The Future of Reward

On Wednesday 9 June 2021 Frazer Jones UK gathered a panel of leading HR professionals for a webinar on The Future of Reward.  During the webinar, the panel considered whether the huge shift in our working lives has changed employee expectations and if businesses need to reconsider how they compensate.  They shared their observations and details on how they are adapting to the changing expectations. 

The webinar generated thought provoking discussions with insights into how some of the leading companies across Europe are changing their reward packages.  We are pleased to share some exerts from the webinar below.

The panel included:

Yvonne Prang, Senior Director Global Rewards Center of Excellence at McDonald’s
John Beadle, Global Head of Performance and Reward at ABB
Melanie Hick Martin, International Rewards, Performance & Mobility Director at Cartier
Sven Slavenburg, Head of Global Rewards at PhilipsHere, we outline some of the key topics discussed.

Are changes in reward expectations directly linked to the pandemic?

With a huge shift to remote and flexible working, the past year has provided an opportunity for employees to reflect on their priorities and to consider what is important to them. As companies scrambled to adapt to a new way of working, it became evident that how an organisation acted during the pandemic would have the potential to leave a lasting shadow on their brand. Companies that were able to find innovative solutions to support their employees during the pandemic will emerge stronger.  For example, ABB introduced a program whereby 10% of the salaries of Senior Leaders were put aside and used to actively support employees.

Some companies recognised that the past year created an opportunity to build a positive emotional bond with their employees, one that goes beyond logic, rationality, loyalty and reason. If companies were able do this well and, going forward, can tie this into a positive re-onboarding process, they can make a real change. But employers need to be aware of being complacent, they need to go above and beyond to build that loyalty and trust.

The crisis has also accelerated new trends in flexibility and flexible working. It has made pilot schemes much more of a reality. An EY study in May 2021 found that 84% of the highly skilled employees surveyed, expected to be working from anywhere in 2030. With the rapid change, companies need to find the right balance between individualization and building a common framework. Of course, this depends on the type of job you are looking at. For example, a McDonald’s restaurant employee would need to be based near to their place of work. Working virtually for these employees is almost impossible. 

How has the pandemic affected the talent market?

Previously, location would have greatly influenced the talent that a company was able to attract.  However, with the large majority of employees working from home, talent can now be sourced across the world. Whilst this can be hugely beneficial to companies, as they are able to look for talent in low cost areas, there is a risk of losing employees who no longer need to relocate to secure a new Reward job. With location no longer a factor, companies have to understand what employees really want from a role. They then need to consider how they can balance the desire for more flexible work arrangements while maintaining team spirit and company culture. Employees do not want a one size fits all, they want customization and personalisation.  They want to be treated with empathy and to feel that their company cares. Some companies will be able to make that step and win the war for talent.

Is there a greater focus on wellbeing?

As the world begins to reopen, there is a sense that everything will start to return to ‘normal’. However, this is not the case for many employees, their families and even entire countries. Companies need to focus on providing advice, guidance and support to their employees. Whether this be in the form of an Employee Assistance Program or another scheme, companies must help employees to transition out of this crisis period. They need to ensure that the solidarity and caring nature that emerged during the pandemic continues. Companies should put a real emphasis on the culture of the organisation and ensure that any hurdles they faced are lessons that can be learnt from.

As some Silicon Valley companies have announced that they would start paying local rates depending on where people are based, what implications might this have?

Whilst Silicon Valley companies, who might hire US based employees,  have a certain orientation, this is no way representative of how major multinational employers are going to look at the problem. In fact, a number of multinational companies have announced that their employees can work from anywhere for a set period of time, perhaps 6 weeks. A time frame needs to be applied because over a certain threshold you have a cascade of issues in terms of tax and legislation. Although tax authorities have been more open to finding practical and pragmatic solutions whilst employees are stuck during the pandemic, this support might not continue. It is costly for companies to ensure that they are compliant, organizations may therefore begin to dip their toe in the water to see if it is a sustainable way of working. 

What are the long term implications of the new way of working?

The allowance for all employees to work remotely will depend on the industry, on the nature of the work and on the business model. For example, at Cartier there is an element of craftsmanship, of workshops and of creativity, therefore more diverse and hybrid models are needed for their employees.

Most companies across the world have seen requests from employees, especially those of the younger generation, to return to the office on a flexible basis. The companies that will get ahead are ones who can find the balance between being agile and responding to changing expectations, whilst ensuring human contact.

Of course, hybrid models pose complicated challenges in terms of managing teams, managing projects and managing talent. This will require a whole different set of skills over and above the ones already learnt. Companies must also be cautious about the provisions they put in place so that the balance is not tipped in the wrong direction. For example, some companies have started to discuss the argument that because ‘X’ is spending most of their time at home, the company can reduce their compensation because they have less costs in terms of commuting. But companies must resist this and be pragmatic through this hybrid phase to ensure their employees remain loyal.

Of course, the issue of tax is also important here as commuting allowances in many countries, such as Japan, are tax facilitated. If an employee cannot prove that the benefit is being used to pay for the cost of commuting, they may well be taxed.

Are companies looking at their Reward packages differently?

Wellbeing, not only physical and mental but emotional, financial and workplace wellbeing is currently a hot topic. Most employees now work additional hours as they no longer commute to the office. As this is becoming the new normal, it is important for companies to invest in their Employee Assistance Programs to help with wellbeing and to guide employees in regards to their workload. Going forward this will help shape the benefits portfolio of many companies.

There is an expectation from some staff members that they should be compensated for benefits such as a free lunch that they are no longer able to access. It is important for companies to have a clear philosophy that details what they do and what they consider to be fair.

Philips have been actively looking at whether their insurances are valid and their benefits are valued such as disability benefits, pension benefits. Now that people are working in different environments it is important that the company ensures that it has the right coverage. Equally, insurance companies need to consider how their policies are shaped.

When we start to work differently does that have an influence on the mix we have between variable and fixed pay? Is the pandemic a driver to think differently when looking at the balance?

Up until now, this doesn’t seem to be the case. However, it may be hard to draw a conclusion at this time as the majority of companies are still in the transformative stage. For some companies, such as Cartier, this is a very real topic which spreads across the industry. Sales Associates increase their wage through commission and each scheme is adapted to the local reality, Japan is different to the US for example.  In fact, prior to the crisis, Cartier had already started to reflect on this, looking at what type of mix they would like on their variable pay. This is built around the philosophy of what type of behaviours they want to drive in terms of the boutiques. One of the outcomes of this consideration was the need to secure part of a base salary for all members of staff. This was particularly highlighted by the small crisis in France and the impact this had on the boutiques. The pandemic has accelerated the evolution around this topic, which has a core focus on caring for employees, offering security and offering prospective.

Has the pandemic affected gender equality and the gender pay gap?

There is a great deal of research that has concluded that women, and particularly lower skilled women, have been more heavily impacted financially by the pandemic than their male counterparts. Many females, even high skilled female workers, have felt the burden of care for family and relatives, which was extenuated during the crisis. Further research indicates that a lot of females have withdrawn from the workplace or reduced their working hours during the crisis. 

However, the crisis could be seen to help accelerate the equal pay agenda. As traditional set ups have been disrupted and people have had to reorganise themselves, with positive and negative impacts, the pandemic has provided an opportunity for companies to reassess all of their policies with fresh eyes. Furthermore, the introduction and continuation of flexible working will allow care givers (the majority of whom are women) the flexibility to work around supporting the needs of their family and community. 

Looking at the lowest paid and the highest paid individual is the very classical unadjusted pay gap, which is widely considered in the UK. Other parts of the world report on this differently. For example, they might consider factors such as seniority, job level and experience.  To really look at gender equality and pay,  a company needs to bring talented and capable females into the organisation to compare apples to apples. In fact, there is EU legislation emerging which will hopefully align all countries.

Companies, now more than ever, must be able to explain a reward policy as a whole. They must be able to give concrete illustrations of why a reward policy works and why there might be some gaps. It needs be meaningful for people otherwise it remains a very abstract conversation.

Can companies move away from hours focused pay to output focused pay?

Some employers favour remote working over office working because employees tend to work longer hours, meaning that productivity has increased. If you lose the concept of hours, there is a real worry that companies will begin to ask more of their employees. Companies have a duty of care to ensure that employees are striking the right balance between work and life. This is the hybrid world that Reward Leaders are going to have to navigate. Philips are already navigating this path, in some parts of the organisation. They encourage employees to take time off if needed as long as they are able to accomplish their job.

Of course, a shift to product based work is largely role dependent. Working in production could be considered output driven as employees are asked to produce products of the highest quality. However, the role would also be hours driven, employees need to turn up at certain time to handle the machinery etc.  

Have you identified any changes in employee expectations that are directly linked to the pandemic?

There is enormous pressure for stakeholders and shareholders to include ESG related measures in incentive arrangements, both short term and long term. This has so far proved difficult to do, to execute and to deliver. Some companies, such as Philips, have chosen to include this in their LTI and connected it to one of the United Nations sustainability goals. They measure lives improved or touched by Philips as well as measure their co2 reduction efforts. 

Messaging around ESG needs to come from the top down, so that it can become a part of the culture. 

If you have any queries or comments, please contact Michael Illert or Dona Battat. We are very much looking forward seeing you at one of our next HR events. 

Watch the full webinar below: