The future of reward in a cost-constrained world – a more radical approach to pay?

For a number of years now, I have been involved in analysing the results from PwC’s executive and management pay survey. In our recent survey, over 220 FTSE 350 organisations and equivalent private companies took part, giving us a comprehensive picture of the reward landscape in 2015 - what is most striking is how little reward has actually changed. 

Pension aside, the main component parts – salary, bonus and long-term incentives - continue in a similar form as they always have. So, while work and the workforce has changed, pay has not. And with greater buoyancy in the labour market, it is unsurprising that one of the biggest headaches for Heads of Reward is managing costs and delivering value for money in reward. 

So what happens to pay when cost constraints meet employee expectations? We think, as part of the Reward in 2020 agenda, that companies will have to innovate and introduce more radical approaches.

Here are a few predictions:

Outside the box benefits: Drawing from the tech sector, we’re seeing lots of new ideas that are changing the ‘employment deal’. Some of these, such as volunteering days, sports groups and yoga classes in the office will create a more social environment. Other companies are finding ways to enhance the employment offering by drawing on their purchasing power to save employees money on things like discount cards to mobile device insurance. We’ll see more of this in the future.

Customisation and choice: Flexible benefits are likely to become truly flexible by 2020. Companies are adopting analytics approaches, typically used to analyse customer preferences to measure the extent to which individuals value a workplace benefit against the cost to company. This helps companies determine how to communicate and target benefits. But data can be used to provide tailored offerings based on us as individuals. We could see for example the option to choose from a ‘lifestyle package’ which is around flexible working, additional holidays and childcare, to a ‘skills and training package’ where salary and bonus can be traded for external training.

Social recognition systems: Bonuses are already under scrutiny as an effective tool to drive performance. Organisations will continue to review the purpose of incentives but, as Generations Y and Z seek immediacy in feedback, we’ll see more spontaneous recognition. We’ll see new ways of recognising and rewarding contribution in the workplace and using gamification to generate a sense of competition and engagement.

Individualised pay arrangements: With limited budgets, the formulaic approach to pay may change. Pay decisions will become more targeted. They will reflect business criticality, skills acquired, market positioning and legacy pension arrangements. This will increasingly replace the one size fits all approach so that with a limited budget, spend can be focussed on areas of most need.

So – in short, change is in the air for reward. HR cannot do this alone though. Big data, employee views and business drivers will all be factors to help shape reward of the future. Watch our latest video to understand in more detail what Reward in 2020 could look like and how it could impact you.


Alastair Woods | Director
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