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Employees unclear of link between performance and pay

Many employees don’t understand how their salary links to their performance, a recent CIPD Employee Attitudes to Pay and Pensions survey has found.

Only just over half (51%) of workers surveyed said their organisation had explained to them the rationale behind its 2014 pay decisions. 

More than three quarters (76%) of employees said they hadn’t been told what they needed to achieve to get a pay rise, and only a quarter (26%) said their employer is giving them the training they need to increase their earnings in the future.

CIPD performance and reward advisor Charles Cotton said that employers must consider the return on investment for the business of better explaining the rationale behind employees’ pay. 

“Our research suggests that employees are more likely to be satisfied with the outcome if the organisation takes the time to explain the reasons behind it,” he said.

“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.” 

“These employers are likely to grow and prosper at the expense of firms that are unable or unwilling to communicate about staff pay.”

The number of employees that feel their pay rises do not reflect their performance at work has risen by 4% since 2013 to 23%.

Cotton added: “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.”

Meanwhile PwC analysis of FTSE 100 remuneration has found that remuneration here is, by contrast, becoming more transparent. Two-thirds (65%) of the companies PwC surveyed now disclose financial bonus targets for the year just ended, and nearly half (43%) give full details of threshold, target and maximum performance levels required to earn bonuses.

Tom Gosling, head of PwC’s reward practice, said: “Companies are improving disclosure of bonus payments and targets in response to investor demands. We expect this trend to continue over the coming years. Investors are now being given a very full picture of the link between pay and performance.” 

The analysis also found that 45% of companies froze chief executive salaries while only 2% of salaries increased.

Gosling added: “Companies can still pay enough to attract talent, but the highest levels of pay are getting tougher to earn, with an improved link between pay and performance.”