The coalition appears to be in confusion over regional pay
This year’s party conferences highlighted the problems of policy co-ordination in a coalition government. The Conservatives in Manchester reinforced the drive to local pay management in the NHS, while Liberal Democrats voted against the proposals for regional pay.
You can be forgiven for being as confused as the coalition’s pay policy. Think-tank Policy Exchange claims localisation will save £6 billion, setting public sector pay levels closer to the private sector. But the New Economic Foundation thinks regional pay would cost £10 billion, through job losses and staff migration to higher-paid areas.
The private sector trend has been towards centralisation, standardisation and globalisation, driven by improved HR information systems, governance concerns and cost-efficiencies. Greater central reward expertise can also be developed. Cutting the post of government employment and reward director in the Cabinet Office has hardly helped policy co-ordination.
But cost, not competence, explains the public sector pay freeze, with the estimated £3.3 billion NHS payroll savings by 2014 matching the cost of implementing the coalition’s NHS reforms. But a key problem with devolving pay will be that 82% of NHS employers lack a reward specialist.
Aon Hewitt’s latest survey for the American Benefits Council illustrates the trend, with 70% of multinationals leveraging their global scale to reduce costs, and only 20% being satisfied with their global benefits management. Yet the most common reason for providing benefits was to be competitive in local markets. As Peter Reilly and Tony Williams point out in their book Global HR: Challenges facing the function, there are also problems with the ‘dirigiste’ reward approach.
First is a lack of flexibility to reflect local market needs. The head of HM Treasury recently voiced fears that the pay freeze may be leading to a loss of key staff in London, where unions fear a haemorrhaging of nursing talent. Second, HR becomes a corporate enforcer of rules, not a rusted partner to the business, and local management resistance may turn into outright opposition.
So, reward professionals need to determine the right mix of centralisation and de-centralisation for each employer, rather than, as one compensation director told me, being ‘hopelessly local or mindlessly global’.
As cross-cultural expert Geert Hofstede says: “The survival of mankind depends on the ability of people who think differently to act together.”
Advice that the coalition might do well to reflect on, as well as sorting out its pay policy.
Follow Duncan Brown on Twitter: @duncanbHR