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.”
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.