Transformation Has Touched Every Part of the Workplace – Except Reward
Our workplaces are in a state of flux. Areas including performance management, recruitment practices and learning and development have evolved over the last 15 years with the widespread adoption of social media and more collaborative ways of working. Long-established norms, such as in-office requirements, 9-5 workdays and more had been called into question well before the pandemic, but the last 18 months pushed those debates into overdrive. But one area has remained largely untouched in all of this — until now: reward.
The Pandemic Pushed Reward Into the Spotlight
Pay rates and differentials came into the spotlight in large part as a result of the pandemic. The pandemic highlighted the critical role of frontline workers and the disparity between their pay and the esteem in which they're held by the general public. Tech firms debated cutting the salaries of white collar workers who took advantage of new remote work policies to relocate out of expensive major cities. Executives, who in some cases started the pandemic by reducing their pay, later sought pay packages typical of previous years — and found shareholders less willing to support them.
The increased focus on social justice also brought gender and racial pay gaps into focus. More generally, people emerged from the pandemic with a renewed interest in seeking purpose and meaning in the workplace, which means reward needs to become less Pavlovian and instead emphasize fairness, belonging and mutuality. While these non-financial rewards will play a part in any new reward strategy, pay will likely remain the central focus.
Internal Workplace Factors Generate New Reward Requirements
The rise of remote and hybrid working also meant that many regionally-based organizations could now employ people who live across a nation or around the world. What constitutes an "employee" is changing as well, as organizations increasingly incorporate multiple categories of worker, including giggers and contractors, rather than a workforce of full-time staff members.
New methods of organizing people have grown more common, such as cross-functional teams, communities and networks. These newer organization forms provide people with more varied opportunities to contribute. Performance is increasingly a result therefore of working with other people rather than contributing independently.
All of these shifts resulted in much more variation in the needs and the values of an organization's workforce. So managing people using the directive and centralized approaches previously so common make even less sense today. Given the geographic and organizational distribution of people, it makes little sense to continue paying people based on functional specialism, individual performance or their progress up a hierarchy.
Compensation and Benefits Grow Increasingly Complex
Pay will grow more complex as it responds to a range of factors.
In an environment where some workers are paid for outputs, it makes sense for traditional employee rewards to be more output- or impact-based too. Doing so will reduce market alignment, but we need to move away from that anyway if we are ever going to stop perpetuating the biases behind gender and ethnicity pay gaps.
Reward will also need to recognize the broader value employees provide, including their established relationships with one another. Network centrality, knowledge sharing or teaming behaviors will therefore link to reward. Reward for tenure might even make a resurgence, with length of service acting as a proxy for organizational relatedness.
Performance will clearly remain part of reward decisions, however, bonuses will increasingly need to be linked to team and organizational performance, encouraging collaboration within teams. Bonuses may need to be reframed as discretionary payments for positive impacts rather than incentives designed to motivate (or manipulate) people to exhibit certain behaviors.
Recognition will remain a key element in the world of non-financial reward. Organizations may also want to think about how they help employees achieve their own goals, inside or outside of the organization, as the most genuinely people-centric type of benefit they can provide.
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These represent a much more complicated mix of reward elements than currently in play. And yet many organizations will likely want to keep pay simple, to maintain a deeper, non-transactional relationship with their employees, which allows them to focus on more important things (like improving products and serving customers).
However, good technology, including the use of AI to help personalize reward, could make more complex reward structures manageable. HR leaders will also want to cultivate a culture of transparency to help people understand quickly and easily the value of the rewards they receive, and what they would need to do differently to increase these.
How to Develop Your Own Best-Fit Reward Strategy
Adopting a differentiated reward approach requires clarity about what is being rewarded.
My advice on developing a transformed reward approach is to start with clear objectives and principles. Objectives explain what your reward approach will contribute to business performance. Principles identify how reward will work as it does this, and how it will meet employees’ needs as well. Jessica Hayes shared a good example of what this looks like in practice here.
Technology is important, as it is to any area of workforce strategy. Modeling and simulation can make planning reward changes easier and also give confidence to leaders that the risks involved in reward transformation will be offset by the potential benefits of change.
Two other key requirements are firstly to consult with the workforce to develop the transformed approach to ensure a sense of procedural justice. Secondly, take care that any changes to reward only ever leave people better off, or at least at the same level. Missing these two steps will mean that even the most creative transformational approaches (such as United Airlines’ bonus lottery a few years ago) will fall flat.
Use Reward as the Glue to Make Other Workplace Changes Stick
Reward is an important enabler to organizational performance. With so much in the workplace being transformed, now is the time to rework reward to help make these other changes stick.
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About the Author
Jon Ingham is a people and organization strategist who provides training and consulting through his Strategic HR Academy. Jon has also written several articles, book chapters and books on the future of work and of HR, including "Building Better HR Departments" (with Dave Ulrich, 2016) and "The Social Organization" (2017).