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					PUBLIC/PRIVATE APPROACHES TO PAY & PROGRESSION

Background
1. During 2005 the OME worked jointly with the Chartered Institute of Personnel and
Development (CIPD) to examine approaches to pay progression in the public and
private sectors. The first stage of this work was a scoping study carried out by
Incomes Data Services that identified a range of different approaches using a series
of case studies. This work proposed a range of areas that could be further examined
using qualitative techniques. Accordingly, OME and CIPD agreed to include a set of
questions in the annual CIPD Reward Survey aimed at getting further data on pay
and progression arrangements in the public, private (manufacturing and services),
and voluntary sectors. The full survey report is available on the CIPD website,
www.cipd.co.uk/surveys, but, subject to caveats in paragraph 2 below, this paper
sets out some more detailed findings that may be of interest.


2. The survey was carried out over the period July to October 2005. Replies were
received from 529 organisations, 350 from the private sector, 56 from the voluntary
sector, and 121 from the public sector. Analysis is available by broad occupational
group (senior management, middle management, technical & professional, and
clerical & manual), by sector and by organisation size. These definitions are very
broad; the responses do not represent a structured sample; and not all organisations
answered every question, so in some cases the sample sizes could be comparatively
low. Also, where the analysis compares public sector practice with that of large
employers generally, this latter will include some of the public sector respondents.
Finally, the public sector picture is blurred when, for example, there have been
replies from several bodies covered by the same national arrangements (e.g.
individual local authorities or NHS Trusts).


How Organisations Manage Pay
3. Chart 1 outlines the overall responses on how the organisation manages base
pay. What is immediately obvious is the comparative prevalence of the use of pay
spines and narrow grades in the public sector, whereas the emphasis in the private
sector areas is on individual pay and broadbands. This chart suggests a greater use
in the public sector of pay systems built around a high degree of control and
certainty.




                                               1
                             Chart 1: How Organisations Manage Base Pay 2005


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              Manufacturing         Private Sector Services    Voluntary & Not for           Public
                                                                      Profit

            Individual Pay     Broadbands    Narrow Grades      Pay spines    Job Families   Career Grades


4. There is some variation by occupation group (Chart 2): public sector
organisations are more likely to use individual pay (38%) and broad bands (16%) for
senior managers than they are for the other groups, but these are still below private
sector practice (around 52% and 32% respectively), and there remains a reliance on
pay spines (37% compared to just 1% in the private sector).

                                  Chart 2: Public Sector Pay Practice 2005


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            Senior Management         Middle Management       Technical/Professional     Clerical/Manual

            Individual Pay     Broadbands    Narrow Grades      Pay Spines    Job Families   Career Grades


5. Comparison by organisation size (Chart 3) confirms the disparity, with public
sector practice well out line with that in organisations employing over 1000 and 5000
employees – in fact, the gap is likely to be even wider as the size groupings will
include the typically larger public sector employers.




                                                      2
                    Chart 3: How Organisations Manage Base Pay 2005 (By Size)


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             0-49            50-249        250-999      1000-4999       5000+                       Public Sector

            Individual Pay    Broadbands       Narrow Grades     Pay spines     Job Families     Career Grades


6. The number of pay grades/bands is another indication of the degree of control
within pay systems, and here again public sector practice is different from that of the
private sector (Chart 4). The proportion of public sector organisations with six or
more grades/bands is three times that of the private sector; around half of public
sector bodies have six or more grades/bands for technical & professional and clerical
& manual staff, over twice the proportion in private sector areas.

                         Chart 4: Percentage w ith m ore than 6 Grades/Bands


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              Manufacturing           Private Sector Services   Voluntary & Not for            Public Sector
                                                                       Profit

                 Senior Managers        Middle Managers     Technical & Professional    Clerical & Manual


7. Charts 5 & 6, which show the first and second most important factors determining
pay, might explain the greater emphasis on control in the public sector. In the private
sector these factors are over-whelmingly market rates and ability to pay. In the
public sector, the most important factor is job evaluation (reflecting the greater



                                                        3
emphasis the public sector places on job evaluation pay databases, but possibly also
as a proxy for equal pay), followed by collective bargaining – a factor that hardly
registers in the private sector. This difference in pressures may also account for
some difference in how organisations measure the market.

                        Chart 5: Most Im portant Factor Determ ining Pay


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             Manufacturing     Private Sector Services   Voluntary & Not for          Public Sector
                                                                Profit

                      Market Rates   Job Evaluation   Ability to Pay   Collective Pargaining



                    Chart 6: Second Most Im portant Factor Determ ining Pay


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             Manufacturing     Private Sector Services   Voluntary & Not for          Public Sector
                                                                Profit

                      Market Rates   Job Evaluation   Ability to Pay   Collective Pargaining


8. Private sector organisations generally place most emphasis on national
pay surveys, local pay surveys and job function surveys. The public sector
uses similar sources but to a substantially lesser degree, placing greatest
weight on job/internet adverts (in line with private sector service practice) and
job evaluation pay databases (in line with manufacturing practice).




                                                 4
Pay Progression
9. Given its greater use of pay spines and narrow bands, it is not surprising that a
much higher proportion of employers in the public sector have progression within pay
ranges/scales (Chart 7) than is the case in the other sectors.

                     Chart 7: Em ployees Progress Within a Pay Range/Scale


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             Senior Managers           Middle Managers        Professional &            Clerical & Manual
                                                                Technical

                Manufacturing    Private Sector Services   Voluntary & Not for Profit     Public Sector


10. Similarly, given the higher weight the private sector puts on performance and the
market, the criteria used to determine progression differ to those used in the public
sector (Chart 8).

                          Chart 8: Criteria Used to Manage Progression


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              Manufacturing      Private Sector Services    Voluntary & Not for           Public Sector
                                                                  Profit

              Individual Performance          Competency                   Service
              Market Rates                    Organisational Performance   Skills
              Team Performance


11. Progression in the private sector is generally driven by a combination of
organisation, team and individual performance, skills and competencies, and market
rates. In the public sector (and the voluntary sector) service is the main criterion,



                                                    5
followed by individual performance, with the other influences all being relatively
unimportant. Even for senior managers the differences are stark: around 90% of
private sector organisations base progression on individual performance, nearly 50%
on organisational performance, and over 40% respectively on markets rates and
competency. Fewer than 5% use service as a criterion. The equivalent figures in the
public sector are 54%, 9%, 14% and 21%. In 45% of public sector organisations
service is a determinant of pay progression.


12. In around half of those organisations that have pay ranges there is an
assumption that the ‘satisfactory’ performer will progress to a target rate. The
proportions are somewhat higher in the public sector at all occupational levels,
including senior management (Chart 9).

                      Chart 9: Satisfactory Perform ers Progress to Target


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             Manufacturing       Private Sector Services   Voluntary & Not for        Public Sector
                                                                  Profit

               Senior Managers     Middle Managers     Technical & Professional   Clerical & Manual


13. This target is likely to be a much higher proportion of the pay range in the public
sector (Chart 10), where the target is predominantly between 81% and 90% of the
range; this is also much higher than typical for large employers as a whole.




                                                   6
                                     Chart 10: Target Rate as Percentage of Range


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                                                    41 to 50           81 to 90

14. For that reason there is much less scope in the public sector for progression
above the target rate (Chart 11). Between 70% and 90% of organisations in the
private sector have scope for progression above the target rate, compared to around
30% in the public sector, and 60% for large employers generally. These proportions
are substantially lower for senior managers, but still ahead of the public sector.
Interestingly, large company practice is more or less the same for all the occupational
groups.

                                Chart 11: Scope For Progression Above Target Rate

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              Manufacturing   Private Sector   Voluntary & Not   Public Sector                      1000 - 4999     5000+
                                 Services         for Profit

                                Senior Managers    Middle Managers   Technical & Professional   Clerical & Manual


15. How employees progress above target also varies by sector (Chart 12). The
emphasis in the private and voluntary sectors is on the individual’s attainment of new
skills and responsibilities, the existence of zones to enable recognition of higher



                                                                 7
performance, and career development. These general profiles are very much
reflected in those of the larger employer groups. Overall, consolidated bonuses are
rare. In the public sector there is a greater bunching of the factors, which although
similar in their order of importance are of a different profile to the other sectors.
Thus, there is less emphasis on skills, performance and career development, with a
bigger emphasis on bonuses (especially consolidated bonuses).

                              Chart 12: How Can Em ployees Progress Above Target


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                        New skills/responsibilities          Higher performance zones   Career development
                        Non-consolidated bonuses             Consolidated bonuses


16. Movement to target is much slower in the public sector, taking four years or more
in over 70% of organisations (Chart 13). The equivalent proportion in manufacturing
is around 45%, and in services is around 30%. Public sector practice is also not
typical of large employers generally. As expected, technical staff usually takes the
longest to target. It is surprising, however, that a large majority of public sector
organisations require clerical and manual staff to serve four or more years to reach
the target rate in their grade.




                                                                      8
                              Chart 13: Percentage Taking 4 Years or More to Target


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                        Senior Managers          Middle Managers          Technical & Professional   Clerical & Manual


17. The scope to recruit new staff above target is also much more restricted in the
public sector (Chart 14), perhaps reflecting the evidence that target rates in any
event tend to be close to the range maximum. The private sector is more than twice
as likely at all occupational levels to allow recruitment above target, and bigger
employers generally allow greater flexibility than does the public sector.

                                    Chart 14: New Staff Recruited Above Target?


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                        Senior Managers          Middle Managers          Technical & Professional   Clerical & Manual


18. In terms of pay policy, the intended market position does not vary much by either
sector or occupation – around 70% aim to pay at the market median on base rates,
and the most of the remainder at the upper quartile. There is a slight tendency for
the proportion aiming to pay at the median to increase (and the proportion aiming at
the upper quartile to decrease) at lower levels in the occupational structure. There is



                                                                      9
more difference in total cash policies, with the private sector slightly more likely to
aim for an upper quartile market position.


19. The public sector is more likely than other sectors, and large employers
generally, to have retained the concept of annual general or ‘cost of living’ pay rises.
This may reflect the prevalence of pay adjustments elsewhere being based on some
measure of individual performance. Over 80% of public sector organisations have
annual general or cost of living increases, compared to around 55% to 65% in
manufacturing, and just over 40% in private sector services (Chart 15).

                            Chart 15: Em ployees Receive Annual General/COL Pay Rise


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                        Senior Managers          Middle Managers       Technical & Professional   Clerical & Manual


20. More to the point, in nearly 90% of public sector organisations these awards are
additional to pay progression increases, compared to 60% in manufacturing and 40%
in private sector services (Chart 16).




                                                                  10
                            Chart 16: General/COL Pay Rise Additional to Progression


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                                                                      Yes   No


Conclusion
21. Although these are initial results they do point strongly to the adoption in the
public sector of ‘control’ pay structures as opposed to the ‘flexible’ systems used
more widely in the private sector. This comes through in a number of ways, for
example, the importance given to length of service, the time taken to reach target
rates, and the scope for additional progression. The big issue seems to be why
public sector pay policy should adopt these approaches. Five key influences may be
relevant:
                       Affordability. Financial control in the public sector seems to be the
                        main determinant of pay policy (Chart 17).                      In the private sector
                        finance is doubtless also an issue, but the starting point is more likely
                        to be a clear assessment of what the organisation is trying to achieve
                        and a much closer alignment of reward strategies with those
                        objectives.




                                                                  11
                                Chart 17: Most Im portant Factors Determ ining Pay Aw ard - 2006


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                                                         Not for Profit




                                                                               Public Sector
                                        Private Sector
                Manufacturing




                                                                                                                       5000+
                                                                                                       1000 - 4999
                                                         Voluntary &
                                           Services




            Organisation Performance                             Inflation                     Going Rate of Aw ards
            Market Rates                                         Recruitment & Retention       Union/Staff Pressures
            Level of Government Funding


                       Bargaining structures. Public sector respondents saw collective
                        bargaining as a key influence on pay whereas it hardly got a mention
                        from private sector respondents. This is hardly surprising given the
                        low level of union density in the private sector (19%) compared to the
                        public sector (60%).
                       Trust. It is possible that those responsible for public sector pay
                        systems do not trust public sector managers to manage pay
                        responsibly (experience with devolved pay will not have helped!).
                        Rigid pay structures reduce pay flexibility and make it more
                        predictable and controllable.
                       Flexibility. The public sector often lacks the flexibility to do things
                        differently, for example, by reducing headcount to focus pay on high
                        achievers.
                       Equal pay. Finally, equal pay concerns are very real in the public
                        sector and mistakes are very expensive. This probably explains the
                        importance given to job evaluation as a determinant of pay, and the
                        existence of quite rigid methods of pay progression.




Research and Analysis Group
sp/November 2005




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