Reward in a changing landscape
What are we going to cover?
• The changing nature of work
• The changing workforce
• Society’s Voice
• Regulatory impact
• Reward – the traditional model
• Reward and Engagement
• Reward – a new model
The changing nature of work
We are becoming a talent economy
• 50 years ago, 72% of top 50 US companies involved in control and use of natural resources
• c. 1960, the Rise of the talent Economy began
• Whereas in the 50 years to 1960, the number of creative roles increased by only 3 percentage points (to
16%), in the 50 years that followed to 2010, they doubled to 33%
• By 2013, only 20% relied on ownership of natural resources and half of the top 50 US companies were
talent-based
HBR (Oct 2014), Martin RL
The Rise (and Likely Fall) of the Talent Economy
The changing nature of work
Change in employment by
occupationn
The ‘Hollowing out of Work’
Low pay
Medium pay
High pay
Department of Business, Innovation & Skills, Research Paper 134, Oct 2013
Hollowing out and the future of the Labour Market
The changing workforce
Baby Boomers – born 1946 to 1964
Generation X – born 1965 to 1982
Generation Y – born 1983 to 2000
Generation Z – born 2001 onwards
‘People, especially Gen Ys and Boomers, are looking for … a “remixed” set of rewards. Flexible working
arrangements and the opportunity to give back to society trump the sheer size of the pay package”
HBR (July 2009), Hewlett, Sherbin & Sumberg
How Gen Y & Boomers will reshape your agenda
Age Demographic
Society’s Voice
Society’s Voice
Shareholder Spring
The High Pay Centre welcomed the show of strength from investors over
remuneration, confirming
‘The negative publicity for companies like [X] and [Y] creates real
pressure to bring pay back to fairer, more proportionate levels’
Shareholder vote on pay requiring 50% vote in favour and is binding
Will this go even higher?
Society’s Voice
So why does executive pay get so much attention?
Society’s Voice
• Shareholder Spring
Society’s Voice
http://cdn.caughtoffside.com/
wpcontent/uploads/2014/09/CristianoRonaldo-Real-Madrid6.jpg
But…
Society’s Voice
And …
Society’s Voice
Maybe focus should be at other end of spectrum – protecting and providing for the lowest paid in society.
• Legislative
£6.50 ph
http://cdn.caughtoffside.com/wp• £260 pw
content/uploads/2014/09/CristianoRonaldo-Real-Madrid6.jpg
• Social
The Living Wage
• £13,520 pa
Stronger Regulation
European Regulation
Capital Requirements Directive III and IV
Alternative Investments Fund Managers Directive
Undertakings for the Collective Investment in Transferable Securities IV
Stronger Regulation
Pay-out Process Rules
 Between 40% and 60% of variable pay should be deferred
 Half of deferral should be deferred into shares of company or funds managed
 Should be subject to clawback and malus
 50% of immediately available variable should also be delivered in instruments with a
retention period attaching
 Salary cap introduced which limits variable pay to 1 x base salary (or up to 2 x with
shareholder approval)
Reward – the traditional model
Reward – the traditional model
Maslow’s Hierarchy of Needs (1954)
Herzberg’s Two-Factor Theory (1964)
Money is just a hygiene factor and doesn’t engender true motivation
Adams’ Equity Theory (1963)
“A finding that employees are dissatisfied with pay is, in effect, a non-finding.
It is to be expected. The key thing that the organization needs to focus on is
whether employees are more dissatisfied with their pay than are employees
in other organizations.”
Lawler (1990)
Reward – the traditional model
Does the traditional model work?
Extrinsic rewards can increase motivation / performance for uninteresting tasks
But increasing rewards decreased intrinsic motivation for interesting tasks
If the reward is tangible and foreseeable, intrinsic motivation decreases by 36%
Meta-analyis by Deci et al (1999)
For tasks that are creative, rather than mechanical, in nature …
… extrinsic rewards can actually reduce performance
Glucksberg (1962)
Reward – the traditional model
Does the traditional model work?
Rewards / incentives work when the task is simple or the answer is obvious
They don’t work when confronted with complex problems, where the data is uncertain, incomplete or
ambiguous
And they need to be carefully thought through – so beware of what you incentivise!!
A quick Dilbert break
Reward & Engagement
Companies with engaged employees perform about 4 times better in financial terms (Watson Wyatt, 2009)
Companies with engagement scores in the top quartile performed on average 12% higher on customer
advocacy, 18% higher on productivity, and 12% higher on profitability (Gallup, 2006)
Each engaged employee is worth about $5,000 pa in additional profit (Hewitt Associates, 2009)
Reward & Engagement
The link between pay and pay satisfaction is not strong (< 4.8%)
The link between pay and job satisfaction is even weaker (< 2%)
cited in Chamorro-Premuzic (2013, HBR Blog)
Gallup found no link between level of pay and employee engagement
Reward & Engagement
Reward & Engagement
Greenberg (1986) – looked at determinants of fairness in performance
evaluations
Procedural fairness and Distributive Fairness
Folger & Konovsky (1989) – Perceived fairness in pay decisions
Distributive fairness more important in driving satisfaction with own outcomes
Procedural fairness more important in driving trust in the supervisor and
commitment to the organisation
Reward – a new model
Dan Pink (2010)
DRIVE – the surprising truth about what motivates us
Reward – a new model
Intrinsic drive (the joy of the task) is powerful
Identifies two types –
Type X and Type I
But intrinsic motivation / drive can be damaged by extrinsic motivators
The basic deal still has to be right (fair)
But, otherwise, classic reward structures and incentives don’t work for Type I
Reward – a new model
“People do work for money –
but they work even more for meaning in their lives.
In fact, they work to have fun”
Pfeffer (1998)
Reward – a new model
Take money off the table
Ensure internal and external fairness
Pay a little more than the market demands
Make your performance metrics wide-ranging
and make the upsides modest
Reward – a new model
What might all this look like?
Summary
There is more to motivation and engagement than pay and bonus
But we cannot ignore reward – it remains an important part of our toolkit
and It still needs to fair / equitable
Flexibility in reward structures (benefits) and approach to work may
become even more important as we try to attract and retain talent in a
changing environment
Find structures / approaches that give employees autonomy and reflect
their values / needs
And – since nothing stays still – what works today may not work
tomorrow…
Thank you