Nearly two thirds of UK private sector organisations plan to change their reward strategy over the year ahead, with almost half saying that the shift will be significant.
Our recent study entitled ‘Which way now for reward?’ revealed a number of drivers behind the move, with ‘employee engagement’ and ‘ensuring a clear link to business strategy’ topping the list. ‘Cost management’, ‘employee performance’ and ‘retaining talent’ came in joint third.
But two years ago, it was a very different story as the main driver at that time was clearly cost. Although this is still an important consideration from a reward perspective, a broader range of challenges and pressures are coming to the fore during 2012 as companies attempt to gain competitive advantage over rivals and try to build sustainable processes for the future.
What are the primary drivers in your decision-making around reward strategy and design for now and in 12 months?
But interestingly, how the concept of reward is viewed within organisations is also changing. Rather than being seen purely as an ‘HR issue’ to be dealt with in a systematic way, such measures are gaining credence within the boardroom as executives begin to recognise their capacity to boost employee engagement and performance.
This increased level of scrutiny and senior management involvement first emerged as a trend in 2010, but looks set to continue this year. Management teams are clearly realising the advantages that an appropriate approach to rewards can bring and are now asking questions about their people and corporate practices that they have not done before.
Re-engaging staff
While the initial catalyst for change might have been cost – rewards typically account for between 60% and 70% of an organisation’s total cost base – today the focus is on how to ensure that such schemes are used as effectively as possible.
As a result, HR professionals are having to think more strategically than ever before about their reward policies, considering how they can employ them to boost performance and support the organisation’s goals rather than simply present the required data and control costs.
Prior to the global recession, when the economic news was mostly positive and employees generally felt well-paid and secure in their jobs, employers did not feel the need to focus much on their ‘employer brand’ and/or image with both existing and potential employees.
But the recent much tougher economic climate, which has been marked by restructuring, redundancies and pay freezes, has had a seriously negative effect on the relationship between most organisations and their workforces.
Therefore, rebuilding trust and reputation will become a key activity for many employers over the coming year – and reward has a significant role to play here as it sends out a strong message on both an internal and external basis.
As companies start to review their reward strategies and evaluate how well aligned they are with business requirements, an increasing number are looking at how they can use it as an opportunity to re-engage with their employees.
To this end as well as to ensure that the needs of both the company and its employees are met, most are looking to involve workers in the review process by eliciting feedback and opinions. While there are limits as to how far such activity can go, this kind of information enables the organisation to communicate with staff more effectively.
And such communication is important. In our survey, the majority of firms voiced concern that they were not maximising their return on investment or getting the full benefits of engagement due to poor communication of their reward strategy. Employee surveys likewise continually highlight such communication as being a problem.
Embracing change
But the issue is that, if an organisation cannot afford to offer staff more pay, putting out a positive message about the full range of renumeration and other benefits available – the so-called ‘total reward’ – is essential in order to boost motivation. And failure to communicate properly is highly likely to result in people leaving or feeling disengaged because they feel disconnected from the company.
These trends combined with continuing economic difficulties are likely to make 2012 a difficult and highly challenging year for HR professionals in the UK.
Strong technical expertise will no longer be enough as the focus shifts towards contributing at a more strategic business level by helping the organisation change and realise its strategic goals.
This means that practitioners will need to engage with business managers much more directly than ever before and act more like business partners. The aim here is to really understand the organisation’s operating model and the big issues that affect it in order to link them to the rewards agenda.
By spending time evaluating the wider market and other sectors to see what they are doing, they will also be better placed to bring new ideas to the rewards agenda.
In summary, HR professionals should:
- Continually review how reward can be used to drive performance and support the organisation’s goals as well as understand how successful it has been at achieving these aims
- Link the rewards strategy with business requirements in order to ensure that it is used to solve real problems – such an approach means viewing rewards as a value add rather than a transactional service
- Initiate a conversation with employees to ensure that the reward strategy is fully understood and give them the opportunity to contribute ideas to help develop it further
- Immerse themselves more fully in the business, its processes, activities and influences and use the knowledge to feed positively into reward policy.
While changes of this nature and scale can be tricky, they are coming whether HR accepts them or not. So rather than fight them or ignore them, it makes sense to embrace such change as a useful means of helping the organisation thrive and ensuring that employees feel valued and supported.
James Littlejohn is a consultant at management consultancy, Hay Group.
