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It’s broke.. so mend it!

Economic recovery may be in the air, but if we want to ensure that we have the right foundations for sustainable growth, organisations must now rethink the way they approach the reward mix. Andy Philpott is sales and marketing director at Edenred UK, guides.

This autumn marked the fifth anniversary of the 2008 financial crisis. If it is still hard to believe that the irresponsible governance of one sector could wreak so much havoc in the UK economy for so long, it is also still difficult to credit the extent to which a misplaced approach to reward could be responsible for so much of that damage.

One unexpected consequence of the credit crunch, is the extent to which the things we have learnt about what went on in the banking sector have redefined the way organisations think about employee reward. Gone is the tolerance for big bonuses and large executive reward. There is also an ever more acute sense in the mainstream that organisations can’t let profit take precedence over behaviour. The issues of fairness and ‘doing the right thing’ now loom large in decision making about reward and remuneration. The fact that the John Lewis Partnership – once seen as a relatively old-fashioned retailer with an approach to business out of line with the sharp shooters of the modern business world – is now the poster-boy and exemplar of all that can be good about the way employers should manage and reward their staff is some measure of the new climate we find ourselves in. While there is arguably a much healthier climate for reward where many know acknowledge the risks of excess, HR also faces stiff challenges in ensuring they can put together the right reward packages for employees.

Pressure on costs means that pay awards continue to track below inflation leaving many employees worse off in real terms than they were in 2008. Where pay awards and bonuses are given, there is greater than ever media scrutiny. More broadly, in many organisations every budget is up for scrutiny. It isn’t just a question of doing more for less but justifying business impact and showing a clear return for the organisation. This means increased pressure on the non-pay elements of the reward mix such as benefits. At the same time the business imperative remains to attract retain and inspire employees is as important as ever. As challenging as all this may seem, there is plenty HR practitioners can do as they plan for 2014 to ensure that their organisations approach reward in a way which deliver the right commercial outcomes for their organisations.

Part of this comes down to culture and part of this comes down to rethinking the way organisations approach their investment in the reward mix. HR has a role to play in both areas. Starting with culture, the first job for HR is to set the right context for decision making about pay reward. Here the main challenge is to take a lead in debunking the simplistic idea that salary and bonuses will deliver the right results for an organisation. Money is important but financial recognition isn’t what motivates employees. As recent research from the Institute of Leadership and Management illustrated, only 13 percent of employees say bonuses spur them to greater performance. What matters is the quality of management, the nature of each employee’s role and the quality of workplace relationships.

HR needs to make sure that leaders continue to understand this message. They also need equip managers to use recognition, whether that is a simple thank you, praise or positive feedback to a team – effectively to motivate their teams for work well done and move away from a reliance on pure financial reward. A second area to tackle with regard to culture is the role employee behaviour plays in reward. One of the most damaging consequences of bonus-based reward for employees at all levels is how it can distort priorities away from what might be best for an organisation and its clients in the long term. The need is therefore to emphasise to employees and managers that when it comes to performance, the organisation values behaviours as much as outcomes, the means as much as the end.

These cultural changes can’t be delivered overnight, but it is important that HR takes the lead in ensuring they form part of the thinking for their organisation as they move forward into 2014. In the shorter term, there is a lot that organisations can do to address the way they invest in the reward mix so it does a better job for the organisation and its employees. An important starting point is to broaden the way organisations think about reward away from headline pay. There are three reasons for doing this. The first is that many employers simply can’t afford to pay employees more, the second is that simply paying people more doesn’t necessarily equate to better performance and the third is that employers already invest significantly in benefits which are still poorly understood and underutilised.

The challenge here is to improve communication about non-pay elements of employee reward. This total reward approach may not be new, but it remains the clearest opportunity for many organisations to improve perceptions about the value of reward, pay and benefits for employees. If organisations don’t communicate effectively just what is on offer and how much that is worth, from pensions to training and all the paid for benefits employees receive, then employees will not value what is there. Equally in the ‘use it or lose it’ budget culture, if HR cannot show a better return on this investment, then it will be hard to sustain this important part of the reward mix.

The next area for organisations to embrace is more innovation in reward and recognition. There are a number of things organisations can do to deliver this. The first is to get better insight on the different employee segments in the organisation and develop a specific benefits proposition for each group which appeals to their needs. Typical groups to target include working parents and older employees who have specific needs which can be addressed through a broader pay and benefits package. Linked to this is the introduction of non-traditional forms of reward and benefits: emergency childcare, volunteering programmes and sabbaticals are all valued by employees but rarely given prominence in a benefits package.

A last element of innovation comes around choice. Employees are increasingly used to a personalised experience as consumers and are importing this into the rest of their lives. Flexible benefits schemes which allow employees choice around benefits are one way of delivering this choice but so too is an approach which is based on listening to employee needs and refining the reward mix. Finally another focus is for the HR team to think about how it thinks and works when it comes to reward. Here, typically organisations, particularly larger ones, work in silos with those responsible for policy working separately from a team who will be focused on the tactical elements of the benefits mix. In smaller organisations there may be a lack of knowledge of best practice with regard to the reward mix. The challenge here is to think more strategically about how HR policy, facilities, technology and benefits can work together to create a better employee value proposition when it comes to reward. With a fuller economic recovery in prospect in 2014, now is the time for HR to lay the right foundations to grow and prosper by rethinking their approach to reward.

The 2013 edition of our own research found that for UK employees dissatisfaction with pay and benefits meant that some 48 percent of employees questioned were currently planning to move jobs. One in six employees indicated they were dissatisfied with their benefits and a similar number said they were not satisfied with their pay. Half of employees said that recognition for the contribution to their organisation was below their expectations and a similar number said communications fell short of their expectations. When it came to the role of managers, just under half (48 percent) said they knew how encourage their teams to perform and just over half (52 percent) said they were good at motivating employees. The survey also confirmed rising dissatisfaction with their purchasing power faced with rising living costs. While the findings of the research point to a need for employers to address concerns about reward it is also clear they need to address the ability of managers to motivate and recognise the contribution of employees if they are to change the way their people feel about their organisations.

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