new research from the Chartered Institute of Personnel and development. On Wednesday, the Office for National Statistics (ONS) confirmed that economic productivity in Britain had dropped in the final quarter of 2014, leaving it well below its pre-financial crisis level. Between October and December 2014, output-per-hour-worked fell by 0.2% on the previous quarter – representing the first slide since mid-2013. Low productivity has been one of the UK economy’s key stumbling blocks since the global financial crash, as output has grown at a far slower rate than employment.

Labour leader Ed Miliband has labelled productivity Britain’s “major economic challenge”, and CIPD’s latest Employee Attitudes to Pay and Pensions report has made a direct link between the issue, employee morale and performance-related decisions on pay. The professional body for HR and people development wants bosses to start thinking more strategically about pay, and improving how they break salary decisions to ensure that expectations are managed.

CIPD found that more than half of UK workers (53%) received a pay rise in 2014, compared to 51% a year earlier. Furthermore, almost two-thirds (63%) admit they are optimistic about getting rises this year. However, the survey also discovered that the average pay rise has been around 2% for the past two years, and almost half of recipients have been left unsatisfied. Most workers expect rises of the same level in 2015.

Fundamentally, though, a lack of communication from employers about how and why pay decisions are made has left staff with widespread frustration and dissatisfaction, leading to lower productivity. More than three-quarters of staff (76%) haven’t been told what they need to achieve in order to get a pay rise, and only a quarter (26%) of workers think that their bosses are giving them the training they need to increase their earnings in the future. Employees are also worried that much of the development training available is focused on staff at extremes of the earnings spectrum, rather than evenly spread among the workforce.

Indeed, just 51% of workers feel their organisations have explained to them the rationale behind salary regimes, despite respondents signalling that they would be more satisfied with an employer who did communicate than one who didn’t.

CIPD performance and reward adviser Charles Cotton warned that bosses would struggle to see a sufficient return on employee pay unless they explain to workers the reasons behind their salary decisions. “This month,” he said, “many employers will be spending a lot of money on increasing their employees’ pay as part of their annual pay reviews. But to get a return on this investment, our research suggests, employees are more likely to be satisfied with the outcome if the organisation takes the time to explain the reasons behind it.”

He added: “Businesses that are willing and able to have these discussions with workers could find that it pays off in terms of a greater employee understanding of what the organisation is trying to do and what it needs from its employees, as well as a greater appreciation of how the business will reward and recognise employee success and achievement. Those employers are likely to grow and prosper at the expense of firms that are unable or unwilling to communicate about staff pay.”

Almost half of private sector workers (48%) are keen to have their pay linked to performance, while a majority (60%) in the public sector would prefer to see their pay linked to the cost the living. Almost a quarter (23%) of employees feel that their pay rises do not reflect their performance at work – up from 19% in 2013. The survey’s net satisfaction scores reveal that workers do not rate their employer’s ability to assess their performance very highly – nor do they think that their organisation is particularly good at rewarding or recognising it.

Some 15% of workers say they would leave their jobs if they don’t receive improved pay in 2015, while 14% said they would continue in their job but not as hard – a telling discovery in the field of productivity that could impede future economic growth if true across UK Plc. Only half of respondents said they would continue to work as normal in the wake of a negative pay decision.

Cotton added: “Organisations could improve how they reward and praise individual and team achievements as well as how they manage and develop performance. The challenge for employers is to connect investments in increasing staff pay with what the business really needs. Without this direction, many will struggle to see a step-change in business performance and could face wider issues with recruitment and retention if employees think they can achieve a higher salary elsewhere.”

To find out more about raising staff spirit, read Dr Ben Hardy’s study Morale Matters in Winning Ideas – CMI’s compilation of its Management Articles of the Year.