Progression in reward mindset: How executive pay challenges continue to evolve

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Earlier this year, Toby Burton, Head of Human Resources Practice and Reward specialist, spent some time with former EY Partner Rupal Patel. From 2016, Rupal led EY’s Strategic Reward Practice for over four years and has a Big 4 background specialising in reward, performance and wellbeing. With this extensive experience Rupal brings to the table a passion for wellbeing and future skills.

TB: Rupal, how did you get into reward?

RP: My entry point comes way back in my penultimate year at university. I was a summer intern at EY in their human capital team and got to experience a variety of work across the people agenda, and for me it was quite interesting! I have a mathematical background and I enjoyed bringing together that numerical side with the behavioural aspects of what motivates people in the workplace.

I’ve been working in the reward space ever since, spending most of my career in the big 4, designing and implementing reward solutions to change or reinforce behaviours in order to meet strategic goals – really getting underneath what makes people tick!

TB: In your early career, did your clients understand that behavioural connection to reward, beyond the numbers?

RP: 15 to 20 years ago they probably didn’t get it in same way as they do now; the focus was very much on financial rewards. Fast-forward 15-20 years and we’re now focussed on the employee experience, the attraction of purpose-led organisations, and culture. We’ve moved way beyond financial reward as the main driver of behaviours, and instead we talk about reward in the broadest sense when thinking about what attracts, motivates and retains employees.

TB: You’ve now got more tools to shift it, but is motivation itself better understood now, in terms of what drives the performance of senior executives?

RP: Yes I think it’s better understood, and there’s been significant research into what motivates a CEO which has influenced today’s pay structures. We’ve always talked about the hygiene factor, individuals needing to earn a certain amount to live. Everyone has different thresholds in terms of that hygiene factor and for many, the levels the executives earn today feels too high.

Pay transparency and pay equity has increased significantly over recent years. It’s now much easier to see what the link is between performance and pay.

Of course, there is still room for executive pay to be simplified, fewer elements of pay, fewer KPIs, etc. Overall, I think we’ve seen a shift in terms of all stakeholders (including executives themselves!) better understanding the purpose of each element of pay and what needs to be achieved in order to earn that particular element of pay.

TB: And how was the reward function itself viewed by the rest of the leadership team? How has this evolved?

RP: I’d start a level above, with the HR function of an organisation. The people agenda is a strategic board-level issue, and COVID has reinforced this. It’s now much more common to have CPO/ CHRO roles as part of the Executive Committee. Employee experience is just as important as customer and shareholder experience.

We’ve also seen the requirements of a Reward Director broaden from not only having to be brilliant on the technical side, but also being strategic at board level, with the ability to manage and influence various stakeholders.

Lastly, I’ve seen the need for the HR leadership team to come together more often to execute the people strategy. For example, the Reward Director working much more closely with the talent and L&D leads as the focus shifts from financial rewards, to providing employees with a total reward package encompassing wellbeing, experiences, badges, learning, and career progression.

One of the areas that intrigues me is future skills requirements. What are these future skills? Do they already exist in your organisation? If not, how do you get them, how do you create different career paths, is our job evaluation or framework flexible enough to show individuals that they could have different paths? It’s not always a vertical career path. I’ve worked with a number of clients over the last 18 months on this type of project and it’s been great to work with Reward Directors, HR leadership and business teams to come to the right solution in terms of what a new role is “worth”. What’s its value and ultimately what pay does it command.

TB: Increasingly we’re seeing ESG rising up the agenda, and how that’s going to be built further into executive pay in 2021 and beyond, how strong a voice is this across your network at the moment?

RP: To be fair to organisations I think most have been tracking ESG measures for a number of years, but haven’t necessarily felt that it should be part of incentive plans. Clearly in some industries, where traditional ESG measures such as health and safety, are core to their business, these KPIs have been linked to the incentive plans for many years.

We’re now seeing the emergence of much broader ESG measures such as being carbon neutral, diversity targets, sustainability measures, and these are becoming more and more important to investors, the workforce and organisations.

Based on discussions with my network, I think we will see organisations introducing ESG measures to their annual bonuses and LTIPs.

My advice would be similar to when introducing any new KPI… make it meaningful and make sure that you’re clear on what advantage it brings, ensure the ESG metric is linked to your purpose and is also linked to a major stakeholder.

TB: How did you judge and pay for performance in 2020?

RP: It’s really hard, obviously when COVID first hit it was February – March time, and my clients were asking, ‘Well how do we set measures for this year?’ Some organisations took the decision to delay setting measures, others set them with the caveat they would reassess at year end and use discretion if required.

Management teams have had to lead in challenging times and mitigate the impact of COVID. Investors have made it very clear in terms of their expectations on executive pay outcomes, especially where organisations have made the difficult decision to take government support, make redundancies, or cancel dividend payments.

Many investors expect companies to demonstrate pay restraint but accept that executives still need to be incentivised.

We’ve now seen this play out and investors have demonstrated their dissatisfaction with some pay outcomes by using their vote!

TB: What are you seeing as the biggest reward challenge that’s come out of the pandemic?

RP: The thing that’s been fast-tracked by COVID is reward being much broader in terms of what’s valued by employees.

It’s making sure that you have a reward strategy that supports an employee through their career lifecycle as well as their home life, and supports that employee experience.

Organisations are struggling with this at the moment from a reward perspective. Organisations recognise that reward needs to change, as people’s needs have changed, people are working differently, not just physically, and therefore reward, benefits and wellbeing needs to support this change. All at a time when budgets are limited and organisations are looking for efficiencies.

Keeping pace and having an agile reward structure is hard at a time when reward and HR functions are so stretched.

TB: What do you expect to be the big reward trends over the next 18-months?

RP: I’m an advocate for simplicity and the use of restricted shares; I wonder if more organisations will seriously look at introducing some form of restricted share plan, rather than a performance share plan. It’s very hard to pick the right performance measures in an uncertain world, and then set metrics around them, three to five years out. Restricted shares are a very simple way to reward executives and have very clear alignment with shareholders. You can then use an annual bonus plan to reward other milestones or behaviours.

I think we’ll see more organisations introduce ESG measures into reward through incentives which we discussed earlier.

We will see the continued importance of fair pay and pay transparency. I’m not necessarily encouraging more disclosure requirements, but I think focussing on workforce demographics such as gender and ethnicity is important.

Lastly, I think a big trend will be the use of non- financial rewards such as experiences and learning, wellbeing.

TB: Any advice to a first time Group Reward Lead?

RP: Have a strategic mindset when reviewing your reward strategy, build long-term trusting relationships with your HR leadership colleagues, and inspire your team to understand how reward is pivotal to delivering business success.

TB: Great, Rupal thank you so much for your time today.