Duncan Brown: Will reward strategies post Covid-19 mean the end of extreme market-driven flexibility?

Duncan Brown

Writing this piece in my back room in the midst of our coronavirus lockdown affords a good opportunity to reflect soberly on where recent reward and benefits orthodoxies and trends have taken us; and how they need to change in the future.

A demotivated, low productivity workforce through manifestly ‘bad work’ and work
experiences; widespread pay freezes and long-running pay austerity; the extensive
removal of pay and career progression and real pay and pension cuts for the majority of
the UK workforce: these certainly weren’t in my ‘Top 10’ predictions, or even nightmares,
a decade ago, never mind a pandemic.

If ever employers and their employees needed a change for the 2020s, then pay and
reward is the place to start; and one good outcome of this horrendous virus is that it might stimulate this realisation and response far faster and more extensively. So what might this mean in terms of compensation and benefits strategies? Let me briefly outline areas that I would expect more of us to be paying attention to and acting on.

Firstly, a return to ‘fair’ pay and reward policies, paying people a decent wage, providing career and pay progression opportunities for all; and recognising their growth in skills and added value in their pay. Our research, Evidence-based reward management, published in June 2010, shows that cost-minimisation low pay and benefits strategies simply end up costing employers more in the medium to long-term, with demotivation, higher staff turnover and absenteeism the result.
IES’s Progression in employment project funded by the JP Morgan Foundation and published in December 2019, highlights the range of actions that ‘good work’ employers are taking to support progression of low-skilled workers, ranging from regular career conversations to multi-skill-training and skills-based pay progression.

Secondly, the rebirth of job evaluation and pay structures, so that all staff, including executives, are paid on a common basis, fairly in relation to their skills and responsibilities; and men and women are paid equally, rather than continuing to import market-biases and premia.

Thirdly, more collective bonus plans and sharing in success. The Chartered Institute of Personnel and Development’s (CIPD) latest Reward management survey, published in December 2019, finds that individual performance is the most common form of variable pay, used by 62% of those with bonuses. Yet, while their incidence may be lower, collective bonus plans have a much stronger record in research. Greater use of collective pay schemes, such as profit and gainsharing, coincides with better site and organisation performance, according to the Third European company survey – Overview report, published by Eurofound in March 2015.

For example, in Are bonus pools driven by their incentive effects? published in August
2017, Alan M. Benson and Sima Sajjadiani report that manufacturing plants with gainsharing plans experience greater productivity, higher quality and other performance improvements. UK employers need to drop their obsession with executive and individual incentives and let all employees share financially in the benefits of their success.

Fourthly, more hybrid and shared risk pension and benefits plans, such as collective defined contribution schemes along the lines the Post Office has been developing, so as to better share the risks, costs and benefits between employers and employees.

Lastly, greater attention to employees’ mental health and financial wellbeing. Fortunately, many HR and reward professionals had already woken up to the damaging impact of growing levels of mental ill health and financial indebtedness in the workplace, which the virus’s impact will only intensify. As my colleague Catherine Rickard suggests in Supporting employee financial wellbeing, published in March 2017, a worrying feature of our IES case study research on this was senior management opposition to providing any assistance of this type.

The employer risk is in not acting, rather than taking such action. Taking responsibility to actively support employees means going beyond just providing employee assistance programme (EAP) phone lines. It means auditing then helping employees much more broadly with financial education, be that through online financial tools, debt management support, pensions’ guidance, budgeting support and so on. Financial Times columnist Philip Stevens wrote in
March 2020 that “rebalancing of the responsibilities of government, business and citizens” will be an enduring legacy of the pandemic. This should, and will, I believe occur too in reward strategies in the year and decade of recovery ahead.

Dr Duncan Brown is principal associate, Institute for Employment Studies, and visiting professor, University of Greenwich

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