The future of employee reward?

One thing about writing on the future is that at the time of writing you cannot be wrong even though you almost certainly will be. However, by the time the future becomes the present almost everyone will have forgotten what you predicted. So with that comfort in mind I give here some of my ideas on how I see the future of reward over the next 5 to 10 years. I have identified six themes and for each I suggest the impact on reward. Some seem to me pretty obvious and just look like a continuation of existing trends. Others may be new.

1. Employee Engagement

The case is now proved that there is a positive correlation between levels of employee engagement and a great number of business measures. For example, Gallup found in 2006 that of 23,910 business units, those in the top half of employee engagement scores had 27% higher profitability than those in the bottom half. The more highly engaged – average 2.7 day’s sickness a year. Disengaged employees average 6.2 days a year. Gallup also found that the earnings per share growth of 89 companies with engagement scores in the top quartile was 2.6 times that of organisations with below average engagement scores.

And it looks like the HR community has now got it. A survey of UK HR professionals found that employee engagement was their number one priority. 55% of respondents were measuring engagement and 88% were trying to improve it. (The State of Human Resources Survey, 2010). So what about the implications on reward for the future? I suggest the following four will be key:

  • Align staff reward to values
  • Work together with Learning and Development colleagues on issues and solutions – make them more ‘joined up’
  • Challenge assumptions on extrinsic reward
  • Use qualitative not just quantitative measures.

2. Generation Y

In a recent survey (Personnel Today, September 2008) the three most important job factors for this generation were: Holiday entitlement, Recognition for good work and Salary/bonus.

The twenty somethings making up generation Y seem to be full of paradoxes. Environmentally aware, but often selfish; wanting to be seen to make a difference but with an entitlement mentality; wanting freedom and their own time but a good salary. This will continue to be a challenge for HR and Reward in particular. I see that the implications for reward strategy are that we will need to:

  • Find ways to give people more control over time; use different contracts
  • Concentrate on the outputs, not the inputs
  • Develop new and even more flexible benefit plans
  • Ensure better feedback mechanisms and communicate pay messages clearly.

3. Social Networking

This virtual world is developing very rapidly. We used to look for answers in books. Then we looked at the internet. Now we ask people via the internet. Information can no longer be controlled by companies as it used to be. You can find out what it’s like to work for a particular organisation because people tell you through the social networking sites. Things will become even more transparent. People will be even better informed about your organisation including pay and benefit levels with exchanges of pay data. My initial thoughts on the implication for reward management are:

  • Rethink your pay policy and what is ‘confidential’; as it is less likely to be
  • As data will be exchanged anyway outside the organisation look at introducing forums
  • Get the performance management system in shape as it will be scrutinised even more.

4. Life expectancy

Life expectancy continues to increase and we have not yet had a leap from the world of genetics; but it will come within the next 10 years.

The Euroland crisis has forced some governments to increase their unsustainable state pension ages. Most defined benefit pension plans are closed to new members and closing to existing members. Some acquisitions are being stymied by the pension fund liabilities. Companies and governments need to have this issue on the front of their agenda. So I expect the following:

  • There will be a further move from state to company pension provision
  • Defined benefit plans will all close to existing members
  • New tax effective savings vehicles will develop.

5. Environment

Environmental issues have now become mainstream. We have or are reaching a tipping point. People are (being forced to) look at their carbon footprint at home and expect to see their companies implement changes to save energy. We will move to considering the ‘whole carbon footprint’ of products and of people: home, travel, work. This will continue as an important issue and will have further implications on how people are employed. Reward related issues will be:

  • Bonuses will need to reflect environmental impact
  • There will be more home working
  • There will be a radical change to cars and a reduction in company cars and no company provided fuel
  • Greener options will be the norm in flexible benefits plans
  • Greater need to communicate change with low environmental impact – recycled or ideally no paper: electronic only.

6. Shareholder pressure

Over the last few years there has been an increase in shareholders objecting to companies executive reward policies. Shareholders want to see an appropriate level of reward that reflects company performance. Executives are in the spotlight and are being held to account more than ever. This can only increase over the next few years. The obvious issues for executive reward are:

  • The need to take great care in designing executive compensation working with the Remuneration committee
  • Take a longer term view of what company success looks like and the appropriate levels of reward
  • Consider carefully the potential reputational issues in designing termination terms in executive contracts.

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