The economy was certainly a talking point back in the summer however it feels more of a shadow now when compared to the past last two weeks. Across the Atlantic US corporations such as Lehman Brothers filing for bankruptcy and the major insurer AIG being taken over by their government may be ‘old’ news. But how many anticipated the much debated US government decision to initiate a major ‘bail out’ which then failed last night. In the meantime, a swift takeover of HBOS and a part nationalisation of Bradford & Bingley plc on this side of the pond move the western economy closer into unchartered territory.

While there may be fewer surprises about how we got there, what impact does the current economic situation have on reward? Since this may sound like an obvious question to some, perhaps we should ask how can reward help to navigate the current situation? As always there are winners and losers with online businesses and exporters to other currencies benefitting greatly. However for organisations with less disposable cash as well as employers looking for a decent return on investment then consider the following:

• Know your current position – Are you clear on what reward packages you offer people across the whole organisation? Are employees aware of what you offer them? If so, are they relevant to their requirements? And do they represent good value when taking company cost into account? The first step is to analyse what you’ve got and the cost of providing pay & benefit components including administration, statutory charges etc.

• Define any gaps against your budget and goals – When there is pressure to cut costs, taking a longer terms view will reduce the risk of costly mistakes. The analysis should highlight any duplication of benefits such as insurance relating to life; health cover, income protection etc. which can overlap with sick pay schemes. Consider if an income protection policy that covers 75% of salary to aged 65 is really appropriate going forward. Consider how this lines up with your contractual commitments. Think carefully before considering making changes, but don’t ignore them.

• Consider salary sacrifice schemes (for UK based organisations) – While the popularity of salary sacrifice or salary exchange schemes has been growing in the UK, now is certainly a time to consider introducing them or increasing their scope. The national insurance savings they can offer to employers and employees’ cannot be ignored. With a wide range of benefits eligible for sacrifice such as pensions; childcare vouchers; mobile phones etc. there is plenty of scope. And the downsides? There is the inevitable administration required to establish and run such schemes however this is typically outweighed by cost savings. As with all salary sacrifice or salary exchange schemes, they are not suitable for employees receiving the national minimum wage.

• Recognition still counts – When the pressure is on, the importance of recognition can get overlooked by line managers. This is turn can lead to poor customer service and reduced motivation levels. Ensure that you have a recognition scheme that contributes towards people choosing to use their discretionary effort to ‘go the extra mile’.

• The sum is greater than its parts – When there is less cash, it pays to focus on the total package when communicating with employees. And speaking of this, there is much merit in practices such as Total Reward which integrate reward elements such as the working environment, career opportunities and recognition as well as the financial rewards. While total reward is not a ‘quick win’ it is worth considering the scope for career development or flexible working which could prove more valuable than say a 2% pay rise.

• Don’t cast aside goals which are integral to your values – Phrases such as ‘people are our greatest assets’ which can wear thin for employees when they experience practices that don’t match up to the rhetoric. This certainly true when executing difficult decisions such as redundancies. This also holds true for organisations striving to be an employer of choice.

How are you managing the current economic situation?

The BBC was itself in the news again last week as the Corporation’s 2007-8 annual report was published.  Of course what attracted most media attention was the executive pay awards in a year when the BBC announced 1,800 job cuts over a 5-year period to plug the funding gap. Director-General Mark Thompson chose not to take his bonus award while other executive directors, including the Director of BBC people, claimed their bonus awards.

The broadcasting Trades Union Bectu heavily criticised the decision at a time when jobs are being lost. The BBC remuneration report certainly makes interesting reading if you compare the double digit increases in total remuneration for some executives compared to last year. However, the report makes it clear that the Corporation should not lead the market on pay and, in it’s own words, should be ‘positioned around the median of the market’ for base pay. While the outcome may not be excessive relative to some private sector executive awards, it raises the question of how a publicly accountable body should reward it’s top team.

What about the pay increases? And should the BBC be awarding bonuses at such a time? Or are these changes just part and parcel of the change process? What do you think?

Have a look at the Just Rewards newsletter on executive reward.

Good news has been in short supply this week. UK Inflation levels continue to rise while the economy seems to be heading in the other direction. Even the Governor of the Bank of England’s annual Mansion House speech warns us that “it won’t be nice” where pay rises will be lower than national productivity.

Hmm. While this may affect some industries more severely, it also highlights the issue of base pay being in the spotlight. While almost half of UK organisations no longer make annual cost of living pay rises, does it make sense to continue focusing on it? Base pay does need to be ‘right’ though in practical terms there is rarely any benefit in paying above the market competition.

We know that some of the most admired employers can pay less to attract their candidate of first choice. Why? These employers differentiate themselves on factors such as career opportunities; working relationships and employee wellbeing. Differentiation on pay alone is costly and if the economic downturn continues as the CBI predicts then shifting the focus from base pay towards a ‘total reward’ approach must be considered going forward. Have a look at the Just Rewards newsletter on the role of reward in an economic downturn.