Pension costs are now a bigger concern than attraction and retention

The latest Reward risk survey from the Chartered Institute of Personnel and Development (CIPD) reveals that ‘attraction and retention of key employees’ has fallen out of the top ten list of concerns for the first time since the survey began in 2010, while ‘increasing pensions costs’ has crept in to the top ten for the first time.

The top concern remains, for the second year running, that ‘employees don’t appreciate the value of the total reward offering’, and ‘reward not engaging employees’ has moved to second place from seventh last year. Meanwhile, employee attraction and retention have moved from 1st and 6th places in 2010, and 9th and 10th places in 2011, to 11th and 12th in 2012. .

Other ‘reward risks’ that have moved up the table of concerns in the past year include:

  • ‘Employees don’t understand performance and behaviour requirements’ (moved from sixth place to fourth place)
  • ‘Incentives not motivating’ (moved from eight place to fifth place)
  • ‘Inability to communicate desired performance and behaviours’ (moved from eleventh place to seventh)
  • ‘Increasing pensions costs’ (moved from thirteenth place to tenth place).
  • When asked to consider which reward risks would be of most concern in the next couple of years, however, a different picture emerged, with attraction and retention ranking first.

Charles Cotton, rewards adviser at the CIPD, comments: “It’s encouraging to see reward professionals thinking more strategically about rewarding the behaviours and performance that contribute to business success, but attracting and retaining key talent is always crucial – in the good times and the bad. Even in a stagnant labour market, key talent can find opportunities to move onward, so reward professionals shouldn’t be too complacent while they wait for the economy to eventually pick up.

“With automatic pension enrolment kicking off in the UK, it is not surprising that pensions cost has become a top ten risk that needs to be managed nor that it is predicted to be the second highest reward risk in the next couple of years. What is surprising, however, is that the underperformance of pension funds is still not regarded as a major risk for many of our respondents. Even defined contribution plan sponsors should review the performance of the funds, especially their defaults, if they and their employees are going to derive a good outcome from this workplace benefit.

“Nevertheless, if the top risk among our respondents remains that ‘employees do not appreciate the value of the total; reward offering’, then HR needs to ask what is doing to manage this concern? What reward communication and education strategy does the organisation have in place, how is the strategy being implemented, what evaluation and assessment tools are in place to gauge effectiveness and highlight dangers and opportunities? HR and reward professionals need to recognise that there are many inherent risks in how employers reward and recognise their employees. The profession must act strategically and collaboratively to identify the various ways in which a poorly designed or implemented reward strategy, coupled with external factors such as changes in the economy or regulatory framework, could put their organisation at risk. Once these risks have been identified, HR must also assess the organisation’s appetite for risk in the short and long term and actively manage or mitigate these risks accordingly.”