Supporting material for discussion of ‘Performance pay and wage flexibility in the Great Recession’ by Alex Bryson, John Forth, Lucy Stokes and Martin Weale

Mark BeatsonChief Economist

CIPD

Why do employers use variable pay?

Type of variable payIndividual PBR

Group PBR

Profit-related pay

ESOPs

Merit pay

Motivation

Cost flexibility

Incentivise individuals/teams‘Good HR’ (HPW practices)

Why do employers use variable pay?

Type of variable payIndividual PBR

Group PBR

Profit-related pay

ESOPs

Merit pay

Motivation

Cost flexibility

Incentivise individuals/teams‘Good HR’ (HPW practices)Not measured

in ASHE

Poorly measured in ASHE?

Paymen

t by r

esults

Merit p

ay

Profit-

related p

ay

share

owne

rship

sche

mes

Any of th

ese in

centiv

e sche

mes

31

15

3018

54

2820

29

9

542004 2011

Source: Workplace Employment Relations Study, 2004 and 2011.

Prevalence of variable and performance-related incentive schemes, 2004-2011(% of workplaces with 5 or more employees where some use was made of these schemes)

Employer provision of performance-related pay, 2011-2013(% of employers)

74% 67%

33%

79%65%

29%

72%55%

26%

2011 2012 2013

Source: CIPD Reward Management surveys.

Cash bonus payments to employees in the previous 12 months, 2008-2013/14(% of employees)

2008 2009 2010 2011 2012 2013/14

21% 19%22%

18% 18% 18%

11%10%

9%

8% 8% 6%

Bonus available - received Bonus available - not received

Sources: CIPD Employee attitudes to pay surveys, 2008 to 2011 and CIPD Employee Outlook survey, winter 2013/14.

Impact of the economic downturn on pay and rewards, 2009-2014(% of employees)

Spring

2009

Summer

2009

Autumn 2

009

Wint

er 20

09/10

Spring

2010

Summer

2010

Autumn 2

010

Wint

er 20

10/11

Spring

2011

Summer

2011

Autumn 2

011

Wint

er 20

11/12

Spring

2012

Summer

2012

Autumn 2

012

Wint

er 20

12/13

Spring

2013

Summer

2013

Autumn 2

013

Wint

er 20

13/14

Spring

2014

0%5%

10%15%20%25%30%35%40%45%50%

Frozen pay Cut payReduced employer pension contributions Reduced employee benefits/perks

Base: all employees, including employees who did not think their workplace had been affected by the recession and don’t know responses. Employees could select more than one impact from a range of responses.Source: CIPD Employee Outlook surveys.

Changes in the nominal pay of employees in the previous 12 months, 2008-2013/14(% of employees)

2008 2009 2010 2011 2012 2013/14

2642 45 49 41

7051 50 46

51

-3 -5 -4 -5 -3

Pay freeze Pay increase Pay cut

Excluding don’t know/can’t remember responses.Respondents were instructed to exclude promotions, demotions, regrading and new jobs.Sources: CIPD Employee attitudes to pay surveys, 2008 to 2011 and CIPD Employee Outlook survey, winter 2013/14.

Performance reviews, their perceived link to pay and employee engagement, spring 2014(% of employees)

40% 32% 49%

55% 63% 49%5% 5% 2%

Engaged Neutral Disengaged

Excludes 6% of employees who did not know if their pay was linked to their performance review.Source: CIPD Employee Outlook survey, spring 2014.

• Analysis of 2010 MOPS survey of 37,000 US manufacturing establishments [Bloom, Brynjolsson, Foster, Jarmin, Patnail, Saporta-Eksten and Van Reenen (2014), IT and management in America ]:– Management practice scores positively associated with productivity and other

business outcomes (profits, growth, R&D, patenting)– Management scores positively associated with IT investment– Mean management score increased 2005-2010 (based on recall)– Increased use of incentives and targets (based on recall)– Biggest increase in use of data-driven performance monitoring (based on recall)

• If data makes it easier to measure individual and group performance, will employers still need to rely on performance-related pay?

What about technology?

Thank you