How reward professionals should tackle conflicts of interest

If you read nothing else, read this…

• Bending the rules when it comes to benefits is a highly emotive issue and can result in conflicts of interest for reward professionals.

• Self-interest in a particular perk is not necessarily a bad thing.

• Reward professionals must not be tempted to let personal opinions affect their judgement, but the industry has a
strong sense of professionalism.

• They should not be tempted to use information for their own interests.

Reward professionals must not let conflicts of interest affect their judgement on benefits matters, says Ben Jones

The idea that a reward professional might use his or her position to skew a benefits package for their own ends arouses strong emotions. Richard Higginson, head of reward at Towry, says: “Anyone who does that should just be taken out and shot, and you can quote me on that.”

Another reward professional, who preferred not to be named, adds: “You just would not get it past your board.”

In the course of their working lives, reward professionals may come across a number of conflicts of interest, which they must deal with. A recent question posted on Employee Benefits’ online forum related to how reward professionals should react if they find they have been passed over for a motivation award by their manager. Staff in other departments would be unaware of such matters, but reward and benefits staff have access to such information, raising questions about how they might react.

Independent reward consultant Evan Davidge tells a tale that brings the question of professional ethics into sharp focus. “I know a reward professional who was given a Mercedes [by a provider] for awarding a contract,” he says. “When he turned up for his dismissal hearing [resulting from this], he arrived in an old banger because he was scared they were going to take the car away.”

Davidge relates this anecdote to make a serious point: that those working in reward are in a privileged, potentially powerful position. They can see everyone’s salaries, including their own, on a daily basis, and have a high degree of influence, if not the final say, on a reward package.

Where to draw the line

So, when it comes to selecting benefits, how should reward professionals handle conflicts of interest and where do they draw the line between implementing something that suits them and something that works for all?

Of course, it is not necessarily a bad thing for the person responsible for an organisation’s benefits to be passionate about a particular perk. Colin Miller, reward manager at Kent County Council and chairman of the Chartered Institute of Personnel and Development’s (CIPD) reward forum, says: “When the organisation is implementing a new benefit, it has got to be for the greater good. If individuals, as a consequence, can benefit from that, that is great and, indeed, that is what is supposed to happen. It has got to work for the organisation primarily and if it works for a specific reward manager, fine.”

Any potential problem may lie in how the process for choosing a particular perk or provider is carried out, says Miller.

That is where business governance needs to be at its tightest, says Davidge. “I have seen some big, sophisticated organisations which have very weak controls on their pay processes, for example, and some smaller concerns that have very tight controls. It is impossible to be bullet-proof, but it is possible to put checks in place.”

Tackling such conflicts of interest may be even more vital in the current economic climate, which has made organisations even more vigilant over their decision-making processes. “In these cost-conscious times, people are even more diligent about crossing the Is and dotting the Ts,” says one reward professional. “There have been times when I have had ‘favourites’ firms I thought would be best at doing a particular job but they have not been chosen because it is a process handled by an independent panel.”

For employers in the public sector, there are issues other than cost that could prohibit a perk from being introduced, regardless of what the reward manager might have stood to gain by implementing it.

“It is about image,” says Miller. “We are in the process of removing PMI [private medical insurance] for our senior managers. In the current climate and with employee expectations, the scheme is hard to justify.

“Sometimes we ask a question like ‘What would happen if the local newspaper got hold of this?’ or ‘How would the person in the street react?’ when we are considering something.”

Strongest deterrent

But the strongest deterrent to reward’s own version of ‘insider trading’ appears to be the sector’s own professional ethics. Performing in a relatively small business function, which is accountable in most cases to people higher up the organisation, those who work in reward are disinclined to try to bend the system for their own ends. One benefits insider says: “Even before the Bribery Act (see below), which has come into force, reward professionals understood the implications of what they were doing.

“If there is any resentment over what someone else is paid, it is sleeping. I do not think it fundamentally changes how I work day to day because we live in a world that is fundamentally unfair. It is part of the job, you do not give it a second thought.”

“We are not a Machiavellian force that aims to make the world a better place. We do want to do that, but we certainly would not do it in an underhand way.”

Pay is perhaps the issue most likely to get HR and benefits teams hot under the collar. But pay reviews can be used to monitor pay constructively and check that things are not getting out of kilter. Towry’s Higginson says: “I have, more than once in the past, politely and professionally asked the people who sign off a salary review whether proposed new salaries were in line with an HR salary, using my salary and my team’s salaries as benchmarks. We tend to get HR salaries right because we are in the industry of benchmarking data. It has opened the debate: ‘I know mine and my team’s salaries are right are everybody else’s right?'”

So, there are ways in which a collective approach to employee pay can be for the greater good of the organisation.
It is also important to remember that just because a potential perk is a favourite of the person responsible for benefits, that should not mean it should not be offered to staff. As long as the reward professional involved declares an interest in that particular perk at the outset, there need not be a problem in implementing it.

Charles Cotton, reward adviser at the CIPD, says: “As long as they raise the issue at the start of the proposal, a benefit does not need to be disqualified as a proposal.”

Professional standards

Above all, a strong thread of professional standards appears to run through the reward industry. Stuart Hyland, head of UK reward at consultancy Hay Group, says: “The industry does have self-regulation. I know there is this thing that they know everyone’s salary but that is something you just have to deal with. People who bend the rules in this industry do not tend to last very long.”

Reward professionals should also resist the temptation to let personal opinions cloud their judgement. When it come to pay, for example, one professional says: “There might have been times when I have thought ‘he is not worth that’ but, just because I think that, it does not mean that other people do.”

And there is little to be gained by reward staff trying to turn things to their own advantage, the professional adds. “If something benefited me by £50 but my employer lost £10,000, that is not a route I would want to go down. I just think [reward managers] know we would be found out.”

So while emotions run high on the issue of conflicts of interest, there is no cause for concern. Reward professionals appear dedicated to maintaining the sector’s strong reputation for integrity.

Integrity holds sway

Although reward professionals regularly come up against conflicts of interest, few will turn these to their own advantage. Stuart Hyland, head of UK reward at consultancy Hay Group, says: “I have been an HR consultant for 15 years and I have only known it to happen on two occasions, and only once was in the UK.

“This particular HR director was a mad keen cyclist and the company [he worked for] just so happened to have a fantastic cycle scheme. However, I do think they had presented a case of how it would benefit the firm.

“HR requires a huge amount of integrity and those who do not have it do not last very long.

“However, differences can be seen between organisations in the developed and developing economies. [Using their
influence] is more prevalent in developing economies. There were, for example, lots of ad-hoc travel payments where HR seemed to create an awful lot of travel opportunities.”

The legal position

• Reward professionals should be careful that their position, and potential ability to accept inducements, does not bring them into conflict with the Bribery Act, which came into effect on 1 July this year.

• Under the Act, employers may be breaking the law if they fail to prevent staff committing bribery on their behalf.

• This could include a provider seeking to win a contract by offering a benefits team ‘sweeteners’, which are accepted.

How to avoid conflicts of interest

• Make sure checks and balances are in place. Chris Wilson, founder of consultancy Rewarding People, says: “Any well-structured company will always have checks and balances in place.”

• One person in a reward team should not have too much power and influence. “Anyone who is left to make key
business decisions on their own is a dangerous loose cannon,” says Wilson.

• Communicate messages clearly, particularly when it comes to pay. Colin Miller, reward manager at Kent County Council, says: “The best thing is to be open, honest and truthful. If you cannot do what you would like to, explain
why. If managers can say why decisions have been made, they [will] be more genuine.”

• Communication is key,” adds Wilson. “You have to watch you do not set precedents that will come back and haunt you. You would not survive if you bend the rules to such an extent you are favouring one group over another and cannot explain why.”

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