The Reward Renaissance

The world of work is changing rapidly. Advancements in technology and evolving workforce behaviour have been turbocharged by the pandemic and years of lockdown. The way we work now – and the way we will work in the future – requires serious changes from organisations to meet expectations and secure the right talent.

One of the most critical areas that isn’t changing fast enough is the way the workforce is rewarded, via pay and benefits, bonuses and compensation. Organisations continue to adhere to decades-old approaches despite the transformation of the workplace and their staff. New frameworks and models are needed to ensure the reward strategies are fit for purpose, serving both a changed workforce and attracting talent in the years ahead.

What’s shaping the future of work?

For those currently in the workforce, the changes are palpable. Traditional hierarchies are being challenged by evolving contractual agreements, and this in turn demands new operational models. Flexibility is becoming key, for both the organisation and the worker, whether in regards roles, location or hours of work, or expectations.

There is an increasing diversity in all senses of the word, with this broader workforce bringing expectations around greater personalisation and control over their working life. Changes are not only influenced by the lockdowns of recent years; society is changing, as is technology and the digital advancements that are increasingly becoming accessible to industry to replace certain roles. Innovations such as automation are seen more frequently, but these serve to widen the skills gap as training and development fails to keep pace with the new roles that remain alongside tools and digital solutions.

Reward strategies need an upgrade

Considering all this, reward strategies are fast becoming obsolete. There has been little to no change in the way organisations reward their staff since the 1990s, with a ‘one-size-fits-all’ approach lingering despite the rapid evolution of all other aspects of work. Greater consideration needs to be made for the psychology and philosophy of the future workforce; reward needs to be seeking to motivate and engage staff, to make them feel valued and support them to be at their best.

Indeed, the workforce expects these new strategies and is increasingly prioritising their fulfilment and well-being over the demands of an employer. There is an expectation of greater flexibility and personalisation – expectations fostered by cultural behaviours such as streaming and e-commerce, ‘next-day delivery’ and ample choice – and will increasingly see training and development as critical parts of the reward package.

It’s not all about the workers

It’s important to stress that this evolution isn’t all to the benefit of the employee; organisations stand to gain if they are able to monitor the trends and respond to optimise them. For example, organisations can take advantage of the fluid, flexible workforce by becoming more agile in their staffing, helping to lower their costs by hiring contractors, gig economy workers or freelancers as needed.

We’ve moved from what used to be a strong co-dependence between employer and employee, to a situation in which both can develop economic resilience. The challenge is that employees want to live, work and earn differently – the organisation benefits from flexibility – but still need financial security. This is where more progress is needed; the framework and strategies that underpins pay and reward are stuck in the past, as is legislation and wider social norms, as the world of work evolves rapidly.

What does future reward look like?

The future of reward will be one built on different, more appropriate philosophies. Organisations need to move from pay secrecy to transparency, which will empower the workforce while enabling an employer to hire where and who is needed.

Personalisation needs to be a core component. Workers will need to be able to personalise the pay offer, with broader models to cater to a diverse workforce and meet the changing societal value system in which well-being and work-life balance are increasingly prized (we will see more companies offering ‘unlimited annual leave’, for example). Rewards and benefits will become more creative and flexible, and respond to life stages, values and needs of the individual.

Pay will also shift from performance-based to skills- and competency-focused, allowing an employer to gain the most out of their employee while also encouraging learning and development, helping to increase retention. Automation will play an increasingly large role in delivering this new reward system, putting choices into the hands of employees. This will foster loyalty, make staff feel valued and keen to be at their best – which in turn helps the organisation.

Some companies are already exploring new systems for paying and rewarding their employees, especially since the global pandemic shifted workforce expectations so seismically. For example, one company ran a pilot to assess staff interest in being able to personalise their compensation, choosing upfront if they want to keep their base/bonus pay mix, or electing to shift some of the base amount to higher bonus in the mix, at a rate of 1.25 per dollar of base salary foregone. Or vice-versa, moving variable pay to base pay and a rate of 75%. More employees opted for the higher base pay number, which made it less expensive overall and yet had a higher retention value for staff.

Another company provided the option for staff to receive a portion of their base pay in cryptocurrency rather than in fiat. This was especially appealing for the younger staff in the organization. Yet another implemented a long-term incentive defined in cryptocurrency. This approach operates like a stock option for staff and was chosen by 40% of the workforce, notably mostly those under 30. This highlights how age the broadening of the age range of the workforce is a key factor in the need for personalisation of reward because values, opinions and risk profiles vary across demographics. Unfortunately, the company discovered after implementation that the crypto option made tax complex for both the organisation and their employees. In fact, they were ready to set expatriate pay in crypto currency with the advantage of a single payroll, but taxes and forex fluctuations made it difficult. This is a reminder that national legislation and policies fail to keep pace with the evolution in digital technologies and the working world.

Ready for the Reward Renaissance   

These examples show there is a long way to go to develop frameworks and systems that are going to meet the demands and needs of a changing working world. That said, they also should also encourage us all that many across all industries have started to recognise the need to change their reward strategies and are exploring new options to lay the way for the future we need.

In an ideal world, we are heading towards a Reward Renaissance. Our single-minded Pay-for-performance approach will co-exist along with Pay-for-development, Pay-for-retention, Benefits-for -performance, Pay-for-location, and perhaps a few other models that will emerge as we move boldly into this new world of work. This will focus on pay equity and transparency of process and fairness. It will offer employees a competitive pay package that is more aligned to their individual needs, as well as to the culture of the organisation itself. Reward may become a large part of the decision-making process for would-be employees.

We will see FlexPay and new technologies being used to put the reward decisions into the hands of the employee, who will select their package based on needs, values, motivations and their risk profile. Aspects of life such as well-being will be as critical as financial stability, as will a space for flexibility and guarantees around training and professional development.

It’s going to be exciting. The future of reward is one that will fit perfectly with the changes in the working world and meet the needs of all those within it. But it won’t happen without a collaborative, serious effort to commit to and explore change within the reward landscape, and the bravery to reject old models and re-build from the ground up. Creative solutions are needed to take the steps necessary to ensure reward and pay remains aligned with the ways in which we work.

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Dr Fermin Diez is one of Asia’s leading HR experts. He has over 35 years of experience in this field, and through his writing, consultancy, and lecturing, he explores the future of the workplace and what the changes mean for HR and reward. Read more of his work at www.fermin.diez.com