Briefing 83. Total reward in the NHS

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1 November 2011 Briefing 83 It is estimated that some NHS organisations spend over 20 per cent of their budgets on conditions of service payments and benefits. However, there is evidence that employees throughout NHS organisations do not understand or appreciate the true value of the employment package they are offered. For example, recent focus group activity carried out by the NHS Employers organisation has reinforced the outcomes of a survey by Mercer that only 40 per cent of NHS Pension Scheme members had a reasonably good understanding of the benefits of the scheme and that only per cent were realistic about their likely pension income. 1 Summary NHS organisations spend up to 70 per cent of their annual budgets on staffing. Both the NHS Pension Scheme and the terms and conditions package are among the most favourable on offer to UK employees. This in turn means they are also among the most expensive. In some cases, over 20 per cent of NHS organisations budgets are spent on conditions of service payments and non-pay benefits. Many NHS organisations are not making the most of their investment in these benefits, in particular by not promoting the entire value of their employment package to employees. NHS organisations offer a wide range of tangible and intangible rewards, which are very highly valued by employees. Total reward provides a means of capitalising on these benefits by setting out a compelling, rounded statement of the full NHS employment proposition. This Briefing recommends extending the annual benefits statement approach of illustrating employee benefits by adopting a total reward philosophy in NHS organisations. This approach can go a long way towards reinforcing the positive employment package that the NHS continues to provide, even in times of pay restraint and pension reforms, and will be helpful in addressing the HR challenges facing the NHS. Making people aware of the value of their employment package is not simply a desirable end in itself. The advent of increased competition in a liberalised, publicly-funded healthcare market will make it more necessary than ever before for the NHS to assert itself in the labour market. The liberalisation of the publicly-funded healthcare market will inevitably lead to some NHS organisations facing increased competition from the non-nhs sector. In such a competitive environment, NHS organisations will find themselves confronting significant labour market pressures. Feedback from chief executives suggests that some organisations are

2 already responding to considerable competitive pressure and they expect this to escalate in the near future. A number of non-nhs employers in the health sector have stated that their inability to offer final salary pensions hampers their ability to compete in the labour market. However, their reduced overheads directly contribute to their pricing structure, when compared with NHS organisations. This presents an opportunity for the non-nhs sector to improve their employment proposition considerably, for example, by enhancing rates of basic pay above those which they currently offer, while remaining very competitive generally. Therefore, improving awareness of the total value of the employment package will be a crucial element in NHS employers response to the emergence of new labour markets. From 2012, NHS Pensions will begin to provide each member of the NHS Pension Scheme with a personalised annual benefits statement. This will give Pension Scheme members a new awareness of their pension benefits that has not previously been possible. The NHS Pension Scheme is only one of a number of attractive benefits which NHS organisations make available to employees. Given the challenges facing the NHS, employers will Improving awareness of the total value of the employment package will be a crucial element in NHS employers response to the emergence of new labour markets. want to obtain the maximum return from the attractive pay and conditions, learning and development and working environment packages that are available to staff, by increasing their visibility for example, by introducing a total reward approach into the management philosophy. What is total reward? Traditionally, the intangibles in the employment package learning and development, career advancement opportunities, culture and working environment have been considered to be outside the reward arena. However, they have increasingly been recognised as an important part of the employment proposition. The Operating Plan for 2011/12 states:... NHS employers are encouraged to support maintenance of recruitment, retention, morale and motivation of staff by ensuring that they are aware of their overall pay and reward package and the benefits available to them. Explaining the make up of pay and reward provides an opportunity for employers to strengthen staff engagement by helping staff maximise the value of their reward packages to their own and their employers benefit... Total reward encompasses these intangible benefits and is a means of explaining to employees the total value of their employment packages. This approach is supported by the NHS Constitution, which states: High quality care requires high quality workplaces, with commissioners and providers aiming to be employers of choice... All staff should have rewarding and worthwhile jobs, with the freedom and confidence to act in the interest of patients. To do this, they need to be trusted and actively listened to. They must be treated with respect at work, have the tools, training and support to deliver care, and opportunities to develop and progress. Total reward statements Total reward statements detail to each individual employee the make up of their employment package. Organisations which have already adopted total reward provide statements in a variety of ways. The format of the statement can depend on 2

3 factors such as workforce composition, the extent to which every employee routinely has access to computers in the workplace, the extent to which the employment package varies over time (for example, in the private sector employees may participate in share schemes whose potential value depends on movements in share price), and so on. Most organisations make a choice between: paper or online statements periodic (usually annual) statements or real-time updates. In the case of the NHS, none of the available benefits require real-time updating to remain meaningful. NHS Pensions is currently working with a number of stakeholders, including the NHS Employers organisation, to put in place a pilot exercise to extend the scope of the annual benefit statement exercise. They will be contacting a number of NHS organisations who hold ESR data that is fit for purpose, to explore the feasibility of issuing total reward statements from summer Adopting a total reward approach Adopting a total reward approach would provide employers with an opportunity to better communicate the current employment package, improve awareness of its value, improve employee engagement and, ultimately, organisational performance. It would present NHS employers with an opportunity to demonstrate that, despite pay restraint and possible changes to pension contributions and subsequent benefits, they continue to offer a very positive employment deal. A total reward approach would also allow NHS organisations to differentiate themselves as employers by framing their employment offering in ways that are relevant to their employees, acknowledge the organisations priorities and chime with their particular ethos and culture. Ultimately, total reward enables greater ownership by employers in the NHS of reward and benefits, allowing them to communicate the value of both centrally determined and local elements of the employment proposition. The Hay Group s public sector total reward model There is evidence that, in the public sector, employees have high regard for intangible benefits. The Hay Group s total reward model for the public sector (see Figure 1) is particularly useful for employers in the NHS, as it highlights intangible rewards to a greater extent than many other total reward models and can be seen to build on the rights and pledges set out in the NHS Constitution. Recent developments in total reward At the time of writing, there are stirrings of a mood shift regarding total reward in the private sector, where total reward approaches have, to date, been most commonly adopted. Many total reward trailblazers, operating in buoyant commercial markets, focused on attractive marketing and ever more flexible benefit options. The recent recession and subsequent uncertain economic circumstances have called such approaches into question and are giving rise to moves towards a more straightforward communication style and a scaling-back of flexible packages. In the NHS context, we will wish to ensure that total reward focuses on better illustrating the value to employees of the current employment package. Communication should be straightforward and delivered at a reasonable cost. 3

4 Figure 1. The Hay Group s public sector total reward model Tangible rewards Quality of work Work/life balance Competitive pay and progression Good benefits Incentives for higher performance Recognition awards Fairness of reward Future growth opportunity Learning and development beyond current role Career advancement opportunities Regular feedback on performance Perceived value of the employee s work Challenge/interest Achievement opportunities Appropriate freedom and autonomy Workload Quality of work relationships Enabling environment Physical environment Tools and equipment Training for current role Sound IT/work processes Safety/personal security Supportive environment Recognition of life-cycle needs Flexible work and retirement options Security of income Social environment Inspiration/values Quality of leadership Public service values Promotion of diversity Organisation s reputation Risk sharing Recognition of achievements Dialogue, communication, consultation Moving to total reward in the NHS seven steps to success The NHS Employers organisation worked with the Institute of Employment Studies (IES) in early 2011 to explore the potential benefits to the NHS of adopting a total reward approach. The IES concluded that total reward is a prize worth having, and the two organisations developed a seven-step model for successfully introducing total reward into your organisation: 1. Review the external environment 2. Review the internal drivers 3. Indentify employees needs 4. Build the business case 5. Detailed design 6. Roll out 7. Monitor and evaluate 4

5 Before the first step, it is important to look at how you can help your organisation achieve each of the seven steps. We recommend that you nominate a project sponsor from the senior leadership team, who will take overall responsibility for implementing the total reward approach. We would also recommend establishing a total reward team to take the project forward. This team can fulfil a range of functions, from being a simple sounding board, through to taking responsibility for local communication of the project s outcomes. 1. Review the external environment Much of this work will already have been done or will be underway within your organisation. You should arrange for the total reward team to have access to all relevant data, management reports, forward plans and so on and arrange for the relevant senior managers to brief the team on the emerging business strategy. It is important at this stage to gather information on the relevant labour markets in which your organisation operates. A good deal of research at national level suggests that NHS pay rates and total employment packages are competitive in the market generally for comparable jobs. The NHS Employers organisation has reflected this in recent pay review body submissions. 2 Local research will help to establish whether the national trends are mirrored in your locality. 2. Review the internal drivers Identify the potential gains for your organisation of a total reward approach, including improving awareness among your employees of the total value of your employment package. The project may have longer term, related aims that may include ease of recruitment, reduced labour turnover and maintaining morale in difficult times. You may also wish to explore the potential staff engagement gains, both in the short term, through involving staff in the total reward team, and in the longer term, through increased appreciation of the extent of the employment offering. The Hay Group s total reward model is a useful checklist of total reward elements. How does your organisation fare against these? Are there any particular strengths and weaknesses? It is important to be truthful about these as they will be flushed out in dialogue with employees as the project advances. It is also important to be realistic and honest about whether or not any weaknesses are changeable. A good deal of research at national level suggests that NHS pay rates and total employment packages are competitive in the market for comparable jobs. 3. Identify employees needs Your NHS Staff Survey results provide insights into how employees feel about many of the individual elements of your employment offering. However, it can be informative and engaging to invite employees to comment on the current offering. This could be done through an open invitation to communicate with the total reward team, or through a series of focus groups to gather views. There is a great deal of value in empowering the total reward team itself to run these focus groups. At this stage, it is also very important to involve local trade unions in any discussions. There is some evidence that trade unions are likely to be wary of the total reward concept. However, total reward does not represent a move away from collective bargaining and can happily co-exist with national agreements. Adopting a total reward approach does not signal a change in the overarching reward strategy. To aid understanding and partnership working, you could invite the 5

6 trade union to be represented on the total reward team. 4. Build the business case Although introducing total reward need not have a major cost impact, it is useful to quantify the costs involved in its introduction, such as the time cost of the total reward team, and to offset these against the potential gains, such as improvements in staff engagement, increased awareness of the value of the employment package, impacts on staff retention and so on. Some of these may not be easily quantifiable in the first instance, but many of the impacts will be reflected in future Staff Survey results. 5. Detailed design Organisations that deliver total reward statements in collaboration with NHS Pensions will have opportunities to customise the content to reinforce key corporate messages. Please think about the key themes you wish to highlight to employees and consider any of the messages that have been fed back by the total reward team. If any organisations are not able to provide total reward statements through NHS Pensions, for example because of data quality or data availability issues, the NHS Employers organisation will The successful introduction of total reward will depend on high levels of staff engagement help them to approach total reward in other ways. 6. Roll out The successful introduction of total reward will depend on high levels of staff engagement. It will be particularly important to increase communication activities as the launch date approaches. This communication campaign will be an excellent opportunity to trail the key corporate messages you wish to get across. Our staff engagement toolkit can help you by providing proven routes for engaging with your staff. 3 Inevitably, the launch of any new total reward initiative will generate queries for line managers and HR staff, among others. It is important to ensure that line managers and HR staff are briefed on the exercise and are able to respond to queries from employees. A number of organisations who have introduced total reward have found it very helpful to involve the total reward team in championing the concept throughout the organisation. Involving the total reward team in this way could lead to a much greater ability to hold local meetings and engage employees. To be successful it is important that communication continues beyond the launch date. 7. Monitoring and evaluation Much of the feedback will channel through line managers, the HR department and the total reward team within a few weeks of the roll out. You may wish to give some thought to conducting formal feedback sessions in focus groups to explore employees reactions in a systematic and structured way. Above all, your organisation will need to demonstrate that it has considered the feedback it has received, so you will want to consider some formal feedback to employees once you have conducted your monitoring and evaluation exercise. Finally, you will want to consider the results of your monitoring and evaluation exercise for the future of the total reward approach in your organisation. Total reward is not a one-off exercise, it is a way of thinking about the employment offering in a holistic way, constantly adapting as far as circumstances permit, to reflect organisational priorities and concerns. 6

7 References 1. FinalAgreement/Background/Pages/PensionReview-PensionSurveyProject.aspx 2. ForChange.aspx

8 NHS Employers The NHS Employers organisation is the voice of employers in the NHS, supporting them to put patients first. Our vision is to be the authoritative voice of workforce leaders, experts in HR, negotiating fairly to get the best deal for patients. We help employers make sense of current and emerging healthcare issues to ensure that their voice is front and centre of health policy and practice. We keep them up to date with the latest workforce thinking and expert opinion, providing practical advice and information, and generating opportunities to network and share knowledge and best practice. We work with employers in the NHS to reflect their views and act on their behalf in four priority areas: pay and negotiations recruitment and planning the workforce healthy and productive workplaces employment policy and practice. The NHS Employers organisation is part of the NHS Confederation. Contact us For more information on how to become involved in our work, NHS Employers 29 Bressenden Place London SW1E 5DD This document is available in pdf format at Published November NHS Employers This document may not be reproduced in whole or in part without permission. The NHS Confederation (Employers) Company Ltd. Registered in England. Company limited by guarantee: number Ref: EBRI Brewery Wharf Kendell Street Leeds LS10 1JR