Strong analytics

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Introduction

The UK’s CIPD has published its annual reward survey. The CIPD reward survey; http://www.cipd.co.uk/hr-resources/survey-reports/reward-management-2013.aspx  

Our findings show organisations responding to multiple contextual factors in their reward management choices.  Economic conditions continue to drive pay decisions for many. In the private sector, market competition and employee value are also key drivers, while in the public sector
more traditional forms of reward management prevail.”

The drivers of reward continue to be to attract talent and reward productive behavior.  I would argue that retention is less important that it used to be due to the lose labour market. The survey also looks at employee benefits; these can both support the social culture of a business and provide valuable, cost effective non cash engagement tools.

One key aspect that Charles Cotton, the CIPD Reward and Performance advisor, notes is that the reward profession is not particularly advanced in analyzing information in a way that is useful for the business.  Cotton goes on to note that

 

“Few employers are able to calculate the cost of their compensation and benefit programs, let alone be able to express this as a proportion of revenue, profit or economic value added.”

   

 

 

 

 

Strong Analytics

Reward and HR professionals have a number of tools to add value to the business case:

  • Strong analytics
  • Employee segmentation
  • Data visualisation

Our colleagues in Finance use KPI’s and key ratios to illustrate financial outcomes and we must do the same in reward. We must understand:

  • Key business segments and drivers
  • The timeframe – immediate, medium or long term, for the business strategies in those key segments
  • Key performers in those segments and responsible for those drivers

This information can drive our reward strategy.  By presenting appropriate strong analytics through data visualisation on the basis of appropriate segmentation gives a very powerful tool kit for us to work with and make recommendations to line management.

Asking the right questions

Any good analytical work and modelling starts with asking the right questions.  There is no point providing large amounts of statistical data and analysis without have a clear view of the questions we are using the data to answer.  This is a big issue with big data.  We have the data; but what do we use it to prove or disprove? 

Reward interventions must “do” something; be it reduce turnover, encourage managers to align with the interests of shareholders, or produce specific results.  Reward professionals must be able to show the outcomes of their products and programs.   For example, we must be able to show the relationship between our variable pay spend and the revenue generation, the return on capital employer (RoCE) and other key financial indicators.

Disclosure requirements

The “Say on Pay” requirements in the US and the regulations in the UK require the production of charts showing, for example, growth in relative total shareholder return against executive compensation.  We must extent this type of analysis through the organisation to show the stakeholders in the business; be they employees, executives, shareholders and regulators, that our reward program is progressive, does not reward failure and, as far as is possible, is “fair”.

I have argued in other blog posts that we are seeing the erosion of privacy around pay.  Within five years we will be reporting, as a minimum, on employees by bands of pay and more likely very detailed pay statistics on every employee in our organisation in the interests of “fairness” and transparency.

Strong Analytics II

There is little excuse for not providing strong analytics with appropriate data visualisation. Microsoft Excel provides some very good analytical and graphing tools and using the PowerPivot addin allows for the analysis of very large data sets and even the development of simple data cubes.  That is before we get in to many of the off-the-shelf compensation management tools and packages.

Here is an example of strong analytics presented through visualisation I produced from some sample data:

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The use of Microsoft Excel’s conditional formatting provides some intuitive “at a glance” analysis of bonus levels by department.  I thought about the type of questions the CEO might want to ask about the data and provided the answers in graphical and colour formats.

This second example shows a very simple graph of correlation between TSR and total remuneration for a FTSE 100 Executive.  It immediately shows the linkage between pay and performance; although TSR needs to be measured over a much longer time period, or alternatively normalised to remove the effects of the economic cycle, to provide a better analytic.

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Conclusion

As the CIPD survey noted, reward is, as always, becoming more complicated.  At the same time we are seeing far more scrutiny of pay by the largely uninformed politicians, regulators, shareholder advocacy groups and the media.  We must arm ourselves for this intrusion by preparing our toolkit of strong analytics to defend our positions and explain our philosophy.

 

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CIPD Hackathon – Hacking HR to Build an Adaptability Advantage; A reward perspective

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Introduction

The UK’s HR professional body, the CIPD has recently set up a “Hackathon” to look at how HR can build an adaptability advantage.  A good idea with an interesting approach.  There appears to be limited consideration of how reward will support and enhance the approaches.  Reward has powerful implements in its tool kit to support change.   So I set my mind to an analytical structure to think about building adaptability advantage.

Wisdom of crowds – a challenge

I am a great believer in the wisdom of crowds.  Therefore I throw a challenge out to all those interested in reward, change, innovation and HR to generate ideas as to how the reward toolkit can be used to support adaptability advantage.

The reward blockers

Reward is largely designed to support existing behaviour.  So, in some organisations, it is used to support the status quo.  Rewarding behaviour that supports the organisation’s ideology and putting reward power in the hands of managers who have an understandable vested interested in supporting the status quo.  The challenge is to design an analytical reward framework that supports creative destruction, moving on from the status quo to a new organisational state and ideology.

A suggested framework – resource based strategy

I have used the resource based strategy framework as a starting place.  I know this may be consider a little old fashioned, but it works for me and if you have a better structure I would be very pleased to hear about it!  Using the resource based strategy approach we look at:

  • Resources
  • Capabilities
  • Competencies
  • Value Chain

that support adaptability and how we can use reward to support these factors.

Resources

What are the resources that support adaptability – how do we identify and cluster them?  Clearly people are the key.  But, what sort of people?  One could argue that it is the mavericks and free thinkers that lead the charge on adaptability.  Yet these types of people do not always fit or engage well with the corporate environment.  How do we reward the disrupters in our organisation without descending in to some Faustian pit of chaos?

Capabilities

How do we build organisational and personal capability to support adaptability?  What would the reward structure supporting such capability building look like?  Would we know it if we saw it, how would me measure it?  Organisational learning and routines would be key in building these capabilities – but it has always been an interesting question in the management of knowledge as to how we measure and reward organisational learning?  (Even ignoring the concept that organisations do not “learn” people do the learning).

To sustain competitive advantage our capabilities in adaptability must be hard to imitate – otherwise everyone will copy us and probability at a lower cost.    So we have to reward not only specific capabilities but those that are hard to imitate.  They may be hard to imitate because they are specific to our corporate environment – but to gain competitive advantage they must be so much more than just organisationally or sector specific.

Competencies

The competencies we need should flow out of the capabilities – or perhaps not?  What specific, observable, rewardable competencies are required and with what and how are we rewarding them?

Value chain

What are the internal and external value chains using our unique resources and capabilities that lead to adaptability advantage?  We must look to our clusters of resources and capabilities and how these are combined to give our competitive advantage.  What reward tools do we use to strengthen our value chains and the activities that support them; perhaps across enterprises and organisations, turning rigid barriers porous?

Conclusion

There are far too many questions and too few answers in this blog.  If the reward perspective; which is incredibility powerful in encouraging behaviour change can be harnessed, using the wisdom of crowds, to the task of “Hacking HR to Build an Adaptability Advantage” we will not only add enormous value to the process; but we will be key in ensuring its enduring success.  Over to you O wise crowds.

The seven ages of pay(ne)

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Introduction

As a reward specialist and commentator I have a particular interest in the financial characteristics of the journey of life.  Shakespeare wrote of the seven ages of man; I like to think of it as the seven ages of pay(ne). 

  • 16-18 – Making hay and sowing oats with the Bank of mum and dad
  • 18-21 – Sunrise over the start of the loan journey
  • 21-30 – The breaking dawn of early earnings and mortgaging future pay
  • 30 -40 – (Un)Happy families – climbing the debt mountain
  • 40-50 – Sunlit uplands of peak earnings and debt repayment
  • 50-60 – Watching the sunset as the storm clouds gather; dawning realisation of old age – being the Bank of mum and dad
  • 60+ – Old age? – an undiscovered country

Each of these ages of pay(ne) has characteristics and needs.  Segmentation of the employee population for reward and benefits needs to consider the differing stages of the financial journey.

We will view the journey both from the individual and the corporate perspectives.

There is a presentation supporting this blog at http://prezi.com/j5bconnfij_q/seven-ages-of-payne/?kw=view-j5bconnfij_q&rc=ref-14837539

 

16-18 Making hay and sowing oats

This is the start of the great journey.  Unless we have had the good fortune of a financial education we worry not about the financial future; we are immortal.  The Bank of mum and dad provide the wherewithal to pursue hedonistic desires; even if the need for a good education and a part time job obstructs the high road.

18-21 Sunrise over the start of the loan journey

This age marks the start of the higher education adventure, but, at a cost.  Student and educational loans are an overhang for a large part of the financial journey.  For the corporates – and, for example, the armed services; it can provide a cheap way to encourage engagement.  This is achieved by sponsorship through this part of the voyage or by the promise of help with the initial debt burden.  As was said in the past “give me a child until he is seven and I will give you the man” now the motto is “engage them at 18 and keep them for a while”.  Given the “war for talent” paying for engagement at ages 18-21 is cheaper than trying this later in life.

21-30 the breaking dawn of early earnings and mortgaging future pay

When mentoring undergraduates and graduate trainees I tell them that if they are not managers by age thirty they are unlikely to reach the top of their profession.   This is a time of rapidly increasing earnings. At the same time, they are mortgaging their future earnings to borrow to get their foot on the foot of the property ladder; or buy desirable consumer goods.  The financial decisions made here cast a shadow over the rest of the financial journey.  For organisations, the focus should be on a good base salary as the start of wealth creation, with the promise of future riches for good performance and engagement.  An issue is divining the motivations of this cohort.  We have seen generation X and Y come and go – what are the drivers of the new cohort?

30-40 (Un)happy families – climbing the debt mountain

For individuals this is the time of playing (un)happy families while also climbing the debt mountain of mortgages, school fees, loan repayments, divorce settlements, child maintenance and other claims on their wealth and income.  For the organisation; the provision of pension savings (even if not taken up), life cover, personal medical insurance and the like, all become part of the glue mix to hold on to high performers alongside the promise of wealth creation through equity LITPS (Long term incentive plans) and the like.  At one time having a final salary scheme was (at least in the UK) a good, albeit expensive way, to maintain loyalty – alas no more.  Working in investment banking I introduced a well-received concierge service for our cash rich but time poor traders.  Providing a benefit that is valued by employees is an important component of the glue recipe that supports corporate strategy and objectives.

  40-50 ~the sunlit uplands of peak earnings and (hopefully) debt repayment

In a professional or management career these are the peak earnings years. The children, if any, will have flown the nest.  Disposable income will  be available to repay the debt and, if one has been lucky, the wealth creation promises of LTIPs will start to provide a boost to lifestyle,  Perhaps, it is time to start some serious pension savings (far too late of course).  Organisations will seek to cocoon there employees of this age; both because of the investment in training and skills that would have taken place; also, because of the dawning demographic realisation that the talent train behind has left the station almost empty.  Employees have the potential to be looking for security and certainty or alternatively the chance to develop even further and perhaps in new directions.  Status is important now – job title or car, corner office or the key to the executive washroom.

50-60 watching the sunset as the storm clouds gather – the dawning realisation of old age and becoming the Bank of mum and dad.

This is the time when the ugly reality of the journey’s end comes into focus.  Only a few more years of earnings ahead; with little saved to live on in retirement.  Now, there is an increase in financial demands; grown up children looking for help to purchase a property. There may be financial demands from elderly relatives unable to afford decent care as they descend in to old age and destitution.    Dickens would have had a field day commenting on the plight of our elderly, inequality and unemployment.  For organisations, the provision of assistance with social care and financial education for retirement are of importance.  In the ideal world, providing the facility to wind-down before retirement by working part-time would be an option.  However, the realities of the demographics, economics and the current political malaise make this a difficult scenario.  Some argue that older workers are more productive and more reliable – one hopes so.  This is not the worst of times or the best of times to be in this group; but it is clearly no bed of roses no matter where you are in the world.

60+ old age? The undiscovered country

The average income for those over 65 in the USA is just under $30,000.  In the UK it is approximately $28,000. (The two data sets are not completely comparable).  Hardly a fortune and almost certainly giving a lower standard of living than the recipients had hoped.  Longevity is increasing at a tremendous rate in the developed world so more people are living longer but with less income.  A good news, bad news story; you will live longer but be poorer.  Now with the debt overhang of the individual, their children and potentially elderly relatives “The good life” is but a dream.

For organisations the changing demographics as well as the alleged lack of skills of the younger generation means that they should start to prepare to employ those over sixty in increasing numbers.  That will cause new challenges.

Conclusion

Segmentation of our employees is a useful tool in reward.  Reflecting on the different cohort’s needs and aspirations when aligned with our business and reward strategy is a powerful approach.   For individuals, financial planning and awareness of the bumpy weather on the journey ahead will help prepare us to make the best of the domain of our old age.

This article is tongue in cheek; but it reflects underlying truths for both organisations and individuals.  I hope you enjoy and have a profitable journey and good weather.  Now where is my map to the sunlit uplands?