Public Sector Focus

Performance-related pay still rejected by public sector

Charles Cotton, adviser for performance and reward at the Chartered Institute of Personnel and Development, talks to PSE about employee attitudes towards pay and pensions in the public sector. David Stevenson reports.

Between December 2013 and December 2014, about 53% of UK employees received some form of salary increase, up marginally from the 51% recorded in the previous year, according to a recent survey by the Chartered Institute of Personnel and Development (CIPD). 

However, the latest figures revealed that only 44% of public sector workers received a pay rise in that period, compared to 57% of private sector workers. 

Overall, taking into account pay freezes, pay cuts and pay rises, salaries among CIPD’s 2,269 weighted workforce sample rose by 1% between 2013 and 2014. 

But 41% of workers did not get a pay rise, a phenomenon that is more prevalent in the public sector (49%) than private (38%). Among those whose pay did not increase in 2014, 38% reported that it has not changed since 2012. 

“The public sector has been subject to pay constraints and many people who are able to get a pay rise are likely to only get around 1%,” said Charles Cotton, adviser for performance and reward at the CIPD. “And those individuals who are at the top of their grade probably won’t be able to get anything other than a pay rise, as they wouldn’t be eligible for a service-related increment.” 

Pay explanations 

CIPD’s latest data also revealed that just 51% of respondents say their organisation has explained to them the rationale behind its 2014 pay decision. These explanations are more common in the voluntary (67%) and public (61%) sectors than in the private sector (47%). 

Among those workers who have received an explanation about the pay decision, 62% said they were satisfied with that decision compared with 31% who were not. 

“Our research finds that those who have an explanation are, in the case of a pay rise, more satisfied than if they hadn’t had a pay explanation,” said Cotton. “Similarly, when it comes to pay freezes, people who report that their organisation explained to them why there was no pay rise this year were more likely to be less annoyed than organisations that didn’t bother to explain to them. 

“It makes sense for the public sector to do this. It is quite interesting, as a comparison, as the private sector are more likely not to explain why people are given a pay increase. You would have thought that people would want to know why they’ve received one.” 

How employees would like to be paid 

The CIPD’s ‘Employee Attitudes to Pay and Pensions’ report also revealed that public sector workers appear keener to see their pay linked to the cost of living or a trade union deal, compared to private sector employees who would like to see their salary reflect their own performance. 

It revealed that, ideally, private sector employees would like to have their pay linked to own performance (48%), the cost of living (38%) and their organisation’s performance (28%). Meanwhile, public sector workers would like to have their pay linked to the cost of living (60%), their individual performance (36%) and the ‘going rate’ for the job (26%). 

Also, while over one-third of public sector workers would like to see a connection between their pay and their performance, they are less keen to see it connected to their organisation’s or their team’s performance, which has implications for the reform of pay and performance in that sector, according to CIPD. 

“There is a tradition in the private sector of people wanting to be judged on their performance, their team or organisation,” said Cotton. “That is not very popular in the public sector which means that if the government, or any employer in the public sector, wants to link pay and performance they could face a lot of resistance. That is, unless they can demonstrate that their ways of measuring, managing and developing performance are robust. 

“It is a little bit surprising that so few people in the public sector would like to see their pay linked to how their organisation performs, which is a bit of a damning indictment on what they think of how their council, school, hospital or university is performing. 

“They would far more prefer to have it linked to the cost of living, and they would also prefer to see it linked to their individual performance than their organisation’s performance. 

“You’d have thought that in the public sector because a lot of jobs are inter-related that they would, perhaps, want to see it linked to their team or organisation – but that doesn’t appear to be the case.” 

CIPD’s survey revealed that employees, particularly in the public sector, doubt whether their employer is good at assessing their performance, their team’s performance or the performance of senior managers. It has also been suggested that this could be one of the stumbling blocks towards performance-related pay in the sector. 

“The work attitudes of our survey highlight the challenges facing the public sector and what it should consider and think about in how they manage and reward people,” said Cotton. 

“Overall, the data also shows employees doubting whether their organisation is good at managing the performance of senior managers, irrespective of sector or pay decision. This is a concern, if the ‘led’ are questioning how their leaders are managed. While employees’ opinions regarding how their, or their managers’, contribution is assessed have not deteriorated significantly over the past 12 months, they have not improved either. If employers want to boost productivity, they need to look at how effective they are at managing employee performance.” 

It was also revealed that those in the public sector are less likely to say that their employer is good at saying ‘thank you’. However, those in the private sector are not particularly positive about their own organisation’s ability to praise them for their achievements. 

“When it comes to rewarding employee performance, more employees think that their organisation is doing a poor job than think otherwise, with those in the public sector being the most negative,” said Cotton. 

CIPD also highlighted that even when an organisation has increased salaries, it is not reflected in a positive net satisfaction score among those who have enjoyed a pay rise. For example, the public sector net satisfaction score has fallen from -42 in 2013 to -51 in 2014. 

Pension pots 

Pension membership varies by sector, with 88% of public sector employees in a scheme compared to just 59% of private sector employees. 

On top of this, 67% of public sector respondents were defined benefit pension scheme members. In the private sector, defined contribution schemes were more prevalent. 

Although CIPD’s research shows that pension awareness is high, with most knowing how much they and their employers are contributing. Awareness levels are lower among members of defined-benefit arrangements than among those in defined-contribution plans. 

Among defined-benefit members, 77% know what they are contributing and 55% know what their employer is paying. By contrast, among defined-contribution members, 88% know what they are contributing and 81% know what their employer is contributing. 

The findings suggest that those employers providing a defined-benefit scheme could do more to communicate the value of their pension contributions to their employees. 

“To some extent it can be harder in certain parts of the public sector where you have ‘pay as you go’ pension arrangements, so you’re not quite sure unless the employer tells you how much they’re contributing to the scheme,” said Cotton. 

“Local government is a funded pension scheme, so local government should be able to explain and communicate how much it is contributing on their behalf. In the unfunded schemes, such as the Civil Service, the actuaries would have to make an approximation about how much they’re contributing. 

“Regarding how much the employers are contributing, I’m surprised, given that there has been a lot of change in the public sector over the last few years. I thought employers would’ve known a bit about how much they were paying into the scheme at the moment.”

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