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Public sector employers fail to implement measures to reduce reward spend, Hay Group report shows

Public sector organisations have not implemented effective measures to reduce reward spend, despite a potential risk to jobs, according to new research from global management consultancy, Hay Group.

With the Government imposing cuts of 20% across the public sector and wages accounting for up to 80% of budgets, reward packages are a critical area of focus for achieving cost savings.

Hay Group's research shows serious action on reducing the public sector total pay bill is yet to be taken.

Public sector organisations have made some small efficiencies in their reward programmes. However, to successfully reduce their cost base and bring spend under control, leaders must tackle the real issue of employee reward expenditure. None of the organisations interviewed in the course of Hay Group's study plan to implement an imposed salary cut, only 1% will force unpaid leave, and just 2% intend to implement shorter working hours.

Similarly, just a fifth (21%) have plans to freeze automatic annual pay increments. Therefore, in the other 79% of cases, organisations may actually see their wage bill rise this year. The government has cut redundancy costs in the civil service and it is an obvious early step for other public sector employers. While 29% have already made changes or will change, over half (59%) have no plans to change redundancy pay.

Despite other changes to employment terms, public sector organisations have been quicker to halt performance related payments. Over a quarter (26%) are considering, will or have imposed freezes on performance dependent rewards.

Mark Thompson, reward consultant at Hay Group, said: "Public sector leaders need to take more significant steps to reduce people costs within their organisations if they are to contribute to the deficit reduction and avoid job losses. "Headcount cuts are not the only option, but with the public sector 'jobs at risk' figure expected to reach 330,000, it is both worrying and surprising that more organisations are not looking at the full range of alternatives.

"Public sector leaders should take the opportunity afforded by budget cuts to make changes. They should consider some of the strategies successfully adopted by the private sector, including pay freezes or reduced working weeks. Better still, they should combine such short term measures with a longer term view and make the pay system more flexible and performance related. At the moment, we are seeing neither.

"However, in making cost savings, organisations must strike a difficult balance - between introducing strong efficiency measures, maintaining the morale of the retained workforce and ensuring the future competitiveness of the sector.

"At a time when pay for results should be encouraged, we are seeing over a quarter of public sector organisations freezing these payments or actively considering doing so. Public sector leaders must think again.

"Financial recognition for specific achievements fulfills a dual purpose. It can drive results in the organisation's focus areas - for example cost saving - whilst also helping to galvanise a workforce that is feeling stretched and insecure, delivering a far greater return than automatic marginal rises in base salary."

Hay Group's Public Sector Employment Conditions study was conducted amongst pay and reward professionals from 85 public sector organisations, including central government, local councils, universities, police, healthcare and third sector.