Value for Money and employee remuneration
VFM is a hot topic in housing at the moment, with a lot of focus on VFM statements, demonstrating value in procurement exercise, sweating assets, funding, contracting, etc. But what about one of the most significant areas of spend for any organisation – employees?
Organisations in the housing sector typically spend somewhere between 10% and 20% of their annual turnover on staff salaries. Most will consider staff structure costs as part of service reviews and by benchmarking costs and performance against peer organisations. But how much is your organisation considering the strategic impact of your approach to remuneration on VFM?
For example, traditionally, organisations in the public and charitable sectors incrementally increased employee salaries each year as they notched up another years’ service. Although many organisations have now moved away from this approach (due to Age Discrimination legislation), lots still provide consolidated incremental increases. These are often based on limited links to organisation performance (usually progression is at individual employee level).
In either case, is there a strong VFM case for building in consolidated increases in the organisation’s salary bill, without a related increase in performance? Even if performance in that year is strong, what happens if performance drops in the future? – Salary costs will remain at the same level.
Although it won’t be palatable to all, many organisations in the sector are implementing (or already have implemented) some form of performance related pay scheme. The basic premise being, when performance is strong remuneration goes up. But because increases aren’t built into the basic cost structure, if performance drops again, remuneration is at the lower cost level.
That is fine, but it is important that organisations have a clear definition of what ‘high performance’ is and how it links to the overall objectives and purpose of the organisation. This will differ across the sector; some may wish to focus on improving surpluses, and others may aim for higher social return, or some combination of both.
Also, if your organisation links remuneration to performance, is a review in a single calendar year appropriate or should they be looking to assess performance (particularly at executive levels) over a longer period of time or the delivery of tangible milestones?
And if your organisation doesn’t link remuneration to performance, how will it demonstrate VFM in its spend on employee remuneration?
As one of the single largest areas of revenue expenditure, evidencing how spend on remuneration is supporting, and driving, higher levels of performance, will only become more important.
For more information contact Michael Appleby: email@example.com