Last year, terrorised by the credit crunch, employees around the country in the private sector at least accepted pay freezes, even pay cuts with good grace. Management and government breathed a collective sigh of relief.
But that was last year. Pulling off the remarkable feat two years running might prove problematic, and for several reasons.
Macro and micro economic concerns
Inflation is on the rise. RPI, driven by the falling pound and rising fuel costs, soared to 5.3% in April, a near-twenty year high, and this at the same time that the new government were softening up the public for big cuts in public spending and tax hikes. The OECD, in addition to advising the government to cut the deficit, has advised the Bank of England to raise interest rates to stave off the threat of inflation, and fast; the organisation can see rates sitting at 3.5% by the end of next year.
The unions seem to be beginning to put aside last year’s uncharacteristic selflessness; the strike at BA continues to rumble; BT are facing up to the prospect of a strike from members of the Communication Workers Union as they reject the company’s 2% pay rise. Most of the country waits with baited breath to see how the public sector unions react to the much-heralded cuts in public spending.
Not that the behaviour of directors is helping. Ian Livingstone, CEO at BT, tripled his bonus to a mere £1.2m in 2010, as he triggered bonus payouts attached to earnings per share and cashflow targets. Last year Livingstone’s base pay was frozen – though he still managed £343,000 of bonuses when the company made none of its financial targets. Livingstone is just a convenient example, and not as bad as many. Even last year, though bonus payouts tended to be lower, the basic salary rises for directors of FTSE companies were more than three times the 3.1% average pay rises for ordinary workers in the private sector, according to The Guardian’s survey. [1]
If the global economy is getting better it’s not by much. Some talk of a ‘double dip’ recession. Others, perhaps more realistically, suggest that whether the economy grows by 0.3% or shrinks by 0.3% scarcely makes a difference, particularly as the figures tend to get revised later anyway. Double dips or not we’re all bumping along the bottom of an uncomfortable place. It’s dark down here and we can’t see what we’re just about to walk into, though we do know that inflation is adding a particularly sulphurous smell to the atmosphere. At best we can only hope things don’t get a lot worse and we stumble into a ravine. The new cabinet have set the tone by awarding themselves 5% pay cuts.
Rethink the bonus
Still, there are signs that some sort of sense is returning to remuneration strategy. It is particularly refreshing to hear the Commissioner of the Metropolitan Police say that he was disappointed that bonuses still featured as part of the remuneration of police. ‘Now is the time to get rid of them, as far as I'm concerned. They should never have been there in the first place.’ Sir Paul went on to say he did not think bonus payments motivated people to work harder and he warned they could be ‘divisive’ .
Fresh, realistic thinking about bonuses is long overdue, particularly in the public sector. Bonuses have never really fit in the public sector. Giving civil servants bonuses was all about encouraging public servants to think as if they were private sector employees. But notions of service, duty, quality, even – yes – sacrifice, mean different things in the public sector and private sector. By and large employees choose which of the two estates they wish to work in. Part of the deal of working in the public sector has always been a greater sense of giving something back, which has been consistent with less money, a more predictable career path, greater security during employment, and a greater sense of expectation for retirement. It’s also meant more transparency over earnings – and certainly none of this performance-related pay nonsense. If that turns you on there are plenty of roles in the other estate that might appeal. Confusing the two estates have given rise to all sorts of monsters, including civil servants earning two and three hundred thousand pounds a year plus a civil service pension connected to the same unnecessarily highly-charged power-unit.
In my experience, for some employers bonus schemes are not about reward or motivation, they’re just an excuse for not paying staff properly in the first place, or for not having proper staff management, appraisal and performance management policies. In addition, bonus schemes are too often introduced by those who are enthusiastic about them for the benefit of those who aren’t. Undoubtedly there are those who look forward to the prospect of earning more money as a direct consequence of their efforts, and who are prepared to sacrifice base salary to earn this right. And there are roles – certainly sales roles – where bonuses can work very well. But such roles, and such individuals, in my experience, are in the minority, even in the private sector. Not to be excited by the prospect of a bonus let alone motivated to change how you work in the office as a consequence, are not badges of the irredeemably stupid – as too many overly-excitable bonus- enthusiasts are inclined to think; rather they are characteristics of individuals who want other things from their work and who look to fit their work into their lives in different ways.
A return to sanity
As 2010 matures let’s hope that, despite the inevitable wobble, sanity continues to characterise labour relations in difficult times – but let’s hope that sanity begins to return to some aspects of remuneration strategy that have suffered from all sorts of forms of collective madness over the last few years.
[1] www.guardian.co.uk/business/series/guardian-executive-pay-survey-2009