Duncan Brown: Reward strategies must bring value to both employers and employees

Institute Employment Studies

‘We don’t have a reward strategy anymore’, a well-respected benefits director told me about this time last year. ‘We wait to hear what the Chancellor says in the Budget’. Certainly in this current highly uncertain, volatile, pre-Brexit period, with record low levels of unemployment and widespread skill shortages, and increasing levels of government intervention in employment markets, the reward approaches prevailing in the UK for the last decade will not cut it for the future.

These strategies might be characterised as comprising of what one HR director described to me as ‘the three ‘F’s’: flexible, external market- and performance-driven rewards have often, beneath a rhetoric of ‘total rewards’ and ‘great-places-to-work’ , really been affordability-driven. There has been substantial cost reduction and risk transfer from employer to employee, widening differentials and declining real living standard for the majority of the workforce.

The oft-stated, but rarely practised, third objective in this holy reward trinity, that of fairness, very much took a back-seat in many employers with the decline of collective bargaining. Shareholders, the already highly paid and older generations have benefited from these approaches: young people, women and the majority of the workforce have lost out. Hence the government has somewhat reluctantly picked up this mantle and increasingly been enforcing it through regulation, on everything from gender and executive pay to pensions and apprenticeships.

Over the last decade, most Organisation for Economic Co-operation and Development (OECD) countries have seen modest economic and pay growth. A few like Greece and Italy have seen GDP still not recovered to 2007 levels and nor have their average earnings. Uniquely, our employment and pay policies in the UK have underpinned GDP growth but real pay cuts, a situation not experienced here for two centuries. Populism and widespread cynicism and mistrust have been the social outcomes. Employers’ own reward for low-cost zero-hours contracts and outsourcing, combined with pay anorexia and low or zero pay progression, has been equally miserly productivity growth and dis-engaged employees.

In a new research paper, Fairness, flexibility and affordability: What are the lessons from pay and reward approaches and trends in the UK?, Opinion Paper 27, published this month, the Institute for Employment Studies (IES) sets out this history and anticipates that we may be seeing a major shift in reward and benefits strategies once again, back towards more investment-focused, employee-centric approaches which emphasise fairness, rather than these excessively flexible and unregulated, wholly market- and performance-driven wage systems which have come to predominate across all sectors over the past decade.

When he was the Chief People Officer for NHS England, I heard Stephen Moir describe this new approach as ‘the three ‘V’s’. Reward and benefits investments still need to be good value and deliver a return to the employer. But in the years ahead it will be critical that they are genuinely valued and appreciated by employees, as well as driven by a strong and engaging set of values and culture.

The prevailing reward rhetoric/reality gap has been exposed. Employers that prosper in the future will be those that practice the three V’s, to deliver a genuinely engaging and totally rewarding workplace.

Duncan Brown is head of HR consultancy at the Institute for Employment Studies (IES)