Thought leaders 2010: The year ahead: Fairness the new watchword in reward

†Key Points

  • The recession made employers question why they had multiple performance management plans
  • There is a move towards greater fairness in reward as the gap between rich and poor has been seen to widen
  • Communication and greater openness will be the most important process in 2010 to ensure fair pay and that employees value the investment made in them

New trends are needed in reward, says Duncan Brown, director HR development at the Institute for Employment Studies

Last year was the hardest most people in the field of reward management will ever have experienced. There were extensive pay freezes, with widespread redundancies in the private sector. The banking crisis and the role of what Lord Turner called “inappropriate remuneration structures” led to serious questioning of the 30-year domination of performance- and market-driven rewards.

There has also been the fear of what is to come in the public sector, as the politicians seek to outdo each other with the scale of proposed cuts. Pension scheme closures have multiplied. Predicting this year seems even harder, given the uncertain economic recovery and the general election. There are three key trends that the Institute for Employment Studies hopes (rather than necessarily expects) will happen.

Integrated approach

Firstly, is to move from an isolated to an integrated approach. In recent years, many HR professionals have concentrated on designing technically excellent reward programmes. The trouble is, they have often not talked to each other, and so can duplicate or even conflict. The recession and cost pressures have forced employers to address questions such as: why do we operate five different performance management systems around Europe, and why do we have so many grades when we are trying to develop our talent into senior roles faster?

With improved HR information systems, more organisations have been working on this lateral integration of their HR and reward †programmes. This process needs to continue. The second trend is a move away from the market and performance and towards fairness. The past 12 months have demonstrated that some rewards have gone too far. We have ignored the importance of fairness at our peril. Popular reaction to unfairness has spread well beyond the issues of bankers’ pay and MP’s expenses. A recent Harris/FT poll showed that 75% of us think the gap between rich and poor in the UK is too wide. The banking sector reforms proposed by Sir David Walker and the Financial Services Authority are to be welcomed. We hope for greater openness on senior pay and use of remuneration committees across the public sector in 2010.

Greater openness

Communication and greater openness is perhaps the most important process of all this year, to support perceptions of fair pay and to ensure staff appreciate the investments made in them. Many still do not.

The final trend we hope to see is from incentives to engagement. The often unspoken philosophy behind performance pay was the fairly crude one of carrot-and-stick motivation. We now need to replace rewards for incentive with rewards for engagement. Engagement has had a good recession. Chief executives have bought the message, ably summarised in last summer’s McLeod Review, that employee engagement has a major influence on corporate performance. The IES’s research shows it is not simply financial incentives that strongly influence employee engagement. It is the wider context, where people feel involved and cared for, treated fairly, that creates this sense of purpose and commitment to perform.

Employer rhetoric about total reward in recent years must become a reality in their employees’ future experiences if we are to see the potential to leverage high performance in many more workplaces.

By pursuing these three trends – from isolated best practice towards HR management integration; from market and performance driven towards fairer and open reward management; and from wholly financial incentivisation to an engagement-based, total reward approach – employers can build more effective reward management.

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