According to the Chartered Institute of Personnel's ‘Reward Management Survey 2013,’ 53% of UK employers will be increasing their pay budgets by the end of this year and are hoping to see a more significant link between employee pay rates and performance.

The budgets will increase thanks to driving factors such as pay rises (84%) and more staff recruitment (51%). These figures suggest that businesses are confident about increasing wages and hiring more people as a result of improving economic conditions.

Despite the plans to hire more employees, many employers want to see a stronger connection between performance and reward. For example, bonuses would be linked to company or individual performance rather than a flat rate. Currently only about 25% of all UK organisations report variable pay.

The link between individual performance and remuneration is most common in production and manufacturing firms – at about 88%. This is followed closely by the service sector at 86%. In the public sector, pay is more closely related to length of service rather than performance.

This year, employee compensation remains a major focus of most employers.

“It’s encouraging to see employers wanting a more flexible way of rewarding their employees in an effort to help align pay with the delivery of business strategy, but it’s crucial to ensure that measures of performance look to the long term so that they encourage sustainable business growth,” explains Charles Cotton, CIPD rewards advisor.

“If appropriately designed, variable pay can help align organisational reward practices with the business strategy as well as assisting to communicate what behaviours, skills, values and attitudes the organisation values and how it will reward and recognise these.”