The Reward Agenda: Three critical questions for H2 2022

All of us continue to work in an environment of uncertainty, with the risk of extreme change being high. And yet uncertainty has in fact, long been talked of as a certainty. So why do we still insist on talking about its impact on corporate and leadership strategy?

By 2022, this decade has already seen global pandemic, a seismic shift in geopolitics (caused by the invasion of Ukraine), supply shortages across the globe, and a cost-of-living crisis. 

As we know, the pandemic has realigned how we show up to work; the option to not commute is now an essential benefit to large swathes of the workforce. Alongside this, a myriad of social issues since 2020 has ensured that the vision, purpose and values of an organisation are more relevant now than ever in ensuring it has the right talent and, in turn, a greater strength in performance.

If engagement, motivation, and ultimately retention, are to thrive, innovation in how workforces are managed and inspired is essential through today’s leadership teams. Companies who do not innovate will be left behind in the fight for talent.

Right now, with the cost-of-living issue, there is notable upward pressure on salaries and (anecdotally at least) benchmarking data is struggling to keep up with the sheer pace of market changes. And might we be heading for a recession by Q1 2023?

Macroeconomic factors are continuing to have a sharp and swift impact on employees. So, with finite funds, how should Reward leaders look to guide the board and shape a Total Reward Strategy that is both sustainable and fair?

As a headhunter, I admit to not being able to offer answers to the ranging strategic pay conundrums currently facing corporate leadership. I am, however, privileged to be able to discuss these issues with a broad range of Reward leaders and CPOs.  For me, when connecting how their worlds interact with the boardroom, there is perhaps a distillation down to three critical questions that will drive retention of staff and culture going into 2023.

1. How can Reward strategy further build trust across its organisation?

Increased pay transparency will enable staff to understand not only their rate of pay, but how their reward system operates: ultimately it will minimise uncertainty and perceptions of unfairness. Over in the US, research from the Society for Human Resource Management (SHRM) (1) found that pay equity audits and transparency foster trust within organisations. According to their Chief of Staff (Emily M. Dickens), their research backs up that workplace culture starts at the top and organisations with forward-thinking leaders are in the best position to win the global competition for talent. Over time, transparency will lead to greater alignment of inequitable gender and ethnicity pay, which will strengthen culture and build an organisation that employees can be proud of.

Transparency in executive pay is critical externally and internally. In the last two pay rounds, Remuneration committees have been under pressure to show positive discretion to retain senior executives.

Given all the information they have available, RemCo must ask, “does this feel fair, does this stand up to scrutiny?”

Getting this wrong brings reputational risk, whereas achieving an accepted balance drives greater trust from executives as well as the wider workforce. 2020 saw a rise in scrutiny for decisions on executive pay to be more consistent with the experience of the wider workforce, shareholders and society. Deloitte’s FTSE 100 remuneration reporting in October of last year * showed the majority of companies did follow this principle. Fairness and increased transparency will show a commitment to an organisation’s morals, its values and ultimately what it stands for. As a wise marketeer once told me; “Purpose will help you weather the storm”.

I won’t labour the point that how a company implements (and adapts) its hybrid working model, will be critical in building or losing trust from its workforce. Failure to be flexible and give people choices will impact career decisions. If employees want more freedom, it is available elsewhere.

Findings from PwC * show us that 60% of FTSE 100 companies now include Environment, Social and Governance (ESG) measures as part of their executive incentive plans. This level of commitment has risen consistently and is set to continue. This serves to build trust, which is good, however leadership must embrace this task throughout the year and walk the walk if it is truly going to support an organisation’s value proposition.

2. How can existing Reward strategy further increase performance?

During the pandemic it was hard to judge what a good performance looked like. Post pandemic, increasing the link between reward and performance is a high priority.

Non-financial rewards can play a massive role in retaining talent. The positive cultural impact of the modern workplace, increased work life balance, less commuting, increased trust through autonomy…these are huge for retention. However, whilst it will help performance (a content team tends to achieve more), will it truly drive the workforce into the discretionary effort zone to achieve the highest performance outcomes? Maybe.

Non-financial Rewards must be combined with greater clarity over annual variable pay and long-term incentive outcomes.

Clear objectives need to be in place. What must an executive achieve to have the greatest impact on business performance and is this fully aligned to give them maximum reward?  The mix between fixed and variable is an ongoing discussion for CPOs and Reward leaders; it is a delicate balance to drive short and long strategic thinking appropriately and in the right spirit that reflects organisation. Long Term Incentive schemes can also be misunderstood through being overly complex and can serve to disengage rather than motivate. Digitalisation, therefore, may well hold part of the answer here and is an opportunity to demystify whether an individual fully understands their remuneration package or not. This counts for the front-line workforce as well.

3. What leadership skills are critical right now in Reward?

Reward leaders are not in the luxurious position to be able to answer the cost-of-living crisis with a single solution, or (in partnership with the finance function) source largescale rises in base pay to keep up with inflation in 2022. To my knowledge, no-one has a crystal ball and so organisations must be balanced in their short and long-term thinking on base pay. Employees will understand this and, if they can see the company is doing its best to support, then trust and retention holds up. But how do employees really “see” this? Rolls Royce is the one of the recent firms to declare a one-off payment of £2,000, to circa 70% of its UK workforce. It feels like a positive news story, but if a similar scale firm was about to offer £1,000, should they rethink for fear of a negative employee reaction? It is a delicate balancing act.

In H2 2022, Reward leaders need to be brilliant at influencing upwards. Increasingly this is supported by having insight to the right data, provided internally and externally, to enable the broader leadership team to be innovative. 

A 4% pay rise might not seem like enough, but it might be ahead of the competition within sector; it might, in fact, be a brave decision. Secondly, they can influence by communicating brilliantly outwards to the workforce: “This is what we are doing and why”. Leaders need to show they have listened and then taken agile decisions to show sensible judgement which can be done through data and digitalisation. Reward leaders developing their skills in these two areas, in my view, has never been more important to improving transparency and building long term trust.

Toby’s conclusion

H2 and into 2023 is going to be a tough balancing act for leadership, however the challenges will present a great opportunity to build trust and a strong value proposition. Reward strategy as ever, will play a critical role.

Thank you to my network for providing me with honest and open insights.

To have a confidential chat around Reward in your business, or your Reward needs, please do not hesitate to get in touch with me directly: toby.burton@etonbridgepartners.com

Toby Burton

Partner
Head of Human Resources Practice & Reward Specialist


With over 20 years’ experience across the UK, Europe & US within the human resources market, Toby leads our Human Resources Search Practice with an operational focus on reward leadership assignments.