To commemorate our tenth anniversary, we unveil exclusive research polled from the UK’s most comprehensive benefits database that tracks 1.35m staff. It shows that comp and bens practitioners are making massive strides, says Vicki Taylor
Basic salary plus all contract-agreed bonuses
Between 1998 and 2006, salary practice in compensation and benefits (C&B) roles has changed dramatically. In this time, C&B salaries have risen by approximately 40%. In comparison, the rest of HR has increased by 30%.
It is at the top end of C&B where the biggest salary difference has been seen, with C&B directors’ basic salaries increasing by 54% on average and their total cash packages rising by 73% over this period.
These figures indicate the increase in the recognition of C&B as an important sub-function of HR, as well as a continuing shortage of high-quality candidates in the market.
More recently, between 2004-2005, base salaries for C&B roles have increased by 4%. From 2005-2006, the increase was 8%. This is considerably more than the overall average in HR over the same period, which is 3.5% per year for both years (about the same as the overall average increase in base salary for all job families).
What is also noticeable is that there were far more C&B jobs around by the end of 2006 than in 1998; more than three times as many overall, which clearly reflects the increase in the profile of C&B as an overall function.
Robert McPherson, reward information consultant, Hay Group
Total cash: fixed plus all variable pay/bonuses
What is also interesting is how the range of salaries paid has changed since 1998, particularly with regards to total cash, and specifically at the C&B director level. In 1998, 50% of C&B director’s total cash salaries were within a 16% range, whereas in 2006, the same proportion of C&B directors were paid within a 40% range.
This again highlights that demand for high-quality C&B directors is outstripping supply and, as a result, organisations have to pay outside their normal salary ranges to attract the best candidates. It is also evidence that C&B director roles are becoming increasingly more incentivised as they become closer to overall business strategy.
Robert McPherson, reward information consultant, Hay Group
Changes in pay/bonuses in comp & bens jobs
A comparison of the changes between 1998 and 2006 in fixed and variable pay/bonuses of compensation and benefits practitioners.
Summary of pay and perks mix
Breakdown of total remuneration, including the pay/bonuses and perks, in compensation and benefits roles between 1998 and 2006:
A sizeable proportion (71%, or the equivalent of £71,000) of the average compensation & benefits director’s base salary is provided through benefits and incentive schemes. At the administration level, this figure is 23% of which only 1% is awarded as additional incentives. On average, 42% of a compensation and benefits director’s base salary is awarded as additional incentives, whereas at the next level down (compensation and benefits manager) the figure drops to 10%. This is further evidence that compensation and benefits director roles are more heavily incentivised to reflect their impact on overall business performance.
There have also been changes in company and employee attitudes towards flexible working over the last 10 years, which is now offered by almost half (45%) of organisations in the UK. For example, in 2006, 21% of organisations reported that their employees have specific requests with regards to flexible working, compared to 13% 10 years ago. Even in the last 12 months, 18% of organisations have made changes to their flexible working policy. These changes are the result of legislation combined with employee demand in this area.
Flexibility around benefits has also increased since 1998, with 73% of organisations now providing employees with choices concerning the level of benefit. Again, this is still on many organisations’ agenda, with 9% making changes to their flexible benefits policy in 2006.
Robert McPherson, reward information consultant, Hay Group
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The reward function is now considered to play a significant role in a high number of organisations. This is reflected in the commensurate salary and compensation packages that go hand in hand with working in a reward team.
Research by the Hay Group UK (see above) shows that compensation and benefits professionals are awarded a premium compared to other HR roles. Between 1998 and 2006, salaries for compensation and benefits positions increased by approximately 40% compared with 30% across all other HR roles. A big jump was seen between 2005 and 2006 alone, with base salaries for compensation and benefits positions rising by 8% in this period, compared with a 4% increase between 2005 and 2004.
Richard Snook, an economist at the Centre for Economics and Business Research (CEBR), explains that the acceleration of reward salaries in the last two years has bucked the overall trend for wage growth and outstripped inflation. “The rise in inflation combined with slowing wage growth since the millennium [means that] the real value of wages [in most sectors] has actually barely been increasing in the last couple of years,” he says.
Data collected annually by the Chartered Institute of Personnel and Development (CIPD), for its Personnel rewards survey in conjunction with Croner Reward, shows a similar pattern to Hay Group’s figures. Its 2006 survey, for example, found that compensation and benefits managers received an average salary of £49,700, compared with the £41,000 paid to personnel managers. This equates to a 21% premium for reward roles. The survey also found that compensation and benefits professionals are able to attract higher bonuses – on average they can expect to receive £6,210 compared with the £4,387 average for personnel managers.
The higher salaries paid to compensation and benefits specialists can be attributed to a number of factors, including the skills shortage in the field, the ever-increasing complexity of reward, and a growing acknowledgement by employers of the role the function has to play in organisational change and delivering business strategy.
Peter Christie, director of reward at Hay Group, explains: “Twenty years ago, HR people were typically quite broadly-based generalists. They would do a bit of employee relations, a bit of training and development, a bit of reward, a bit of HR support, and so on. Now there is a much greater separation of the different activities into centres of excellence.
The realisation that the one-size-fits-all model of reward will not engage employees to best effect has led to a growth in the range of perks on offer, including executive compensation, variable pay, employee share plans, tax-efficient benefits, total reward and flexible benefits schemes, which coupled with legislative changes, such as the recent overhaul of pensions regulations, give reward specialists even more to keep tabs on.
“The changes that have taken place mean reward people now need a much, much more complex and higher-level set of competencies to be effective in their role and there are fewer people who have got those competencies. Therefore, it does become a straight supply and demand equation that is in play, and this has [increased] the price for top people,” adds Christie.
And as Duncan Brown, a director at PricewaterhouseCoopers and former assistant director general at the CIPD, points out, reward specialists also require good interpersonal skills. “People can get very hot under the collar about their reward and you need to be able to handle that,” he explains.
Over the course of his career, Richard Higginson, head of reward at wealth management firm JS&P Towry Law, has witnessed a number of changes within the reward function. He explains that, when he first started out, the prime concern for reward professionals was a question of how much to pay people plus benefits such as pensions, life assurance and medical cover. “It is now a complete spectrum, which includes things such as learning and development, the working environment [and] employees’ health and wellbeing. I have responsibility for pensions, insurance plans [and] flexible benefits,” he explains.
Paul Bissell, head of rewards at Nationwide, agrees: “Once upon a time, if you offered a halfway decent pension scheme, a few days holiday, base pay and a bonus, that was it. The package itself is more complex [now] and more flexible, there is more legislation [so] understanding that complexity and being able to produce a simple, effective and desirable package that has value to the individual and extracts value for the organisation is the real skill of remuneration people.”
Headhunters who have worked in the HR sector over the last decade have been well positioned to witness the increasing importance of the reward function and the simultaneous boost to candidates’ remuneration packages. Alison Hughes, head of MEC Reward at executive search company Mallon Errington Consulting, explains reward positions are challenging to fill, particularly if they are international roles. As a result, an additional premium on top of the 15%-20% that reward specialists already leverage over HR generalists can often be added to an international specialist’s package. “I suppose there will come a time when there are more people with international expertise on the market, so perhaps the premium for the international expertise might disappear, but it is currently a candidates’ market,” she says.
Higginson, who was formerly director of international benefits at the pharmaceutical company GlaxoSmithKline, agrees. “It takes a certain sort of person who wants to go to the trouble of learning about reward systems in other countries because every tax regime and social security system is different,” he explains
Despite the short supply of reward specialists, candidates are not necessarily able to dictate the base salary they will receive because organisations usually have an internal pay structure that a role must fit into. If a candidate is sitting on a couple of offers they may be able to play one company off against the other, although it is in additional pay such as bonuses that they can typically expect to negotiate upwards. “I have seen guaranteed bonuses which might be 50% of base salary in year one, sometimes up to 100% of base salary,” Hughes adds.
These guaranteed bonuses typically start for employees at reward manager level. Below this a recruiting employer will usually buy out any bonus a candidate is expecting from their existing employer, rather than offering a sign-on bonus.
It is not just bonuses that are more elusive lower down within the reward function. In recent years, pay increases for staff below management level have not been as great as those for positions further up the chain. “Directors have benefited much more than the rank and file. They have got a 73% increase over the 1998-2006 priod, compared with 26%,” comments Snook, looking at Hay Group’s data.
Steven Grundy proprietor of SG Associates, an executive search consultancy for professional services, including reward positions, believes this is because a wider breadth of skills is required for roles higher up the reward function. “[Some] people get stuck at the level of £40,000 because although they are very good at managing data, they don’t have the other skills that [are] necessary to move on to another role.
“For anyone who wants to make a career in compensation and benefits, if they have the right skills, they have a very bright future,” he adds.
Where candidates have the right skills, Grundy has seen some benefits specialists commanding significant reward packages. He says that individuals in top compensation and benefits roles responsible for Europe, the Middle East and Africa (EMEA) can earn around £80,000 to £100,000 in base pay. A global head of reward for a large FTSE firm, meanwhile, can end up with a package worth up to four times as much.
“[They] might command a salary package similar to those as a partner in a big law firm. You are talking £300,000 to £400,000 as a package.” This would also include benefits such as share options and bonuses.
When it comes to other perks, such as company cars and healthcare, compensation and benefits professionals fare no better than the rest of the HR function. According to the CIPD’s aforementioned Personnel rewards survey 2006, a fifth of compensation and benefits managers and personnel management receive a company car with an average list price of £24,000 and an average 6% pension contribution from their employer. A further 40% of each group are entitled to private medical insurance, while 28% also have income protection.
Carole Bodell, managing director of HR International, part of Vedior Group, says: “Reward people wouldn’t necessarily get a bigger and better benefits package. I think they would see that as a bit inappropriate.”
So while compensation and benefits is a great place to be right now, reward specialists might be wondering how long the good times can continue. With the current shortage of skills, might it be feasible that more reward tasks will be outsourced to consultants?
Mark Quinn, a director in the performance reward practice at Ernst & Young, who is moving out of consultancy to join the in-house reward team with the Royal Bank of Scotland at the end of April, doesn’t think so. He believes the work that is outsourced to consultants has changed and is becoming evermore specialised, such as advising remuneration committees. “I think there is increased capability than there was ten years ago in-house so you don’t get the same kind of reward projects for consultants. If it were a case of designing a bonus programme, most FTSE-100 businesses would do that themselves, whereas ten years ago they would get their advisers to do it.”
While there has long been a view that consultants are paid more than in-house reward specialists, this too seems to be changing. “Historically, the view always was that consultants [are] paid more than people in industry, but I don’t think that is the case anymore,” he adds.
Brown agrees there has been much more fluidity between consultancy and in-house roles in recent years. “Traditionally, the view was that consultants were higher [paid]. When I was in consulting last, you would recruit someone with three or four years HR experience at a premium to get them in to the consultancy, but now you are seeing it the other way, with experienced consultants [moving] into line roles because the line roles are a lot bigger, more challenging and interesting,” he says.
When it comes to the premium currently placed on the heads of reward specialists, Brown admits it is a catch-22 situation. The CIPD has launched a reward certificate, which 150 people have already obtained, aimed at boosting the numbers of reward professionals in the HR arena. “On one hand it is great [if you] have got these skills and you can get the premium and, on the other hand, ultimately if there aren’t enough people to do a decent job, I am not sure that is great for the HR profession as a whole. That is why [the CIPD] has been trying to increase the supply.” Christie, meanwhile, anticipates that there could be even greater specialisation within the reward function in the future, such as the development of roles which focus solely on senior management and board-level remuneration.
In the meantime, reward specialists can continue to make hay while the sun shines and rest assured that they will be justly remunerated, particularly if they have the skills to reach the top of the reward team.
Case Study: Royal Bank of Scotland
Trevor Blackman, head of reward at the Royal Bank of Scotland, has worked in compensation and benefits for 20 years. “It has become a more specialist role. If I look back to when I first moved into it, a lot of it was around systems,” he says.
Blackman believes that industry has moved on from the idea that one reward package fits all. In addition, reward is now seen to play a much more strategic role within an organisation. “We are saying ‘how can we utilise reward to support business objectives’ and it is a key lever, not the only one, but it is a lever within the organisation that you can use to focus people on doing whatever it is you need them to do.”
As a result of this, and due to a skills shortage, Blackman believes reward specialists are able to command a higher salary, which is unlikely to change in the future. “I don’t think [reward] is something a lot of people think about when they enter HR so there is a limited [supply]. There is a shortage of training or development that you can do. There is nothing that is producing them.” Therefore, he concludes, it is largely up to employers to either develop their own reward talent internally or poach it from other organisations.