Ken Charman: Creating a reward strategy for the digital age

Recognition is becoming a motivational necessity. According to a recent survey across the US, UK and Australia, employees are rejecting generic and annual rewards as inadequate, instead demanding to be recognised in more timely and meaningful ways. Only 20 per cent of US employees surveyed noted that they liked receiving praise at a single event or function, while 63 per cent agreed that their managers could do more to praise and thank them in a timely, specific way.

Perhaps a more pertinent question, therefore, is whether your company has effective access to the data that shows whether employees understand their total reward and are satisfied with them?

Recognition payments are a slice of the reward cake, but the whole cake covers much more than an instant hit of sugar.  Reward, is monthly pay, bonuses, pensions, health insurance, benefits, long-term incentives, short-term incentives, share purchase schemes and, arguably, skills development, status and rank, holiday time and flexible working.

That’s a complex spectrum and, for companies to create a reward strategy that is fit for the future of work, HR professionals must have all of this information digitised and at their fingertips. Unfortunately, that simply isn’t the case right now.

Siloed data is still a problem

One of the biggest hurdles that HR departments face in revamping their strategy for the future of work is the fact that reward had grown organically in response to demand, and is not centrally administered. This is particularly true of large, multinational corporations with distributed workforces. Reward varies with national, legal, cultural and market norms. As a result, the method and amount you reward people for doing the same work changes dramatically across international borders. Total reward calculations that cover all aspects of reward are threaded, and the result of conditional relationships with regulatory minimums and maximums, flexibility, eligibility, performance and many other factors. These make answering simple instructions like “show that individual a statement of their total reward” or “show the total value of reward the company invests in that individual or group of individuals” difficult. When the data required to answer these queries is spread across many localized systems running across many countries, the process of calculation is a long, laborious and manual challenge.

The effort required to consolidate data is so large and complex that most companies are forced to compromise. They produce Total Reward Statements for individual employees only once a year, and make do with data that is easy to report such as fixed pay and bonuses.

As employees do not routinely see the value of their pensions or shares, for instance, they can become dissatisfied with what seems like inadequate recognition. Additionally, HR professionals do not see all the data they need to make important business decisions. They can only see part of how a change in rewards might affect the business. About 20-30 per cent of reward cannot be accurately related back to individual employees when companies are making big decisions about workforce planning and restructuring. Large reward investments are “allocated” via blanket assumptions rather than showing actual cost.

Potentially more worrying, though, is the fact that this blindness means they do not have accurate data to meet important new regulations for corporate reporting. For example, pay ratio reporting for the new UK corporate governance code requires that a company’s remuneration across their business is aligned with their stated culture and strategy. Furthermore, they must justify their actions and not just comply with these regulations, which is virtually impossible without the data. With the vast majority of organisations basing this reporting on assumptions and models, rather than auditable actuals, the risk is obvious.

Steps towards a new strategy

At Unilever, the company took the important step of identifying what the company really needed in pursuit of a consolidated, digital reward platform rather than taking something off the shelf that would only address part of their requirements. In my experience, practitioner-led solutions that have been built and are maintained by professionals with real HR industry experience are usually the best option for organisations that don’t fully understand which solution fits their needs. For reward management at Unilever this met building a digital total reward platform from the ground up to consolidate all reward data for all individuals in real-time. Employees can see the total value of the company investment and recognition of their service whenever they choose, and the company can see the full cost of every individual. Without digital consolidation this would have been impossible.

Introducing data science skills into your organisation as you invest in the new wave of HR technologies is also important, so you can make the most of your investment. That means having intellectually curious people who can interrogate and interpret the data, deciphering where it has come from, what it tells them and what the anomalies are.

Unilever are now able to experiment with reward data to truly understand what motivates its employees, leading to a much more evidence-based pursuit of key HR goals and higher employee engagement and retention. Additionally the system addresses the growing number of analytical requirements, such reporting pay ratios and workforce planning.

The system automates the process of extracting, converting and consolidating profile data from its many sources. It then uses a rules engine to apply reward policies to calculate totals at the individual employee level. Employees can see the full value of Unilever’s investment in their personal reward while HR departments can save huge amounts of time and money in manual administration.

The benefits of getting it right

Looking ahead, companies, leaders and HR departments will likely have to deal with a totally different landscape of work.

Flat and informal structures that enable flexibility in meeting project requirements will have to be balanced with transparency around recognition and reward. As baby boomers retire, millennials will take on more of the decision making, including how remuneration is structured and why greater personalisation is required.

These new paradigms can only be enabled if companies have a reward strategy that is fit for the digital age. Personalisation of reward, the gradual shift away from grading hierarchies, the erosion and blurring of traditional job definitions will vastly complicate the old ways of administrating reward. A digital approach is vital.

Such an approach involves consolidation of data as a first step, so agile workers are able to customise their financial rewards and employment benefits to suit this new way of working. Not only that, statutory reporting will become much more efficient, so companies can tell the full story of rewards and remuneration rather than be simplistically labelled with negative headlines.

Accessing total rewards may seem like a daunting task to the companies that know their data is separated and siloed at present. But the prize for making the change to a digital strategy for a digital age is the ability to retain and attract the talent that is in increasingly short supply.