Public vs. Private sector reward: Who’s better off?
The differences between public and private sector pay have always caused much debate about who is better or worse off. In terms of average salary alone, the gap between public and private sectors has reduced (IFS). But take into account pay freezes and caps both sectors have felt since 2007’s economic crash, the total package offered to both sectors does vary. This generates confusion over who has the better overall deal.
It's true that, as a rule, the public sector enjoys more generous pension contributions. But this doesn’t consider that while many private sector organisations offer less generous pensions, they can offer variable pay in the form of bonuses, share plans etc. and have more flexibility around pay decisions overall, not being constrained by rigid pay frameworks.
It’s a debate that will rumble on; however it has highlighted a challenge facing many organisations at the moment. We've worked with several clients who, as a result of organisational changes, acquisitions, or creation of new commercial business entities with public sector stakeholders, have found themselves with employees with different packages, terms and conditions and views on how pay and reward should work.
Many of these organisations have inherited employees from the public sector, where values and reward expectations are very different. And when the future strategic intent is very different to legacy arrangements you find yourself dealing with, it can be hard to know how best to proceed. In fact, many muddle on with different arrangements for staff. This not only creates a them and us, have and have not culture, but also creates confusion for staff about what it means to work for their employer, when their reward mindset is based on different values.
For example, if they have TUPE’d across on existing terms, employees often don’t feel part of the new organisation. If they’re used to public sector arrangements (increments, generous pension and annual leave), the message their reward package sends is around long-term security and comfort, where their pay increases are guaranteed no matter what they deliver. This is often at odds with more commercial organisations where contribution matters. Retention and support of staff is still important, but the paternalistic approach seen in the public sector doesn’t sit well with the desire of a high performing culture.
So, how do you align different legacy populations?
Identify and articulate your deal. What does it mean to work in your organisation? What messages do you want reward to send? Often we see desired principles of wanting to reward contribution, provide flexibility to individualise the package, and make it meaningful. In essence, one key difference to the public sector approach is about it being relevant and not having a ‘one size fits all’ framework. This can be very attractive to staff as it shows their employer recognises and values their contribution.
Align the deal with who you are as a business. What’s your USP and how can you reflect this in your employer offer to set you apart from competition? We've worked with many organisations to help them use their brand and DNA to shape their employer offer. One client with former local authority staff have built on the concept of public service by incorporating corporate social responsibility and voluntary work into their deal, as well as providing a flexible package including financial education and wellbeing support, to ensure the deal reflects their new culture and DNA. Another client has leveraged the fact that they have two legacy populations and deliberately created two deals describing the difference between old and new. They aim to equalise the differences, so although newer employees can’t receive the same generous pension, they can access a higher salary.
Having a clear view of what messages you want your reward package to send, and what it means to work in your organisation, will put you in a better position to identify exactly what you need to do to restructure or reframe the existing deal. This will allow you to bring employees together within a coherent, overarching reward framework.
To find out how we can help you align reward, get in touch: 020 3457 0894