Tag Archives: Reward

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September 4, 2013

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London Callling

 

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Introduction

I was listening to a radio program about the broadcasts to the French resistance during the  Second World War.  Coded messages were sent by the BBC to give instructions to the  resistance.  These included “The blackbirds have arrived.  Aunt Marie wants to visit.  It is going to rain in Paris”.  To those who understood the code it was perfectly clear; but if you did not understand the code the phrases were meaningless.

 

This is very similar to the language we use in executive reward.  We talk about TSR, LTIP’s and ESOPs.  These make perfect sense to those “in the know” but means very little to those not in the profession.  This is a problem.  It is important that there is a wider understanding of how reward metrics are measured and achieved.   Otherwise executive reward will continue to be a black box.  Given the scrutiny by the media and politicians it is important that we make reward as transparent as possible.    

 

Vocabulary  of reward

The language we use in reward is a mixture of finance,, economics and statistics.  To those in the know it makes perfect sense.  But, we are in danger of losing the understanding of an important group of our stakeholders.  Just as the Nazis during the Second World War, did not understand the messages and made incorrect tactical decisions based on their lack of knowledge, so the media and the public make incorrect assumptions  about the reasons and justification for executive reward.

 

The exclusive vocabulary used to serve a purpose.  It stood as a form of professional validation.  If you understood the language you understood the culture – the way we do things in reward.  Due to increased scrutiny of reward by the media and the growth of social media that makes executive pay discussions more easily accessed such exclusivity is no longer appropriate. 

 

Another lesson from the BBC

The BBC used to have its presenters talk in “Received Pronunciation” .  This was a very correct form of English pronunciation.  While it was not spoken by the majority of its listeners, it was clearly understood by most.  Sadly the BBC now encourages presenters with regional accents to promote inclusiveness; some of the presenters cannot be understood by the elderly, those who do not have English as a first language and upsets those who like English to be spoken properly.

 

In reward we have to develop our own “Received Pronunciation”.  That is a way to communicate the complexities of reward in a way that is clear but also precise.  That allows all our stakeholders to understand (perhaps with a little intellectual effort) the reasons, metrics and outcomes of our executive reward programs.  A better understanding is likely to lead to a higher level of acceptability

 

Conclusion

In reward and benefits we are involved in a struggle to get our sometimes complex messages across to an audience used to “soundbite” explanations.  We must develop the “Received Pronunciation” of our reward vocabulary to better persuade and convince our multitude of stakeholders of the value of our efforts in the complex and ever changing field.  

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August 23, 2013

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HR, Metrics, Reward, Reward Strategy, Strong analytics

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Pay round processes – a “big data” approach. Including the add-on benefits to recruitment, training and development and succession planning

Introduction

The key to using data intelligently in HR is to start with the business numbers.  This article is about how to structure a pay round driven by business results.  It focusses on data rather than the normal subjective judgements and gaming that goes on in the vast majority of companies at pay increase time.  The objective is to reward what matters to the business.

This is a long post; but it is not going to give the full detail of the approach.  This will differ in each organisation.  It is a new approach in thinking about the pay round process and the article gives the broad concepts and approaches to the subject rather than a detailed “Dummies guide”.  (I can provide one of these for a reasonable fee).

Effective and efficient

This approach is based on good use of data and behavioural psychology.  It generates rewards for behaviour that is important to the business.  By doing this it sends out a clear message both on culture and on what behaviours are rewarded in the workplace.  This creates the “virtuous circle” of reinforcing profitable behaviour leading ultimately to high performing teams.

You should use this approach.  It gives hard statistical evidence as to why pay increases were, or were not given.  It gives a better return on your pay increase investment.  You are rewarding behaviour that benefits the organisation; not a managerial whim or some perception of employee merit based on last week’s conversation.

In the beginning

Like all good science, start with a test group.  Select a discrete group of employees where business and HR data is available.

Key business success metrics

The key business success metrics for this group need to be clearly defined.  As an example, if looking at sales staff then consider sales revenue, the conversion rate of sales calls to sales, repeat sales and so on.  It is advisable to weight these business success metrics from the most important to the least important; always focussing on the bottom line impact of these factors.

Rank the employees

The next step is to rank the employees against the business metrics.  This must be undertaken strictly against the business metrics.  It is difficult, but is an essential part of the process.  It may well be that your “best” employees are not those who score highest on the metrics.  Stick to your original business metrics.  Do not change them because the employees in the list do not fit your perception of “good”.

What makes these employees “good”?

This is the most difficult part of the process, but the most important.  This is where the power of big data starts to prove itself.  Now take the HR data on each of the top employees to see what common factors make these employees perform better against the business metrics than others.  This could include:

  • Time in role
  • Education level
  • Personality profile
  • Supervisor
  • Training courses
  • Previous roles
  • Previous employer(s)
  • Outside interests
  • Social network size
  • Email activity – internal and external
  • Sales calls length and frequency
  • Time and attendance data
  • Daily newspaper and magazine reading
  • Social profiling (you can use postcodes for this)

As long as you have the data and you should have the data, you can include it as a factor.

You will now need some strong statistical knowledge to undertake a regression analysis to identify the common factors for your high-ranking employees.  I am aware there are a number of statistical techniques that can be used at this stage.  You pay your money and you take your choice.

The outputs from this exercise will depend both on the richness of the data you hold on employees, the type and location of your organisation and your company culture.

It is important to note that this technique is not limited to revenue generating activities.  We can build success factors for HR, cost of hire, attrition, benefit spend, payroll costs and so on.  Or much the same in Compliance, for example.  External audits passed, compliance costs, compliance checks carried out – you can fill in the blanks.

Results part one

What you will have, if the process has been carried out correctly, is a list of individual factors that predict behaviour that support business success.  Some of the factors will appear not to be relevant; and I am aware that correlation does not imply causation.  Some of the factors will be surprising, do not rule them out or ignore them.  GO WHERE THE DATA TAKES YOU.  Human beings are programmed to look for patterns where none exist and make choices based on often faulty heuristics.   The data may not always take you in the right direction – but normally it will.

The ranking

This is the easier part.  You rank the employees by the factors.  This process is already part carried out by the earlier steps.  The exact nature of the ranking will depend on the analysis.  One approach may be to rank the employees by the factors with the highest correlations to business metrics success.

The pay increase allocation process

In an ideal world you would allocate 80% of your budgeted increase to the top 20% of employees.  That is because it is statistically likely that 80% of your revenue comes from this top 20% of employees.

This process largely removes the subjective elements and gaming that goes on around pay allocation in most organisations.  Decisions can be justified and supported by the data.  A clear signal is sent out to employees as to what is being rewarded.

Extra benefits to recruitment, training and development and succession planning

By having identified the factors that are correlated to business success (provided you have chosen the business metrics correctly) you have a powerful dataset to aid recruitment, training and succession planning.

Recruitment

You have a list of factors that predict business success and effective employees.  Using these factors a template can be developed to quickly and factually identify those applicants who are most likely to do well in your organisation.  It may not be the only measure; but it will provide an excellent screening tool.

Training and development

The factors that lead to success have been identified; thus you can train and develop employees based on those success factors.  A provable bigger bang for the training buck.

Succession planning

From the analytical process you will have identified both the success factors and those supervisors who have the most successful teams.  A variant on this exercise can be used to identify what factors make up the most successful supervisors and managers and build your succession plans accordingly.

Power of big data

The above discussion shows how HR data can be used to drive business success.  One of the tenants of big data is to automate the analysis of the data.  With a little work it is easy to automate the data scrapping processes to allow the identified factors to be ranked against employees and allocate the pay increases once the basic rules have been formulated.  Having the data available and categorised allows for very powerful management information reports and data visualizations.

Warnings and alternatives

The above process is, for the majority of organisations, new and perhaps frightening.  It will not work the first or second attempts.  However, the very process of data scraping and analysis will yield a honey store of good things.  The process can be changed and refined to fit the organisation.

This is different HR.

It is data driven and business focused.  Some will argue it takes HR away from its traditional routes; why not?  HR has not yet earned a full place at the board table with its current approach.  Finance, IT and other support functions have a greater claim, because they have the data and facts to support cost activity.

Conclusion

This concept is fairly new for most organisations and will take:

  • A change in mind-set
  • A robust data store of employee and business data
  • A strong understanding of the underlying statistical processes to carry out the appropriate analysis
  • HR working with Finance, IT and data professionals, statisticians and the business to get the clear benefits from the approach.

When this approach is fully working it provides a rich and effective way of spending the salary budget as well as providing a firm “big data” base for HR strong analytics.

Working this way gives credibility to HR and builds up a subjective data bank of HR information with which to support business decision-making.  Implemented appropriately it is a win win for all parties in the annual pay round process as well as for the wider HR community.

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August 17, 2013

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HR, Reward, Reward Strategy, Wellness

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Employee benefits – cultural mood-music

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Employee benefits are often overlooked when thinking about organisational culture. Yet they are a powerful framing or reframing mechanism for amplifying the message in our organisation of “the way we do things around here”. Like a good base guitarist they can provide the rhythm underscoring the melody of our set piece riff.

Messages – explicit and implicit
There are a number of signpost continuums that are reflected in our benefit offerings;

  • Traditional to playful (think pensions vs bike to work)
  • Collective to individualistic (Set menu vs flex)
  • Paternalistic to intelligent consumer
  • Slow moving to early adaptor (Notice board vs Twitter)
  • Tea dance to Lo-fi (Think tea trolley to “Sushi made at your desk” (Hey, is that a new benefits concept?))

You get the idea. The what and the how of benefits delivery as well as the communication sets the mood music for how our organisation is perceived by employees and the wider world.

Conclusion
Benefits are not something that should just happen. They are an important rhythm to the music of our organisational culture. Not up there with the lead guitar perhaps; but an essential, if overlooked nuance and shading of the message of who we are and who we want to be.

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August 9, 2013

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Executive Reward, HR, Pay Regulation, Reward, Reward Strategy, Risk

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A time travelled reward strategy; Who?

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Introduction

I was listening to the excellent “Dr Who at the Proms” on the radio.  The music was evocative of different times and alien terrains.   A thought struck me; what would the reward landscape look like in ten years’ time? Two alternative possibilities collided in my mind: a sort of Matrix like choice of different futures, a red pill or a blue pill? These were:

  • A continuation of what had gone before with ever increasing inequality between high and low paid
  • A more equal, transparent approach with some convergence between the levels.

This article will be looking at the outcomes of these two scenarios and the different pressures that may lead to one or the other becoming the new reward reality.

Continuation of the status quo

A troika of forces support the status quo.

  • The self-interest and power of those who benefit from the current system
  • A lack of political will to make changes; perhaps connected to first point.
  • As the economy improves the supply and demand equation will reassert itself.

There is a large amount of vested interest in the status quo.  This is not only from the direct beneficiaries of high pay; but also from those who benefit indirectly.  The barrier between board rooms and politicians together with senior public servants has always been porous.   Politicians and public servants often move in to corporate board rooms following retirement from “public service”.  It may be argued that waiting for those who currently hold the levers of power to reduce their future earnings potential in the private sector is like turkeys voting for Christmas; unlikely to happen.

Although outside the parameters of this article there is some interesting research to be undertaken on the issues of power and ideology as they relate to the economics of reward.

Even when the global economy is in recession it is difficult to attract the right calibre of staff in to executive management positions.  Or, if we look at the highest paying sector (putting aside football players and those in the entertainment industry), in to investment banking.   Getting the right people in role can make a great difference to organisational and financial success. When Stephen Hester was unexpectedly removed as CEO of RBS, its share price fell by about 7%.   At the top levels it is a seller’s market, with, arguably, an increasing international dimension.  There is anecdotal evidence that top mangers’ prefer moving in to private equity where rewards are higher but less transparent.  Likewise the increasing, and in my view, mistaken, prescriptive approach by the USA, EU and regulators on financial services pay, has the potential to lead to a flight of talent to less regulated shores; much the same as we have seen in the past with corporate tax planning.  This means a race to the top for the best talent with organisations worried about falling behind their competitors; the stairway is to heaven for the high paid.

There are considerable forces of inertia to be overcome before we can travel to a more progressive pay landscape.

What will the status quo pay landscape look like?  I used some data from the excellent MM&K survey of executive pay to develop a model.  The current position in the UK FTSE 100 (the UK top 100 companies by capitalisation) is:

  • Average FTSE 100 CEO remuneration:       £4,516,474
  • Average FTSE employee pay:                       £        33,957
  • Ratio of employee to CEO pay                                    133

If we look at the last ten years, the average increase in CEO remuneration has been 5.8% and 3.9% for employees.  I build a Monte Carlo simulation (with a heroic assumption that the increases were normally distributed and appreciating that ten data points is not a good sample) that showed there was a 50% probability that the following would occur;

  • In 2022 average FTSE 100 CEO remuneration:        £7,972,054
  • In 2022 average FRSE employee pay:                       £      49,668
  • 2022 ratio of employee to CED    pay                                       161

So inequality between those at the top of the pay scale and those on the average wage would get progressively worse.  A “Hunger Games” scenario with a large population of lower paid supporting a small population of very high paid.

There is a counter argument to this approach.  As the Institute of Fiscal Studies reports:

“Income inequality in the UK fell sharply in 2010–11. The widely-used Gini coefficient fell from 0.36

to 0.34. This is the largest one-year fall since at least 1962, returning the Gini coefficient to below

its level in 1997–98. Although this reverses the increase in this measure of income inequality that

occurred under the previous Labour government, it still leaves it much higher than before the

substantial increases that occurred during the 1980s”.

Thus, income inequality is a moveable feast with volatility making it difficult to confirm a consistent trend given the constant transformations of the tax and social security structures.

A more equal, transparent approach with some convergence between the levels.

There are a number of important pressures that indicate that this is the more likely outcome; albeit occurring over a long period.  As Jon Terry of PwC, a globally recognised FS reward expert, notes they can be broken down in to three broad areas:

  • External pressures
    • Pressure from shareholders
    • Pressure from the regulators
    • Economics
    • Cultural pressures

External pressures

I had a very interesting conversation with Cliff Weight, another internationally recognised reward expert, from MM&K.  This was on the subject of the balance of power between shareholders and executive management.  It is my view that in the past shareholders were more relaxed about the quantum of pay. This is because they were making a good return on their equity.  That situation has now changed.  Return on equity has, in many sectors, reduced considerably.  At the same time the percentage being spent on executive remuneration has risen.  Shareholders are now taking a much more detailed interest in the balance between what they earn and what the “talent” gets paid as a percentage of revenue.

It is also worth mentioning the role, particularly in the US but increasingly in other countries, of the activities of shareholder advocacy groups such as Institutional Shareholder Services (ISS).  I am not a fan of their somewhat tick box approach; but I fully appreciate that they do an important job in highlighting what may be seen by some, as poor pay practice.  Institutional shareholders are increasingly (although perhaps wrongly) relying on the advice given by these organisations.  The pressure on pay is always downwards.

A similar downward pressure is beginning to be exerted by the regulators; albeit often accompanied by prescriptive, counterintuitive and sometimes downright stupid regulations. There is a good summary of the latest UK regime on remuneration reporting here.  A downward pressure on remuneration by regulators is a clear and present danger to the maintenance of the status quo.  Linked to this are the regulatory requirements, initially in financial services, but likely to move to other industries, to hold sufficient risk based capital to support operations in the event of black swans, unlikely but catastrophic events.   This reduces the risk capital that can be invested in higher risk; higher return activities, so, picking up the issue in the paragraph above, reducing the potential returns to shareholders.

Economics

There are two opposing economic pressures affecting this debate.  Shareholder returns are dropping, as discussed above.  There are structural changes taking place that indicate that we may never see a return to the fifteen per cent plus returns before the financial crisis.  If that is the case there is going to be considerable downward pressure on remuneration in order to ensure a more “equitable” division of return between capital providers and employees.  The counter argument is that if there is a return to high inflation (and that has a high possibility in my view) and good economic growth, there is the likelihood of higher relative returns, while the scramble for labour intensifies and earnings at the top of the ladder explode.

Currently the balance appears to be in favour of the economic constraints on equity return leading to downward pressure.  But, as previous booms and busts have shown little is impossible, even if very improbable.

Cultural pressures

This is the most interesting of the downward pressures on pay.  I discussed this issue extensively with Cliff and Jon.  There is a clear consensus between the three of us that there are strong undercurrents of social pressure to increase transparency and have a more equitable distribution of pay.

These pressures are coming from all levels and in some cases some unexpected directions.  We are currently seeing the senior executives of some large organisations preaching pay restraint and greater responsibility.  Although, as the recent CIPD report on “Rebuilding trust in the City” (of London) shows there is a long way to go and some leaders still work on the basis of do not do what I do, do as I say.  But, this apparent change by the changing leadership of some large organisations is an interesting trend.

It can also be argued that those currently coming in to the system or beginning the climb up the greasy pole of corporate life have a different approach to reward, work and life balance.  Perhaps there is something less of a drive for personal gain and more a realisation of the importance of social contribution; we can but hope.

I am unsure that issues of high pay have yet entered the popular consciousness; a bit like the zombies in “World War Z”; we know they are bad but we are not going to come across one in real life.  Very few people have even indirect experience of high pay either in an absolute or relative sense.  Thus, while there is a broad sense of moral outrage driven by an often misinformed media; there is a limited popular demand for restraint on high pay and even less of an understanding of labour market economics or the complex nature of senior reward.

Having said that, social pressures are leading to what Jon Terry described as a “noticeable shift” in attitude by those both at the top of the tree and those who are working their way up the branches.  It is not yet revolution but is most certainly evolution.

What is clear is that social pressure is building up a head of steam and will have, perhaps, a defining effect on the reward landscape a decade hence.

Conclusion

My travel in to the future of reward is complete.  The evidence supports the scenario that in ten years’ time we will have a more transparent, more equal, reward landscape.  It is also likely to be an extremely regulated environment, particularly for high pay.  The issue is that state intervention starts to look like pay policy and pay policy, as history has shown, seldom works and discourages an open market in reward with frequent unintended consequences.

Executive Directors, consultants, remuneration committees, regulators and last but not least, reward professionals must start to prepare themselves for the changes that are beginning to appear on the horizon of the reward landscape.  It must be acknowledged that the future seldom turns out the way we expect; but there are sufficient broad trends emerging to at least give a probability of a more equal approach on pay.  In some ways this becomes a self-fulfilling prophecy.  If we start to think and prepare for a more transparent and equal pay environment it is more likely to happen.

Acknowledgements

I would like to thank two globally recognised reward experts, Jon Terry of PwC and Cliff Weight of MM&K for sharing their insights on the subject with me.  However, all the views expressed in this article are mine alone.

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July 27, 2013

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Demographics, HR, Pensions, Reward, Risk

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The pessimistic person’s pension problems Pandora’s package

Introduction

I had a letter recently from the Trustees of one of my defined contribution occupational schemes.  They told me they were going to change all of my carefully balanced investments in to funds of their choosing.  They said they were doing it in the best interests of all members; a reason that gives little room for argument.  It did set me thinking of the many pension risks we face; often not of our making.

Here is a list from the Pandora’s package of a pessimistic person’s pension problems.

Security risk

There is an assumption that our pensions are safe but what about:

  • The strength of the sponsor; as pensioners in Detroit have found – nothing is guaranteed
  • Investment manager – more on this later; but what happens if our investment manager fails?
  • Spouse risk; we assume that our spouse has made appropriate pension arrangements in the event of their death, but have they?  What about divorce?
  • State risk: some people rely on the state to provide a pension.  Research has shown that there are a lot of European countries who will not (and in some cases currently cannot) be able to afford the state pension burden.  If, it is going to be paid followed by when is it going to be paid followed by how much is going to be paid?

Political Risks

  • What tax regime are we going to face on our future savings and on pensions in payment?  In the US have we made use of the Roth rollover?  In Europe, what are marginal rates of tax going to look like in the future given the deficits are likely to last for another twenty years?
  • What limitations and regulations are going to be put in place now and in the future?  In the UK the limits on pension savings change every few months.  Are we going to face a savings limit; or like Australia a reduction in our state pension because we were prudent enough to save for our old age?  We know this is on the agenda of the UK and other European governments.
  • Are our pension’s savings going to be confiscated by the state at some stage, as we saw proposals to take savings from bank accounts in Greece recently? Do not think because it has not happened it will not happen in the future.
  • For those countries that allow income drawdown; will those rights be curtained or removed thus driving the proverbial coach and horses through our pension planning.
  • Regulatory risk; in order to protect pensions will regulators have to put such high hurdles in place that pension provision becomes impossibility expensive.

Economic risks

  • What happens to our savings when QE ends and the bond bubble bursts?
  • What happens if inflation takes off, as I consider very likely?  Are our savings and our pension payments protected against massive price rises?
  • Our country goes bankrupt!  Not at all impossible in these volatile times.
  • Annuity risks: are annuity risks going to crash even further (yes, probably).  Meaning we have to save vastly more for the same level of pension.

Sufficiency risk

  • Research by Fidelity and others have shown that very few people are saving enough to meet a basic standard of living let alone meet their retirement aspirations
  • Economic shocks for individuals such as unemployment, depression in the real level of wages, rising costs taking larger proportions of income are becoming the norm rather than the exception
  • Annuity rates are falling and there is little sign on the horizon of increases.  Forecasts based on old or historic annuity averages will underperform against the market reality
  • Life expectancy; this is the good news bad news story.  It is great that people are living longer.  But, that also pushes annuity rates down even further.  Someone (that is you) has to pay for all those extra years of pension

Investment risk

Where does one start?

  • Do we invest conservatively to reduce volatility; but with a greatly reduced investment return or do we invest more aggressively and risk losing it all?
  • Market timings – when do we buy and when do we sell; is our “lifestyle planning” going to mean our fund manager exists equities at exactly the wrong time?
  • Hidden costs eroding our pension savings.  De we actually know how much we are paying for all these advisors, fund managers, intermediaries, actuaries, professional trustees, pension lawyers, pension administrators and other assorted hangers on who seem to make a very good living out of our pension savings?
  • Investment advice; should we be in bonds or equities, infrastructure or emerging markets debt?  Even if we avoid the perils of active management do we know where we should be invested?
  • Diversification risk, everything seems to be correlated with everything else when we look at investments.  Are we over diversified or under diversified; should we be diversified?  Are our fund managers over or under diversified
  • Active vs. passive fund management?  Should we hope that “our” fund manager can do better than the market over the long term (statistically very unlikely) or should we invest in the market indexes and perhaps lose out on juicy “one-off” investment opportunities?
  • Vanilla or exotic investments.  Should we invest just in main index stocks, or should we use derivatives to help hedge our exposure?  Are Credit Default Swaps a good or a bad place to be; or both?

Operational risk

  • Have we got good fund administrators?
  • Are our pension records with our advisors correct and up to date?  Does someone still hold the record for the pension I took out in 1984?
  • Are our pension administrators undertaking the correct highly complex calculations correctly to ensure the correct final pension payment?  Some years are indexed against one figure (In the UK, for example, against RPI) and in other years against another index (again, for example in the UK, CPI).  Has inflation indexing, if we are that lucky, being calculated correctly.
  • Would we ever know if any of the above does contain errors?
  • Are the auditors of our pension scheme doing a good job for us?
  • Are the pension lawyers looking after our best interests
  • Have the pension trustees made the right investment and administrative decisions?
  • Have the regulators got sufficient resources and expertise to ensure that pension scheme members are being treated fairly?
  • Are the pension scheme communications easy enough to understand so we know the risks we are taking?

I could have gone on and on looking in my Pandora’s package but I have depressed myself enough already writing this.  I am going to have a little lay down and a cup of tea.

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July 18, 2013

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HR, Occupational Health, Reward, Reward Strategy, Wellness

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Wellness as a reward strategy

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Introduction

The UK Health and Safety Executive claim that 27 million days were lost to sickness or injury in 2011/12 at a cost of 13.4 billion in in previous year.  A lot of the illness is due to lifestyle choices such as diet, lack of exercise and stress.  There is a strong argument that including “Wellness” as part of a reward strategy is a powerful and cost effective way of increasing engagement, reducing sickness absence and increasing productivity.

Advantages of wellness initiatives

  • It is a cost effective way to improve engagement
  • Employees appreciate the interest shown by their employer
  •  Increase in productivity
  • Contributes to the “common good” – therefore good CSR management
  • Wellness initiatives can integrate with health and safety programs and occupational health activity giving a virtuous circle of employee wellbeing aligned with good business practice.

Development of a “wellness” culture

One of the most difficult things to do; but the most rewarding, is to develop a culture in your organisation of wellness.  By which I mean developing and encouraging behaviours that support wellness.  So it becomes the norm in an organisation for people to eat property, take exercise and take responsibility for their own and their family’s health.

This can be achieved by the same tools that we achieve any culture change.  Leadership is important. In one company I worked for there was an open competition between the CEO and the CFO on a number of sporting achievements.  Lots of staff took part with these leaders or at least supported their healthy activities.

The “nudge” approach so favoured by the UK government can also work.  By only serving healthy food in the canteen employees have little choice.  By having employees opt out instead of opting in to annual health checks will considerably increase the take-up.  Reducing the number of car parking spaces and replacing them with bike racks and showers nudge people in to considering using a bike rather than a car.   There are a number of small, inexpensive changes that can nudge people in to a healthier lifestyle.

Pricing actions can also help with the establishment of a wellness culture. Subsiding health options and making more expensive less health options is a good way to nudge people in the right direction.  Increasing the reimbursement rates for using public transport and decreasing milage rates make people consider the costs of motoring against public transport.  Subsidising gym membership is another good approach to encourage take up.  With some work and analysis these types of pricing approaches can lower the total benefits spend while leading to a more healthy group of employees.

Wellness culture can also be encourage by carrying out regular health audits of staff.  These can be carried out by occupational health or an outside advisor looking at patterns of staff activity and how wellness initiatives are working and perhaps suggesting new lines of attack.

Examples of wellness approaches

Wellness approaches can be split in to:

  • Risk Benefits
  • Environmental changes
  • Catering
  • Professional support services

Risk Benefits

The two most obvious benefits here are private health insurance and Health screening.  Many organisations offer private health insurance with, in the UK for example, BUPA or PPP.  But what is sometimes overlooked is that most health insurance organisations offer and in some cases encourage health screening.  A mixture of these two benefits can pay big dividends to organisation by both reducing time off sick by obtaining immediate treatment and health screening can pick up health issues at an early stage and deal with them before they turn in to long-term sickness issues.

Although not strictly speaking a risk benefit (although with some ingenuity it can look like one) is the provision of an on-site or near site private GP service.   I worked for a financial services organisation that provided a near site private GP service; which, while expensive, paid for itself by the reduction in staff having to take time off to see their local GP; often requiring a half day for a simple 10 minute appointment at their home location.  It was also very useful for visiting overseas staff and inward expatriate staff who often found it difficult to  get treatment with a local doctor.  (This tends to apply to the UK rather more than other countries).  The same type of approach can be used for the provision of private dental treatment on a “near site” basis.

Environmental changes

Making the workplace healthier is easily undertaken.  Replacing high fat snacks and drinks with healthy alternatives is but one suggestion.  Provision of showers for staff that bike ride in to work or like to exercise at lunchtime is another key initiative.  Opening up staircases as the preferred access and egress routes rather than elevators or lifts, perhaps by designating half of these as for visitor use only.  There are a number of simple environmental changes that will encourage a healthier lifestyle.

Catering

The provision of healthier snacks, drinks, tea trollies and canteen meals can make considerable changes to the diet of our employees.  Healthy eating does not have to mean uninteresting eating.  When I visited the Head Office of Commerzbank in Germany they had interesting Asian and African foods in the canteen; as well as it being open to the public…

Professional support services

This is another area that can create considerable leverage in employee wellness.  As an example, mental health is now recognised as a major issue for employers.  Time off for stress and depression is rising rapidly.  The provision of confidential counselling is an excellent way to provide support to employees.  Likewise drink and drug awareness and support initiatives can often catch problems at an early stage.

This type of support can extend to the provision of “at desk” massages’ to help relieve stress and long hour exhaustion.  There are many other creative and innovative solutions available in the market place to drive home the wellness message and provide support to staff.

Finally in this section, let us not forget trauma support.  Unfortunately, unexpected but dramatic incidents are an on-going fact of life in all countries.    These can vary greatly from terrorist attacks to train or airline crashes or sadly mass shootings in our locality.  It is essential to have appropriate professional, qualified trauma counselling available immediacy after an incident. Services can support staff, managers and families in the event of tragedy; minimising the possibility of long term mental issues arising from the trauma.  Do not forget, in the event of an incident many organisations will be looking for this type of support so simply get in first and have contingency arrangements in place with approved suppliers.  This is all part of the wellness agenda; be it often over looked.

 Conclusion

Wellness is an important, but often overlooked part of reward strategy.  Yet it is a cost effective way to improve both productivity and engagement to our valued staff.  It turns the phase “our staff are our biggest asset” from meaningless marketing to a working reality appreciated by staff and other stakeholders as part of a cohesive CSR policy.

On the subject of cohesiveness a well manufactured wellness approach can be closely integrated with business continuity, health and safety and occupational health.  The impact on the employee brand and proposition will be enormous – without a large cost.

I do not know why this approach is not more widely used.  Do you? And, have you any suggestions for innovative approaches on wellness in the workplace that I can share as part of an on-going dialogue on “Wellness in the Workplace” which will focus on some of the individual initiatives and providers who can help build this simple but highly effective reward intervention.

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July 5, 2013

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Banking pay, Emerging Markets, Executive Reward, HR, Metrics, Reward, Reward Strategy, Strong analytics

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Rewarding Reward Podcast http://www.idavidson.podbean.com/

Ian Davidson Reward podcast

I have produced the fourth podcast in the series “Views over the City”  http://www.idavidson.podbean.com This podcast covers pay and reward issues on a global basis.  This podcast includes:

For more on Banking remuneration see: https://iandavidson.me/2013/06/12/rebuilding-trust-in-the-city-of-london/

“I was at a recent meeting in the City of London to launch the document “Focus on rebuilding trust in the City” a Chartered Institute of Personnel and Development (CIPD) survey of staff in financial services in the City of London on trust and their employment relationship”

For more on Executive pay https://iandavidson.me/2013/06/18/balance-of-power-executive-pay-and-shareholders/

“There is considerable controversy over levels of executive pay.  There are a multitude of stakeholders or would be stakeholders pugnaciously striving for influence.  Remuneration committees are supposed to control executive remuneration.  However, as the MM&K recent survey shows, FTSE CEO Remuneration increased, on average, by 10% in 2012.  Why are shareholders allowing this to happen?”

For more on strong analytics:

https://iandavidson.me/2013/05/30/strong-analytics-3/

“As a reward specialist I am asked questions like, what is our pay inflation going to be next year?  I used to go away, do research and say 2.4% – having used the historic average.  Of course it was never exactly 2.4% so my boss would turn round and say – “but Ian, you said it was going to be 2.4%, you’re fired”.  If asked the same question now, I respond with an answer; “there is a 50% probability that it will be 2.4%; but there is as 10% probability it could be 4%, so we should factor that in to our budget.”

My new reward podcast give a wide view over the reward landscape as well as a fascinating conversation with innovation guru and author Peter Cook.

http://www.idavidson.podbean.com

If you would like a guest blog post or to guest blog post on this influential reward blog please get in touch.

blog@mauritius.demon.co.uk

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July 2, 2013

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Executive Reward, Pay Regulation, Reward, Reward Strategy

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UK Government’s own goal pay farce

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Introduction

It is reported today that UK politicians are seeking to block a pay rise for themselves recommended by an independent body.  The IPSA, an independent body that acts as a policeman on MP’s pay and allowances is alleged to be recommending a pay increase of £10,000 per year for UK Members of Parliament.  The politicians are rumoured to be very concerned about how the public would view such a rise in the context of UK standards of living decreasing over the last ten years with average pay increases being well below the rate of inflation

Caught in the pay paradox

Politicians are facing exactly the same paradox as remuneration committees.  The expert, independent advice is that the CEO or CFO are underpaid against the market; but the remuneration committee knows that to give a large increase to the CEO to bring her up to market rates would be unacceptable.  Caught in the pay paradox. 

Not carrying out the recommendations risks MP’s falling further behind the market (is there a market for MP’s?), but granting the statistically justified increase would bring large amounts of unpopularity with the (voting) public.  I hear echoes in the Great Hall of Westminster of “We are all in this together” dying an unpleasant and messy death.

A touch of real life

It is just possible that politicians will begin to appreciate the very real challenges of remuneration committees as they struggle to balance the demands of a thriving market in executive talent with the environment created by the politicians and the media that consider any pay increase for executives as some form of inherent evil.

Endgame

How will this end up.  I would guess that some messy compromise will be reached that will further distort the “earnings” of UK politicians; which will please no one and still result in a further dilution of public trust in the institution of parliament.

Conclusion

The pay paradox has been recognised for some time.  There is no easy answer, if any answer at all.  Politicians have designed and built a rod for their own backs.  Remuneration Committees have the same issues before them in the current environment.  Although I think it is unlikely, let us hope that UK politicians get a better understanding of the pay paradox as a result of this unfortunate farce.
What do you think?

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June 12, 2013

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Banking pay, CIPD, HR, Pay Regulation, Reward, Risk

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Rebuilding trust in the City of London

 

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Introduction

I was at a recent meeting in the City of London to launch the document “Focus on rebuilding trust in the City” a Chartered Institute of Personnel and Development (CIPD) survey of staff in financial services in the City of London on trust and their employment relationship.  (I tweeted from the meeting #rebuildtrust )  The keynote speakers to an invited audience of senior City HR people and journalists were:

 

It was an informative meeting presenting both the survey results and material on initiatives taking place to build trust after the calamities, errors, poor judgement and near criminal activity in the City over the last few years, which has badly eroded trust in what was once a gold standard for honesty and integrity.

Both Peter Cheese and Andrea Eccles gave particularly good presentations from different ends of the initiative spectrum.  Peter spoke on the big picture and in particular the role that HR has to play in leading the changes.  Andrea spoke of the very important key initiatives at grass roots level that City HR are taking, working with the Lord Mayor’s City Values forum.

The key themes during the meeting were:

Each of these themes is explored below.

Culture

Culture has been identified by the CIPD in earlier work as being fundamental to the required changes in the City.  The survey indicated clearly that the existing culture is a long way from being what is needed.  45% of the participants said their employer put profit before values.  Only 47% of staff saw customers as their key stakeholder.  As one of the speakers said, “What is required is a return to the core values of caring for customers and caring for employees”. 

One interesting take on the subject was the suggestion that financial services organisations need to focus more on recruiting “ethical” people.  My own experience, backed up by the survey results, is that a lot of people join financial services to make money.  In order to be seen as successful and to make the big bucks you need to be aggressive and egotistical; otherwise how would you make deals worth millions of pounds?  Unfortunately, aggression and egotism are not good indicators of ethical behaviour.  This goes to the heart of the matter; it is very difficult to make lots of money in an ethical and customer focused way.  The demands on one hand, by shareholders and analyst to make shed loads of money on one hand, and on the other, regulators, politicians (especially the European Union) and media on the other trying to stop profitable activity.

The role of HR in leading the changes was highlighted several times.  Again the paradox between this approach and the role of HR in supporting the business to carry out its activities was evident.  A good example was a comment about the morality of HR being involved in compromise agreements in financial services.  It was alleged that these compromise agreements can (as in the case of the NHS) be used to gag whistle blowers.  The reality is that compromise agreements are an essential part of the HR toolkit.  It allows for the amicable separation between employer and employee, normally on a “no fault” basis.  In the fast paced and rapidly changing environment like financial services, there will be differences of opinion, strategy and personality clashes.  Compromise agreements lead to a civilised and low cost way of managing these situations.  The suggestion that HR should stop using them is really throwing the baby out with the bathwater.  HR has far more important tasks in providing the frameworks for culture change than worrying about compromise agreements.  It is getting tied up in the detail rather than working on the big strategic picture that often leads to HR being perceived as a barrier rather than an enabler.

There was some good news.  RBS, the largely state owned bank in the UK, was singled out for praise for its work in introducing a much more ethical and customer centred approach – something of which I have some personal experience. (And would like to have more if Rory Tapner is reading this).  Sadly examples of good practice are few and far between. 

Values

Part of the discussion on culture must include values.  City HR is leading a lot of work on the development of toolkits to help.  The presentation by Simon Thompson went in to detail on the work of the Institute of Bankers on professional standards and many big employers in the City have signed up to these standards and the educational and training frameworks that support these approaches. 

Professionalism

This was a key theme in the presentations.  Raising the level of professionalism is very important in defeating the current broken culture.  What do I mean by broken culture?  It is the behaviours that allowed the manipulation of LIBOR rates for profit; that mis-sold products including PPI and, perhaps, some derivative products for gain rather than the good of the customer.

The survey showed that only 30% of staff are in professional bodies with standards.

To work in HR in the City you need to be CIPD qualified, yet to work as a banker you need no qualifications at all

That quote summed up for me the entire issue around professionalism.  One can argue about professionalism and its meaning.  It does normally provide a framework of acceptable (and unacceptable) behaviour that can form the basis of reward on one hand and disciplinary action on the other.

There was a comment that there are a vast number of codes of practice, regulations, laws, (domestic and foreign) and guidance – some of which is in direct contradiction.  True, but no one said it was going to be easy.

I must again praise the work of City HR in providing structure and good practice for professionals in the City.  This slow drip drip drip of information, tools and frameworks are, over the long term, likely to prove to be a bigger boost to professionalism than grand culture change initiatives by those embedded in the current City ideology. 

Leadership

One of the more disappointing results from the survey was that 41% of the participants said that there was one rule for senior management and another of other staff.   Given that nearly all the speakers emphasized the key role of senior management and CEO’s in leading the culture change; there is still a big mountain to be climbed.  The fact that only 36% of “other ranks” are aware of their organisations values indicate that organisational leadership has a large communications issue on their hands; and what is leadership if it is not communication of the vision.

Risk Management

A key theme during the presentation and during the Q&A session that followed was risk management.  It is clear that the framework to support culture changes needs good human capital measures and strong analytics.  Why?  Two major reasons were discussed.  First, it is difficult to discuss change if it cannot be properly measured.  Second, in the world of financial services number crunching and risk analysis are part of the bread and butter of daily activity.  To have credibility, the change activity, particularly if led by HR, needs to adopt this approach.  When I worked in investment banking I sat on the Operational Risk committee and that experience led directly to my design and implementation of a reward risk framework.     Exactly the same type of approach can be used when thinking about risk and culture in the financial services environment.  It is this sort of fundamental change in thinking that is going to provide the scaffold for the success of the work in culture change.  HR does, on occasion, shy away from people metrics; yet they are an essential framework for designing interventions and supporting our businesses. 

Role of HR

There was a lot of discussion on the role of HR.  Here I must depart from the gospel according to the panel speakers.  There are two places the pressure for change will come; the first is from senior management.  There is a bit of an issue with this one.  Senior management got where they are by supporting and encouraging the status quo.  Much of this has been made in management literature; the ideology of management has support for the status quo deeply imbedded within it.  Asking senior management to support massive cultural change may be like expecting turkeys to vote for Christmas….  The second place is from the employees within the organisation.    It is possible, as history has shown, for small but articulate groups of people to push for change from within the organisation.  Given the above mentioned ideology that is a possibility but not a strong probability. 

If culture change becomes another HR intervention it has the possibility to be marginalised and not become part of mainstream business thinking.  The survey showed that a number of culture change initiatives have not worked so far.  Only 17% of participants saw the culture change in their organisation as being very effective.

Clearly HR does have a role in providing the toolkits, interventions, training and development necessary to carry out the culture change; but leading it is not, in my view, going to happen and if it does it is more likely to lead to a marginalisation of the change on the business agenda as so often happens with HR led initiatives.

HR does have a key role in modelling and supporting behavioural change as well as ensuring that the new generation of bankers coming through at least start with an ethical mind-set. 

Reward issues

Reward is at the heart both of what is “bad” in the City and what will help drive change.  But,

  • 73% of staff think that some people in financial services are overpaid
  • 67% say there is secrecy around pay for senior mangers
  • Only 36% see reward as being “fair”.

As reward professionals we have to stand up and be counted.  Discussion needs to take place on what is “fair” pay.  Pay systems have to be somewhat more open so there is a greater understanding of what people are being paid for,

Key tasks include:

  • Better advocacy of pay levels and differentials in organisations
  • Development of incentives to encourage professionalism
  • Development of reward and performance management that encourage thinking about how an objective is reached as well as the measure of the objective.
  • Being as open as is appropriate to stakeholders on our reward approaches and outcomes
  • Being an advocate both internally and externally for the reward systems and outcomes.
  • To bring measured, data led, rational debate to politicians, the media and other commentators to prevent or at least moderate the near hysteria around financial services and senior executive pay

Conclusion

The CIPD report is a timely looking glass in to the views of those who work in financial services as to issues of trust and reward.  It is well written and influential; I would recommend it to you. (Disclosure note; I undertook some analysis of the raw data in the report for the CIPD).  Both the CIPD and CityHR are clearly thought leaders in this field and their activities are to be applauded.  The report is an important part and input to the on-going discussion on this subject.

The report is also timely.  The results from the Banking Standards Inquiry by the UK’s House of Commons are due to be produced very soon.  Unfortunately it may be argued by some that it has been badly tainted even before release because:

  • The standards of politicians in the UK are at an all-time low and lecturing other people on ethics and standards is at best the pot calling the kettle black and at worst rank hypocrisy.
  • A lack of understanding of the world and work of financial services by MP’s who have seldom operated in the real world and those who have did so via the playing fields of Eaton (an elite fee paying school in England  attended by many of the UK cabinet and their advisors).
  • A large part of the problems with the collapse of trust in financial services is due to inaction by politicians and regulators who believed that light touch and not actually understanding what was going on was a good way to regulate a very complex, risky, global business.
  • A potential perception that there is a lot of band-standing and jealousy going on at Westminster village that does not aid credibility

I hope I am wrong and wait to read the report with interest.  However, the weight of history is against them; since when have politicians made anything better?

Failure is not an option unless we do want the politicians to bring their incredibly costly sledge hammers to smash some nuts that, it turns out on closer inspection, actually have nothing to do with the problem.

It is only by hard work based on sound data such as the CIPD report; and not taking some moral high ground and seeking to apportion blame; that will make the very necessary changes.  HR and reward in particular do have key roles to play.  At the end of the day there must be the drive and will in the Board room to make the required culture change a reality. 

#reward #rebuildtrust #CityHR #RBS #trust #financialservices #cipd #cityoflondon #stronganalytics #rewardmanagement #risk #riskinhr #hrblogs