Recession leads firms to rip up their reward strategies

Employers are tearing up reward strategies created in better times as they adjust to the challenging economic climate, the CIPD has warned.

“Many business strategies are being put into the waste-paper basket and reward strategies have gone with them,” Charles Cotton, CIPD adviser, reward, told delegates at the CIPD reward conference on 3 February. With conditions changing rapidly, more organisations are adopting a planning horizon of months rather than years, he added. Falling profits and plunging inflation also mean many firms are taking a “safety first” approach and implementing pay freezes, he said.

One example is airline BMI, which drew anger from pilots’ union Balpa by abandoning a three-year pay deal in the third year, in favour of a pay freeze. The move has led to public recriminations, with pilots claiming payments were taken from their bank accounts owing to the last-minute nature of the decision.

Cotton said the incident showed the importance of telling people what’s been done and why. “Even if pay rises are off the table because of their long-term effect, it may be possible to soften the blow through other reward elements,” he added.

BMI has argued that the pay freeze is to protect jobs, and has blamed the payroll controversy on a bank error. But Balpa has threatened legal action, and lawyers have warned that firms considering going back on a pay deal may be acting illegally.

“If BMI contractually bound itself to give the pilots an increase in pay in the future it would amount to a breach of contract to renege on this agreement,” said Jane Moorman, head of employment at Howard Kennedy. The fact that BMI was bought by Lufthansa two months ago does not alter this position since, staff contracts will be protected by Tupe regulations, she added.