By Melissa J. Anderson

According to the recently released third annual Reward Risks survey by the Chartered Institute of Personnel and Development (CIPD), HR and benefits practitioners are concerned that that benefits packages are not driving employee engagement.

They are also worried about rising costs and the ability to continue to provide rewards packages that attract top performers. Charles Cotton, CIPD Advisor for Performance and Reward, and Andrew Menhennet, Principal Consultant at Yellow Hat Limited write:

“The survey shows that the reward professionals are very aware of the risks of not achieving the right balance between affordability and a competitive reward package. Constrained ability to pay – either as a result of corporate performance or externally driven pay restraint – underpins many of the reward risks anticipated for the next 12 months, suggesting that few expect a change to the situation in the short term.”

The report aims to analyze specific challenges companies are having around implementing rewards packages. Ensuring benefits are both engaging and affordable is a delicate a balance for many organizations.

Rewards Risks

The CIPD polled almost 300 individuals, with 85 percent employed as reward or HR practitioners. The majority of respondents were in the UK.

That shaded responses around the cost of rewards, the authors write. Because this year marked the beginning of pension auto-enrollment in the UK, which left respondents worried about whether they would be able to afford the increased cost of pensions.

The report explains:

“The risk that reward structures are not engaging employees is back as a top three concern this year, and with the onset of pension auto-enrolment in the UK, increasing pensions’ cost has come back as a top ten risk after dropping down last year. Though the risk due to underperforming pension investment funds is considered less of a risk among our sample.”

The CIPD also pointed out that there were more similarities this year between reward managers and outside consultants in the reward space than there have been in previous years. The only difference in the groups’ top ten concerns is that “HR practitioners are more concerned about the rising cost of pensions, whereas consultants see the inability of reward packages to attract key skills as a bigger concern.” It makes sense that internal practitioners would be more concerned with rising business costs than external consultants, who may more often be tasked with recruiting responsibilities.

Future Risks

The CIPD also reports that rewards managers are more positive this year than ever before about their ability to meet their ability to manage rewards risks. The study explains:

“…there is a clear trend for an increase in the number of participants feeling that their or their clients’ organisations are well prepared to manage reward risks, with 24% saying their organisations are well prepared, up from 22% last year and 15% in 2010. So, while reward professionals still clearly believe there is a long way to go on this, there are signs that they are generally feeling more confident in the ability of the reward systems and processes in place to cope with the risks ahead.”

While 22 percent of the total respondents said they felt their companies were repared to manage rewards risk moving forward, there was a sharp disparity between consultants and internal practitioners. In fact, consultants were significantly less certain about the future. Only nine percent said they felt their clients would be able to manage rewards risk in the future, while 26 percent of internal practitioners said they were confident on this measure.

Additionally, the survey noted a significant increase in the percentage of internal practitioners who said their companies are actively managing rewards risks. Over half (54 percent) reported their companies are already at work on this issue. The percentage was only 40 percent last year. Almost a quarter (23 percent) said their company plans to begin working on this issue in the next year.

The CIPD adds, “Of those saying that they actively manage risks, nearly two-thirds are either already logging reward risks, or plan to start doing so in the next 12 months, which is a similar proportion to last year.”

By taking a systematic approach to rewards risk measurement and management, companies will be better able to create the benefits packages that attract and retain high performing employees.