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Managing Reward in Financial Services Today

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Managing Reward in Financial Services Today

Ruth Thomas, Industry Principal, Curo Compensation

For many of us in financial services our current approaches to reward assume we will continue to work in a similar way and that the market for talent will stay the same.

But the sticky issues of restrained wage growth, low labour productivity and talent shortages are not going away, not to mention the need to prepare for a future that is more agile and digital. It’s time to rethink traditional approaches to reward in financial services.

Optimise Compensation Spend

It’s probably true to say that when it comes to managing reward there has been a disproportionate focus on cost management or containment, with compensation referred to as the largest expense on the balance sheet and pay rises sometimes seen as just a cost of doing business. Surveys have shown there is a disconnect between where reward professionals spend their time and what senior executives want them to do today.

What reward professionals do What CEOs want
Benchmarking reward Optimising productivity and cost effectiveness
Managing compensation fairness Engaging employees
Controlling compensation and benefit costs Developing and retaining key talent
Aligning human capital and reward with business strategy
Measuring the ROI of reward programmes

But limited pay budgets make optimising compensation spend tough. The heady days of double digit wage inflation are long gone. The reality is that pay budgets have hovered around the 2-3% range for some time which has made pay differentiation and targeting key performers difficult. Often we are trying to do too much with limited pay pots including paying for in year performance, retaining future talent and fighting off market threats whilst trying to manage pay equity internally and externally.

But maybe it is time to stop slavishly following the crowd when setting budgets and start thinking about what funding is needed to invest in talent required for your own business success. So, rather than a cost of doing business, salary budgets can become a strategic investment that addresses talent supply issues.Consider how and when to allocate it based on the requirements of the different types of talent you need. Do you have to buy in scarce skills from the market for short bursts of work? Does skill acquisition happen on the job and not found in the external market? Do you need to link reward to output or behaviour? Jason Averbrook, the co-founder and CEO at LeapGen, call to action is to “skip the peanut butter pass the jelly. Don’t rely on a peanut butter spread solution such as merit increases across the board. Instead know your employees and think about what they respond to and what they would like to see.”

Reward Segmentation

With the growing diversity of our workforce and the need to leverage talent – we have to broaden our approaches to think about engaging and attracting different types of employees. The continuum of employment continues to evolve from full time employees, interims, freelancers, gig workers, micro taskers and even bots. Somehow we have to find a way to manage reward for these different types of workers. Some organisations are already asking to put their bots on headcount, how long before they ask them to be on payroll too? Whilst that may seem a bit far-fetched the reality is that most us of have multiple talent models co-existing and are realising that a one size fits all approach to managing pay is obsolete. To engage and attract different employees you need different approaches to pay. The key to success here is combining these different approaches within an overarching reward philosophy with common key reward principles.

Employee Centric Reward

Another concept we need to manage when dealing with diverse employees with different employee expectations is personalisation in reward. The employment relationship continues to shift to be more employee centric, as employers we focus on the employee experience rather than just plain old employee engagement. Our employees are likely to want more flexibility and options in the make-up of their reward packages. We’ve seen this demonstrated successfully in the benefits and no cash arena with the focus on employee choice, but less so in mainstream compensation where things are pretty much still ‘meat and two veg’. So,it’s worth exploring how to offer more choice,so employees can align how much cash they receive relative to stock, benefits or non cash options with these choices aligned to their lifestyle stages or tolerance of risk. Ultimately, employees will gravitate to those organisations that offer this choice.

Real Time Reward

Another challenge is the agile nature of the new business landscape. In HR we have been re-evaluating talent management strategies that have traditionally run on an annual cycle. How relevant is annual in an agile world? Some HR processes have already gone this way with engagement surveys now going real time supported by new technologies. Using apps and devices to capture emotions so engagement levels can be continuously assessed in real time provides critical data on your workforce. Also, succession planning has evolved to a process of continuous insight in the quality of leadership and the leadership bench so organisations can respond to movement in key positions fast. But it is the challenge to traditional models of performance management with employers moving to on-going approaches to talent assessment that is leading us to question whether it’s time to move to real-time reward.

Non-annual pay changes are nothing new, but the trend has been to move to more quarterly, bi-annual or yearly reviews. This was really more to deal with the challenges of cost management and governance with too many one-time adjustments going under the radar. Also, pay equity and enforcement of compensation principles were difficult to enforce when pay changes were made out of full peer context.  Interestingly, none of these reasons were employee centric. We didn’t stop doing them because employees didn’t value them. In fact, as a reinforcement mechanism we know that the once-a-year pay adjustment is probably too infrequent, considering the diminutive pay changes most experience. So, if compensation works best as a motivator when it comes as soon as possible after the desired behaviour, should we consider instant rewards?  This is more likely to be in line with new project, team or skill based ways of working.

As with other areas of HR, compensation management technology is evolving to support real time reward with year round budget management capacity, real-time benchmarking and live decision support to ensure pay equity,governance and transparency.

So, as we enter budgeting season, maybe it’s time for a re-think. Don’t just dust off last year’s approach, it’s important we support our business leaders in making change happen and make sure that, as a function, we anticipate change rather than just respond.

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ECB launches small climate-change unit to lead Lagarde’s green push

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ECB launches small climate-change unit to lead Lagarde's green push 1

FRANKFURT (Reuters) – The European Central Bank is setting up a small team dedicated to climate change to spearhead its efforts to help the transition to a greener economy in the euro zone, ECB President Christine Lagarde said on Monday.

Lagarde has made the environment a priority since taking the helm at the ECB, taking a number of steps to include climate considerations in the central bank’s work as the euro zone’s banking watchdog and main financial institution.

She is now creating a team of around 10 ECB employees, reporting directly to her, to set the central bank’s agenda on climate-related topics.

“The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves,” Lagarde said in a speech.

She said that climate change belonged in the ECB’s remit as it could affect inflation and obstruct the flow of credit to the economy.

The ECB said earlier on Monday it would invest some of its own funds, which total 20.8 billion euros ($25.3 billion) and include capital paid in by euro zone countries, reserves and provisions, in a green bond fund run by the Bank for International Settlement.

More significantly, ECB policymakers are also debating what role climate considerations should play in the institution’s multi-trillion euro bond-buying programme.

So far the ECB has bought corporate bonds based on their outstanding amounts but Lagarde has said the bank might have to consider a more active approach to correct the market’s failure to price in climate risk.

“Our strategy review enables us to consider more deeply how we can continue to protect our mandate in the face of (climate) risks and, at the same time, strengthen the resilience of monetary policy and our balance sheet,” Lagarde said.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Emelia Sithole-Matarise)

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What to expect in 2021: Top trends shaping the future of transportation

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What to expect in 2021: Top trends shaping the future of transportation 2

By Lee Jones, Director of Sales – Grocery, QSR and Selected Accounts for Northern Europe at Ingenico, a Worldline brand

The pandemic has reinforced the need for businesses to undergo digital transformation, which is pivotal in the digital economy. In 2020, we saw the shift to online and cashless payments accelerated as a result of increased social distancing and nationwide restrictions.

The biggest challenge on all businesses into 2021 will be how they continue to adapt and react to the ever changing new normal we are all experiencing. In this context, what should we expect this year and beyond, in terms of developments across key sectors, including transport, parking and electric vehicle (EV) charging?

Mobility as a service (MaaS) and the future of transportation

Social distancing and lockdown measures have brought about a real change in public habits when it comes to transportation. In the last three months alone, we have seen commuter journeys across the globe reduce by at least 70%, while longer-distance travel has fallen by up to 90%. With it, cash withdrawals for payment has drastically reduced by 60%.

Technological advancements, alongside open payments, have unlocked new possibilities across multiple industries and will continue to have a strong impact. Furthermore, travellers are expecting more as part of their basic service. Tap and pay is one of the biggest evolutions in consumer payments. Bringing ease and simplicity to everyday tasks, consumers have welcomed this development to the transport journey. In-app payments are also on the rise, offering customers the ability to plan ahead and remain assured that they have everything they need, in one place, for every leg of their journey. Many local transport networks now have their own apps with integrated timetables, payments, and ticket download capabilities. These capabilities are being enabled by smaller more portable terminals for transport staff, and self-scanning ticketing devices are streamlining the process even further.

Lee Jones

Lee Jones

Ultimately, the end goal for many transport providers is MaaS – providing an easy and frictionless all-encompassing transport system that guides consumers through the whole journey, no matter what mode of travel they choose. Additionally, payment will remain the key orchestrator that will drive further developments in the transportation and MaaS ecosystems in 2021. What remains critical is balancing the need for a fast and convenient payment with safety and data privacy in order to deliver superior customer experiences.

The EV charging market and the accelerating pace of change  

The EV charging market is moving quickly and represents a large opportunity for payments in the future. EVs are gradually becoming more popular, with registrations for EVs overtaking those of their diesel counterparts for the first time in European history this year. What’s more, forecasts indicate that by 2030, there will be almost 42 million public charging points deployed worldwide, as compared with 520,000 registered in 2019.

Our experience and expertise in this industry have enabled us to better understand but also address the challenges and complexities of fuel and EV payments. The current alternating current (AC) based chargers are set to be replaced by their direct charging (DC) counterparts, but merchants must still be able to guarantee payment for the charging provider. Power always needs to be converted from AC to DC when charging an electric vehicle, the technical difference between AC charging and DC charging is whether the power gets converted outside or inside the vehicle.

By offering innovative payment solutions to this market segment, we enable service operators to incorporate payments smoothly into their omnichannel customer experience that also allows businesses to easily develop acceptance and provide a unique omnichannel strategy for EV charging payments. From proximity to online payments, it will support businesses by offering a unique hardware solution optimized for PSD2 and SCA. It will manage both near field communication (NFC) cards and payments from cards/smartphones, as well as a single interface to manage all payments, after sales support and receipt with both ePortal and eReceipts.

Cashless options for parking payments

The ‘new normal’ is now partly defined by a shift in consumer preference for cashless, contactless and mobile or embedded payments. These are now the preferred payment choices when it comes to completing the check-in and check-out process. They are a time-saver and a more seamless way to pay.

Drivers are more self-reliant and empowered than ever before, having adopted technologies that work to make their life increasingly efficient. COVID-19 has given rise to both ePayment and omnichannel solutions gaining in popularity. This has been due to ticketless access control based on license plate recognition or the tap-in/tap-out experience, as well as embedded payments or mobile solutions for street parking.

These smart solutions help consider parking services more broadly as a part of overall mobility or shopping experience. Therefore, operators must rapidly adapt and scale new operational practices; accept electronic payment, update new contactless limits, introduce additional payments means, refund the user or even to reflect changing customer expectations to keep pace.

2021: the journey ahead

This year,  we expect to see an even greater shift towards a cashless society across these key sectors, making the buying experience quicker and more convenient overall.

As a result, merchants and operators must make the consumer experience their top priority as trends shift towards simplicity and convenience, ensuring online and mobile payments processes are as secure as possible.

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Opportunities and challenges facing financial services firms in 2021

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Opportunities and challenges facing financial services firms in 2021 3

By Paul McCreadie, Partner at ECI Partners, the leading growth-focused mid-market private equity firm

Despite 2020 being an enormously disruptive year for businesses, our latest Growth Index research reveals that almost three quarters (74%) of mid-market financial services companies remained resilient throughout the pandemic.

This is positive news, especially when taking into account the economic disruption that financial services firms have had to go through since the crisis began. No doubt 2021 will also hold its own challenges – as well as opportunities – for firms in this sector.

Challenges outlook

Unsurprisingly, the biggest short-term concern for financial firms for the year ahead involved changing pandemic guidance, with 42% citing this as a top concern. With the UK currently experiencing a third lockdown many financial services businesses will have already had to adapt to rapidly changing guidance, even since being surveyed.

Businesses will also be considering the need to invest in working from home operations, and there may be uncertainty over re-opening offices on a permanent basis.  According to the research 30% of financial services firms are planning to adopt remote working on a permanent basis, so decisions need to be made now about whether they invest more in enabling staff to do this, or in their current office premises.

Due to Brexit, UK financial services firms are no longer able to passport their services into Europe, which may cause problems, particularly in the next 12 months as the Brexit deal is ironed out and the agreement is put into practice. Despite this, Brexit was only cited by 24% of financial firms as a short-term concern. While it’s comforting to see that UK financial firms aren’t hugely concerned about Brexit at this juncture, it is going to be vital for the ongoing success of the industry that the UK is able to get straightforward access to Europe and operate there without issue, otherwise we may see these concern levels rise.

Looking ahead to longer-term concerns for financial services businesses, the top concern was global economic downturn, of which 40% of firms cited this as a worry when looking beyond 2021.

Investing and adopting tech

Traditionally, the financial services sector has been slow to adopt digital transformation. Issues with legacy systems, coupled with often large amounts of data and a reluctance to undertake potentially risky change processes, have meant many firms are behind the curve when it comes to technology adoption. It’s therefore promising to see that so much has changed over the last year, with 45% of financial services firms having invested in AI and machine learning technology – making it the top sector to have invested in this space over the last 12 months.

One business that exemplifies the benefits of investing in machine learning is Avantia, the technology-enabled insurance provider behind HomeProtect. The business has undergone a large tech transformation in the last few years, investing in an underlying machine learning platform and an in-house data science team, which provides them with capabilities to return a quote to over 98% of applicants in under one second. This tech investment has allowed them to become more scalable, provide a more stable platform, improve customer service and consequently, grow significantly.

This demonstrates how this kind of tech can help businesses to leverage tech in order to offer a better customer experience, and retain and grow market share through winning new customers. This resilience should combat some of the concerns that firms will face in the next year.

Additionally, half (51%) of financial services firms have invested in cybersecurity tech over the last year, which allows them to protect the platforms on which they operate and ensure ongoing provision of solutions to their customers.

International resilience

Clearly, there is a benefit of international revenues and profits on business resilience. In practice, this meant that businesses that weren’t internationally diversified in 2020 struggled more during the pandemic. In fact, the businesses considered to be the least resilient through the 2020 crisis were three times more likely to only operate domestically.

Perhaps an attribute towards financial services firms’ resilience in 2020, therefore, was the fact that 53% already had a presence in Europe throughout 2020 and 38% had a presence in North America. This internationalisation gave them an advantage that allowed them to weather the many storms of 2020.

Looking at how to capitalise on this throughout the rest of 2021, half (51%) of are planning overseas growth in Europe over the next 12 months, and 43% in North America. Further plans to expand internationally is not only a good sign for growth, but should further increase resilience within the sector.

Conclusion

While there are many concerns, the fact that financial services businesses are investing in technology like AI and machine learning, as well as still planning to grow internationally, means that they are providing themselves with the best chances of dealing with any upcoming challenges effectively.

In order to maintain their growth and resilience throughout the next 12 months, it’s imperative that they continue to put their customers first, invest in technology and remain on the front foot of digital change.

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