The majority of UK companies are wasting money by not having a documented reward strategy in place, according to new research carried out by leading reward provider, Thomsons Online Benefits.

Less than one in three companies (29.37 per cent) have a documented reward strategy. Unsurprisingly this means that HR departments struggle to implement changes to their reward strategy with around half of companies (45.08 per cent) reporting difficulty in obtaining the budget, and a third (35.04 per cent) claiming they lacked the ability to measure the success of new reward initiatives. More than four out of ten companies claimed that they couldn't even report on their total reward costs or that they didn't know whether they could.

These findings were among a number of insights revealed in the fifth and the UK's largest reward survey “Employee Rewards Watch”, in which 755 firms took part.

Other key findings for 2008 include:

Reward Strategy

Less than one in three respondent companies (29.37 per cent) have a documented reward strategy with around a third having either no reward strategy (35.45 per cent) or a strategy that is not documented (35.19 per cent).

  • Three quarters of companies (76.28 per cent) determine their reward strategy at global head office level.
  • Respondents reported a wide range of objectives in relation to their reward strategy, with the majority citing the need to attract and retain talent (81.35 per cent), to align reward practices with business goals/strategy (69.47 per cent), to drive better business performance (65.57 per cent), and to drive better individual performance (60.86 per cent).
  • The majority of respondents (63.19 per cent) believe that their reward strategy is effective in meeting these objectives. However, around a third of respondents reported that their reward strategy was either not very effective (23.11 per cent) or that they didn't know whether it was or not (8.59 per cent).
  • The issue most commonly reported in relation to respondents reward strategy is escalating costs to remain competitive (46.93 per cent). Around a third of respondents also reported that their reward strategy was not valued by employees (36.27 per cent) or not well communicated to them (36.07 per cent).

Communication

  • The biggest issue respondents reported in relation to their employee benefits was that they were not well communicated (reported by 43.0 per cent).
  • Just less than three out of ten respondents offer total reward statements either on the web (16.03 per cent) or on paper (13.48 per cent) which represents more than a six per cent increase over 2007. Another third (34.33 per cent) plan to implement them.
  • The benefits cited by the majority of those who had implemented total reward statements were that it improved understanding of both their reward package (62.50 per cent) and the value of their reward package (57.21 per cent). More than one in ten respondents stated that it had reduced the number of benefit queries to the HR team (18.27 per cent) and improved employee retention / turnover rates (11.54 per cent).

Administration

  • The most common method of administering benefits is still a paper based system run internally (44.11 per cent). However, this year has seen a near twelve per cent increase in the numbers using web based employee benefits software to 20.71 per cent.

Flexible Benefits

  • Since the inaugural Employee Rewards Watch survey in 2004 the number of companies who have implemented flexible benefits has increased from 5 per cent to 23.91 per cent.
  • More than a quarter of respondents (25.27 per cent) who are considering implementing flexible benefits plan to implement within a year.

Employee Benefits

  • Nearly four out of ten respondents (38.58 per cent) do not know how much they are spending on their employee benefits, which represents a seven per cent improvement on last year's research.
  • Over a third of respondents (35.60 per cent) believe that their employees do not sufficiently value the benefits provided to them, with only a handful (4.54 per cent) believing that their employees highly value them.

Pensions

  • The majority of respondents (54.09 per cent) asked claimed that the introduction of compulsory employer pension contributions at three per cent would have no effect on their organisation. However, fears that compulsory pensions may negatively affect the jobs market seem unfounded with only a handful of respondents claiming they would reduce employee headcount (0.61 per cent) or implement a recruitment freeze (0.15 per cent).
  • When asked whether the introduction of compulsory employer pension contributions would resolve the pensions crisis, around six out of ten respondents (64.24 per cent) did not think that it would.
  • The fears of employers decreasing their existing pension contributions in line with the introduction of compulsory pension contributions so called “levelling down”, are not borne out by respondents with just 0.61 per cent planning to take this action. The majority of respondents (63.64 per cent) stated that they would keep their contributions at the same level.

Salary Sacrifice

All UK respondents with benefits in place were asked whether they had implemented any salary sacrifice options. The majority had done so (67.58 per cent), with a further 13.64 per cent intending to in the next year. This represents a dramatic increase (more than 27 per cent) in the take up of salary sacrifice benefits over the last two years.

Michael Whitfield, Chief Executive Officer of Thomsons Online Benefits, comments: “Employee Rewards Watch has become a benchmark publication for the HR industry documenting all the key trends and developments in the reward arena. These findings bear out what we hear when we are out talking to the UK's leading employers, namely that there is insufficient attention paid to measuring and evaluating reward spend.”

“We fervently believe that what you don't measure, you can't improve. Reward is one the largest costs in any business and in the increasingly difficult economic climate HR professionals can expect to be put under increasing pressure to demonstrate that this spend is being properly directed. As well as ensuring that they have a properly documented strategy they must get a real time handle on what they are spending and where, so they can evaluate which elements are working and where they could achieve more bang for their buck.”