Total Reward Strategies: - Past, present and future; plan, purpose and practice

As we approach year-end, twenty years after publishing his first book on taking ‘Reward Strategies: from intent to impact’,  in the first part of this two-piece article, Duncan Brown makes a seasonal assessment of the state of reward strategy and total rewards packages today, and what’s needed in the future, based on the conference, events and experiences he has recently been part of. Today he considers the shifts towards more planned and purpose-driven reward strategies. Tomorrow he will focus on their practical implementation and communications.

.‘Abi tu, et fac similiter’!

Change, change, change… but where are we heading?

I have had an excellent last fortnight on the professional front, finding myself at the centre of a wonderful wealth of ‘action-learning’ and knowledge on the latest trends, experiences, challenges, priorities and views on the contemporary total rewards agenda.

First, late last month I moderated a lively, at times angry, reward leaders’ roundtable at the jam-packed Reward and Benefits Association (REBA) Future Forum 2024. The session was on the impact of this still newish Labour government, and specifically its employment rights bill, on our work. Like their latest opinion poll ratings, this was almost unanimously rated as negative and falling by my fellow delegates.

Then earlier this month i presented some of my IES research and consulting material in a well-attended webinar, Transforming HE workplaces: The power of Total Reward run by my good friends at UCEA (the employer body for Higher Education, who have done such a great job in helping to raise the standards of reward management in their sector).

And finally last week, perhaps the highlight was facilitating our six-monthly two-day total reward strategy masterclass programme, organised brilliantly as usual by E-reward, involving a wonderful group of multi-sector, multinational reward leaders and senior professionals.

Wow! Lots of information, powerpoint slides, scribbled notes and transcripts, ideas and opinions, and subsequent report and survey downloads, for me to process and reflect on.

So what would be my most important initial impressions and ideas on what this all says about the contemporary state of strategic total reward and pay and benefits management in the UK?

I would pull out three key areas and directions of travel for HR and reward professionals to focus on in this highly uncertain political and economic climate we face in terms of their current priorities and 2025 requirements: strategic reward plans, purpose and values-aligned rewards, and rewards delivery and practice.

1. Get more strategic and a reward plan

In an important blog post last week ,responding to some current high-profile incidents and resulting criticisms of the HR profession – see for example ‘Is HR holding back the economy?’ in last week’s New Statesman - CIPD’s CEO Peter Cheese characterises CIPD’s members as ‘people doing important work in challenging situations’.

Our reward and benefits community certainly has been, and continues to demonstrate, both of these dimensions in their work on a widespread basis. This has been particularly evident since Covid struck in 2020 and through the raft of subsequent economic, labour supply and wider geo-political crises that we have experienced.

‘HR are the heroes!’ expressed an apparently surprised as well as delighted HR manager in Brightmine’s Annual survey of HR roles and responsibilities in early 2021. Our generally excellent immediate emergency  responses to the pandemic and subsequent staffing and cost of living crises has produced what leading HR thinker Perry Timms christened at our IES HR Directors’ annual retreat as a ‘Covid dividend ‘ for the function. Reward and employment issues have become even more central to our organisation’s strategy and mission in the 2020s, with one survey showing a tripling of the time that boardrooms are spending on these people and reward issues.

As Peter Cheese goes on to argues vehemently:

‘Today’s HR professionals are key to realising business priorities, driving performance, skills development and transformation. These are not just HR agendas but core business imperatives. The profession has adapted and responded to meet the challenges of a changing world’.

The surprise increase in employer National Insurance Contributions announced by Chancellor Rachel Reeves in late October’s Budget (from 13.8% to 15%, with the minimum salary contribution threshold almost halved to £5,000 pa), following on from the announcement of a 6.7% increase in the adult National Living Wage, is just the latest unplanned ‘shock’ we are having to respond and provide our boards and leaders with answers to.

It was the focus of some angry exchanges at my reward leaders’ roundtable at the REBA conference, (and has led already, for example, to some 2/3rds of charities to forecast service and/or headcount reductions as a result).

This is the latest area where chief executives are looking to their HR and reward leaders to ‘square the circle’ of the simultaneous need for lower costs and efficiencies, higher productivity and performance, and improved employee engagement. And fast! As Sky’s CEO Dana Strong expressed it this week ‘Its material… it’s not a small shift. (But) am I worried? No. We always figure out our way through it’.

But does CEOs’ new-found confidence in their reward and HR leaders to respond and work ‘our way through it’ also suggest we may have become almost too good at emergency, short-term responses and not focused enough on the longer-term direction and plan as to how to get there? Labour itself came to power with an election manifesto a ‘plan for change’, promising to  ‘stop the endless Conservative chaos that has directly harmed the finances of every family in. Britain’ and to implement, a ‘plan for economic growth’.

The need for a strategic plan seems to be a clear realisation now for many of the delegates and reward and HR leaders I have been chatting with at these events. And its now driving more serious and intense activity on revisiting, updating and rebranding their total rewards strategies – a priority identified by the majority – 60% - of the 7,000 UK and international reward leaders in Korn Ferry’s latest Global Total Rewards Pulse Survey published last month.

50% of these organisations have implemented moderate to significant changes to their rewards in the past two years, with 60% planning such adjustments in 2025/6. A total rewards strategy is key to providing this direction and understanding of rewards for our executives and employees, as well as coherence to a shifting and complex web of practices, integrating the increasingly wide variety of pay, benefits and non-financial rewards now being provided.

When Michael Armstrong and I updated the sixth edition of our Handbook of Reward Management Strategy in 2019, that was the first time we included a separate chapter on wellbeing and its financial and mental health determinants. Yet now in the latest edition it’s a key area bulging with all of the new, innovative and updated wellbeing and health benefits that employers have so rapidly adopted and adapted in the 2020s. Electric Vehicle salary sacrifice schemes (the British Vehicle Rental and Leasing Association’s research shows employer adoption rose by 47% in 2023, with 84% of employees eligible for a car within them opting for an EV), financial education libraries, mental health and stress management apps, ‘supercharged EAPs’: there’s a huge variety of employee benefits that were widely in evidence at these various events.

Yet the approach to introducing and updating these benefits, and to particularly those focused on improving employee wellbeing and thereby engagement and performance, was likened by one of my head of reward friends at the conference to ‘throwing spaghetti at the wall and hoping some of it sticks’, in terms of take up and impact.

Similarly on pay, Korn Ferry’s survey and many of the case studies at my recent events present a general picture of what they term pay ‘ad hocery’ in response particularly to the intense labour market and skill shortages that the UK is suffering from. The responses range  from offering ‘golden hellos’ for chefs and business school professors, through to thrice-annual pay reviews for supermarket workers, and even now to retention bonuses for Father Christmases.

Such ‘quick fixes’ have their place in any employer’s reward toolkit. But used on a widespread and sustained basis they risk becoming dysfunctional and present serious risks for our medium to long term reward goals of employee recruitment, retention and motivation/engagement.

They have been the basis for some of the most famous successful equal pay claims against employers for example. And they have contributed to the common situation in recent months of new recruits being paid more than competent and experienced existing staff doing the same jobs.

No wonder many employers fear any element of compulsory pay transparency, when the UK trend in recent years has been in the opposite direction, as the CIPD’s latest Pay, Performance and Transparency research demonstrates. Employees in some sectors have also ‘wised up’ to the fact that the pay increases achieved by moving employers in recent years have been three to four times the average annual pay award for ‘in situ’ employees.

In effect employers with their supposed recruitment ‘fixes’ have been simultaneously defeating  their retention goal, incentivising in effect people to ‘jump ship’ to achieve higher pay.

So it’s vital now, after the apparent initial success of our immediate emergency reward responses, to get more strategic and planned, if only to better prioritise and focus our work in a tightly resource-constrained context, both labour supply and finances-wise, a ‘talent/cost’ crunch as one well-known HR consultancy has described it.

It has undoubtedly become much harder in this decade of shocks and uncertainty to set out this clear future direction and strategic plan, in HR, rewards and business as a whole. As Melissa Swift’s article in the current edition of The Sloan Management Review describes it:

‘With exponentially escalating business complexity; diminished civility; and intrusive, pervasive technological interruptions, leaders may feel like it’s barely possible to keep order, let alone lead employees on an inspiring journey. Even if you can work through the complexity of a multi-strategy environment where strategies stack atop each other precariously, keeping strategy execution on track amid constantly changing data and general initiative overload is a Herculean labor — or, worse, maybe a Sisyphean one’.

But many reward leaders are addressing these strategic challenges head on now. REBA’s latest reward trends research produced with Barnett Waddingham launched at the conference finds that:

‘As organisations rise to these immediate challenges, the report indicates strong strategic responses to macro trends, such as adapting pay strategies to support greater flexibility, skills development and reskilling, enhancing employee value propositions by offering comprehensive benefits, and investments that promote demonstrable improvements in long-term health.’

Korn Ferry similarly found many examples now occurring of more fundamental changes to pay and benefits structures, such as job evaluation reforms and use of skills-based pay progression.

To give a couple of many examples from my events:

·       Olivia Farley, the Reward Programme Manager at NHS employers described at the UCEA webinar how the NHS Long Term Workforce Plan published last year ‘sets out how the Service will address existing and future workforce challenges by recruiting and retaining more staff and improving the experience of both staff and patients’. This is the basis for the workforce and reward strategies now evident in many NHS trusts;

·       Claire Kennedy, Head of Reward & Recognition at the University of Lincoln at the same event described how their newly-formed People, Performance and Culture leadership team has worked up a new strategy, with eight priorities to deliver. These include, importantly, ‘to refresh our Reward and Recognition Strategy’ so as to deliver on their core principle ‘to create a high performing culture’ and ‘to have clear mechanisms for Reward and Recognition in all roles within the University.’

Her primary objective is to deliver a ‘total reward (package) to attract, motivate, retain high performing colleagues who feel valued, listened to and engaged with the organisation’.

But in the current economic and employment climate, will even providing a clear strategic direction and detailed plan of activities suffice? As Melissa Swift suggests, successful CEO’s (and HR and reward leaders) today need also to offer an ‘inspiring vision’.

To illustrate, Dana Strong describes perhaps the key aspect of her CEO role as being to ‘alter the culture of the first two decades’ at Sky, so as to ‘dial up collaboration and partnership’, in what has been historically ‘a friction-based culture’ set by powerful (male) autocratic leaders. Leaders she continues have to be able to deliver their strategies into practice, into the ‘real-life’ of employee experiences, if the culture is to change, perhaps the most difficult challenge of all.

2. Align rewards with your purpose, values and culture

Our still relatively new Labour government is busily working up its plans, missions and targets. Yet for many already disappointed commentators and voters something important is lacking from all of this activity. As the normally more left-brain-oriented editorial board at the FT put it in its verdict on the party’s first annual conference back in government: ‘Starmer the forensic ex-prosecutor should not underestimate what Bill Clinton called the “vision thing”. Government still has to communicate more clearly the essence of its purpose. The prime minister went some way with talk of a future-facing NHS, secure borders, clean energy, new homes, roads and schools. But he needs to pull the strands together into a ‘Big Idea’.’

What’s the future-facing ‘big idea’ driving your reward strategy, and how aligned are your pay and rewards with the culture and values of your organisation?

Traditionally employers could get away with vapid wish-statements of corporate values and cultures, like being fair and team-oriented, whilst simultaneously pursuing increasingly individualistic, differentiated and confidential pay policies and practices with status-driven benefits. But as the CEO’s who assured their employees when Covid struck that ‘we are all in this together’; or how totally committed they were to diversity in the wake of George Floyd’s murder rapidly discovered, in the more complex, multi-stakeholder and social media-influenced 2020s, such inconsistencies will be rapidly spotted and called out, by internal and external stakeholders.

Just read through a selection of the comments on a  forum such as Glassdoor about your employer and you will see that particularly younger employees are looking for an employer that they feel is fair and aligned with their personal values. And with such a tight global labour market still in many occupations, they are prepared and able to move to try to achieve it.

In terms of external stakeholders, it was investors that forced Amazon to investigate claims that its reward and employment policies in practice discriminated against its ethnic minority workers. And on the second day of our reward strategy programme last week, the controversial CEO of Stellantis  Carlos Tavares (2023 earnings a cool 36.49 million euros), who last month announced the closure of the plant in Luton where I started my career in HR and reward, was relieved of his duties.

The former mayor of Turin, where Stellantis has its Italian headquarters and some 10,000 employees are currently furloughed due to the collapse in demand for their EV models, said it was “indecent” that Tavares was walking away with a large exit package, as “thousands of workers struggle to make ends meet”. Italy’s deputy prime minister Matteo Salvini told reporters he was outraged Tavares was able to ‘leave with a rich loot of dozens of millions of euros in spite of the [crisis at Stellantis]’.

As I first learned on my own MBA programme many years ago, using the adage attributed to Peter Drucker, ‘culture eats strategy for lunch’. Pay and rewards are one of the most visible reinforcers of an organisation’s culture and values. Misalign them and you will be called out. But on the upside, close alignment can produce an incredibly powerful, motivating force driving and supporting sustained organisational success.

Case Example:

Take Slaughter and May, the oldest and most profitable of the UK’s ‘magic circle’ law firms. These firms have been reviewing and some revising their pay and incentive packages, particularly for those working in the highly lucrative private equity market, in response to losing high-performing partners to a ‘US invasion’ of law firms. The US firms generally operate with an individualised high pay/high performance, ‘eat-what-you-kill’ approach.

Yet Slaughter and May, founded in 1889, maintains its ‘lockstep partnership’, in which partners move up the equity ladder based on years of service, with an equal share of collective profits at each level (They are still paid pretty well mind you, with estimated profits-per-partner averaging some £4 million).

Senior partner Roland Turnill has said that he is ‘not remotely complacent’ about the competition from American firms, but that “changing compensation starts a conversation that never ends’.

Instead, the strength of its culture is vital to its success. As a partner at a rival US firm puts it: “They are betting on culture not economics… If they can keep the culture such that people feel special and the growing competition isn’t so much that market forces lead to a run on next generation talent, then they’ll be OK’.

In keeping with many long-standing successful UK firms, their culture is supported and reinforced by a staffing model that still relies largely on internal investment and ‘growing their own’, rather than expensively poaching talent from their competitors. Slaughters may have recently renamed their ‘paterfamilias’ — a chat about performance with the senior partner or “father of the family” —as the more contemporary ‘annual discussion’.  Yet their overall people management and rewards approach remains largely unchanged and is a vitally important, visible and resilient element of the cultural determinants of their continuing success.

My recent research shows that ‘growing your own’ is a people management and resourcing approach which more and more UK employers have been returning to and adopting, emphasising it in communicating their total rewards offer to staff internally and to potential recruits outside.

The modern concept of ‘total rewards’ emerged here in the 1990s, largely as a means of integrating and communicating the value of the financial and some of the most closely related non-financial returns from working for an  employer. But given these trends it’s not surprising then that we are seeing the total rewards idea expanding now to more explicitly encompass values and cultures, as well as covering the learning and development and career progression opportunities which so many employees value so highly.

Head of Reward Sarita Coleman for example, explained at my webinar that the total rewards offer communicated to their employees by the RSPCA covers five categories, of ‘pay, benefits, employee development, culture and lifestyle’.

This trend is particularly evident in the increasing numbers of employers with an ‘Employee Value Proposition’. In many of the companies I talked with at these events both terms, Total Rewards and Employee Value Proposition, are now being used, the latter often having been developed originally by their recruitment or employee engagement specialists.

The relationship between them is not always entirely clear and at worst, potentially conflicting. Generally the EVP is the broader, more values-driven and external recruitment-focused concept. Total rewards covers the internal delivery of financial and non-financial rewards. But in tight labour markets there has undoubtedly been the risk of recruiters over-promising to candidates the returns on working for this incredibly amazing organisation, which are not then able to be delivered in the pressured realities of the workplace once they become an employee.

Increasingly though, HR functions are recognising these risks. So as well as ‘vertical integration’ of rewards with their business strategy and corporate values, they are ‘laterally integrating’ their different functions and specialists so as to define and deliver an attractive but honest and consistent rewards ‘deal’ to employees. All of the reward leaders on my reward strategy  programme said that they were working more broadly now across their firms, with everyone from comms and branding specialists to finance colleagues, so as to develop and deliver a truly integrated and ‘totally rewarding’ package, whatever it is called or however  it is branded.

Case Examples

Olivia Farley explained that from the current financial year onwards, the ten-year NHS Long Term Workforce Plan sets out that all NHS employers should work with their stakeholders in developing a clear employee value proposition and they should promote this across their workforce. Their EVP is defined to include the national pay framework and local employer compensation and benefits programmes, plus the ‘employee experience and culture’ and particularly vital in the NHS, the training and development offered.

Amy Oakes, Head of OD & Learning, illustrated this, describing her team’s work at Mid-Cheshire Foundation Hospitals Trust. Their total reward strategy has been organised and communicated under the five ‘themes’ of compensation, benefits, wellbeing, careers and culture. Since implementing the strategy, including a range of new wellbeing benefits and development programmes, the Trust has seen a marked increase in the numbers of staff reporting that they feel rewarded and recognised for their work in the annual NHS engagement survey,

Similarly within the more broadly defined People, Performance and Culture function at University of Lincoln the total reward package is designed to ‘attract, motivate, retain high performing colleagues who feel valued, listened to and engaged with the organisation’.

Their EVP more ambitiously aims to build a ‘unique’ employment relationship centred on ‘values alignment and ‘emotional and purpose alignment’ between the employees and the University, but one which, critically, is ‘differentiated by (the employees’) actual experience’.

For whatever their broader and more values-driven strategic plans, delivering into practice and their employees’ actual experience, in our often overly-busy and under-resourced and pressured workplaces is perhaps the greatest reward strategy challenge of the 2020’s. And thereby also avoiding what one of the participants on my reward strategy programme referred to as the dreaded ‘say/do gap’.

Potentially the expansion in the model of total rewards offers a more powerful and performance-enhancing approach to reward strategy. But it is also one which is proving to be even more difficult to deliver in practice. That will be the focus of the second part of this article tomorrow.

Copyright Dr Duncan Brown