European firms are encountering problems with communication and employee engagement due to pay budget constraints failing to meet employee expectations, according to consultant Watson Wyatt.

More than 700 organisations were surveyed across Europe, Africa and the Middle East. The survey shows that 58% of firms have experienced significant organisational changes and 60% companies have brought in salary freezes in the past six months. However, only 30% have followed this through with alterations to reward strategy, while just 27% have communicated more about their pay strategy.

Carole Hathaway, European head of strategic reward at Watson Wyatt, says: “It is clear that actions have been taken very quickly around salary freezes to manage cost, but this needs to be followed up with effective communications.

“Salary freezes cannot be maintained over multiple years without denting engagement and leaving employees more open to opportunities elsewhere. To ensure employees feel valued and recognised, companies need to increase differentiation around reward, clarify their performance management approach and exploit engagement alternatives such as recognition plans.”