How to modernise your reward solutions

Written by
Deborah Rees

22 Sep 2015

22 Sep 2015 • by Deborah Rees

Making reward work for you

In 1894, ‘The Times’ of London famously predicted that by 1950 every street in London would be nine feet deep in horse manure. Making predictions about the future has always been challenging. But, as reward professionals, our job is to create reward structures which make innovation, performance and disruptive technologies possible in our workplace; and then get out of the way. 

A good example of how reward practices can obstruct growth is around globalisation. Having a consistent approach to executive pay and reward may be useful when all geographies share a similar place in the business lifecycle. A mature market will be dominated by low growth and consolidation of players – a focus on winning market share by driving differentiation and re-skilling talent. However, in a high growth market such as India, the growth of the business is contingent on attracting and retaining talent. Therefore, within an overall company philosophy about pay there should be the opportunity to differentiate reward to meet the needs of differing markets and business life-cycles in separate geographies and develop specific tactical plans. 

In supporting globalisation and developing a coherent performance and reward linked to pay strategy, too often we can bring old world solutions to new world problems and be seen by business leaders as inflexible and dogmatic. So how do businesses in the real world attempt to deliver a confident mix of old and new world solutions?

Understand your organisations needs

Understand what your organisation needs from reward today and in the future. One of our clients talks about the needs of their business in now requiring globally mobile talent ,which differs sharply from their highly educated, academic home country-centric traditional talent pool. Other organisations talk of the need to develop talent and leaders who are ambidextrous; able to manage operational excellence and, at the same time, create an environment where innovation and disruption is flourishing.

Weigh up the culture and reward strengths

The John Lewis partnership, an employee owned business with over 90,000 partners, has a common profit share plan where all partners from chairman to sales floor colleagues receive the same percentage of salary as bonus. Andrew Bridges, the company’s reward manager, identifies that, for them, varying the partnership bonus to reflect individual performance is not an option; but a strong performance management system that is linked to basic pay progression, combined with career management and a long-term commitment to development intensifies the employee deal and brand. He explains that future partners know what they are signing up for and, for them, the value-set of the business is key. 

Other organisations have a more complex matrix of levers which they can use to attract and retain the type of talent they need in a more aggressive market place. Larger organisations and those listed on the Fortune or FTSE may be able to include a mix of base pay, bonus based on performance and a long-term tie in through shares, with the ongoing opportunity of career development. 

But sometimes, offering top talent a promotion along a traditional career path may not work. Rachel Stock, HR director of Hearst Magazines in the UK, talks of her top talent that is so loyal to the magazine they have helped to create that they see career advancement away from ‘their’ brand as a negative. She believes that, for some, it’s so personal and the connection is so strong that their fit with the brand can limit how far they want to go.

How useful is your performance management cycle?

This can be helpful in evaluating how far reward practices support rather than detract from the practice of rewarding talent. The CEO of NetFlix, Reed Hastings, said recently that: “We’ve had hundreds of years to work on managing industrial firms so a lot of HR practices are centred in that experience. We’re just beginning to learn to run creative firms which is quite different. Industrial firms thrive on reducing variation (manufacturing errors); creative firms thrive on increasing variation (innovation).” 

For organisations employing large numbers of Generation Y employees, in a creative or technological environment where innovation and developing disruptive capital is key, using a paper-based annual appraisal system can be like throwing a bucket of cold water over employee engagement. More innovative organisations are exploring social media type feedback systems where employee feedback is fast, timely and direct. Searching for ‘different’ solutions in the big consultancies is fruitless, universally accepted wisdom is that top-down objectives and annual reviews are a business imperative. But quiet whispers from alternative voices are challenging this construct.

Good managers have always known that the quality of the conversation is king, our job is to think about devising ways to manage performance whilst not strangling it with annual paperwork and bureaucracy. Looking to the methods of sport, music, media helps us identify a dual on-going focus on both immediate term and long-term goals. These conversations happen every day on the training pitch, rehearsal room and studio. 

How much is enough?

Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance, at the University of Cambridge, conducted a study into payment levels vs success and his work noted that there was a positive correlation between the highest paid outliers (upper decile and above relative to company size) and lower corporate performance. His hypothesis is that for very highly paid executives, their attitude to risk becomes distorted by their own package and they lead their organisations into financial cul-de-sacs. ‘Making executive pay work: The psychology of incentives’ (PWC, 2012) suggests that on a globally consistent basis, executives would accept lower reward for the ‘right’ job. Taken together, the studies suggest that an executive (or other talent) who joins your organisation primarily for the package is not likely to be the best or the most fulfilled person for the job. 

As a head of reward in an organisation, guiding the senior decision-makers away from the ‘we want the best and we are willing to pay top dollar for it’ attitude may be the most important influence they can bring to bear. 

Think, act, and then get out of the way.