The future of the reward function

We have been doing some work recently on how an internal reward function should be structured to best support business success.? As with every piece of thinking of this nature, the desk top research drives a certain level of understanding.? But it’s a pretty staid and academic point of view.? When you get out there and speak to people you end up with a much more interesting picture.? So that is what we have done!

Trusted Adviser

The answer to the optimal design of a reward function lies in the role of a reward director today. ?The expression we hear most frequently is that of the reward director as “trusted adviser”.? They have the ear of the CEO, they tend to be viewed as a fixer for the CPO.? They have a skill set that is grounded in numbers, communication, and negotiation.? They are close to the strategy of the business, its cash flow and its senior leadership team.? They have respect and people listen to them.? Put simply, they have a reach that most other roles simply don’t have.

What does this mean?? Three things.

The role without end..

First, the reward function is growing.? There are very few reward directors who have not collected a broader portfolio in recent years.? It may be ED&I, or wellbeing.? It may be performance management, or HR data or Workday.? However we look at it, whenever something people related appears that requires addressing quickly and executing well, it often ends up at the door of the reward team.? This means that the reward function is growing organically and somewhat opportunistically.? It houses a newer, broader, church of skills.? It has no traditional design because it has no consistent parts or features.

With a discretion to build its own structures…

Secondly, in a world of process improvement, offshoring, outsourcing and ever evolving HR function re-design, the reward team seems strangely impervious to such change programmes.? Of course, the reason behind this is obvious.? There is an in-built concern to playing fast and loose with pay data or pay decisions, even in the name of efficiency.? Hence the reward team sets its own design, somewhat independently of the pressures that have been changing the shape of every other type of HR team, every year, for the last 30 years.

We could argue that this is because the sensitivity of the data requires that it be so.? But the reality is that the reward function is protected – the ear of the CEO is valuable thing to have!? It is why there is no optimal reward function design – cut by region and/or specialism.? There is no matrix that has been benchmarked to work best.? There is no “reward headcount per employee ratio” that people rely on.? And if anyone says there is, they have an incomplete data set.

If you ask any reward director why their team is structured in a certain way, the answer is usually, “this is how I did things in my last place”.? Or “this is what I think works best”.? Or, “this is what was here when I got here”.? Put simply, there is a fair amount of discretion…

Using data and automation to do things faster…

Finally, if you think I am suggesting that reward teams are stuck in the past, then I am happy to put the record straight.? There is no part of a business that has a better track record in evolving how things are done to make them quicker, less time intensive, and more accurate.

It’s not just technology that has made this possible.? But it has clearly been a major contributor.? If we take the annual pay review as an example, we can see the following:

• HRIS systems such as Workday or Success Factors require that you organise your people by levels, families (or disciplines) and geo-zones.? The systems don’t work if you don’t have this architecture underpinning your people.? And once you have, it is possible to identify every employee with a simple job-code, constructed from the identifying features adopted.
• I don’t wish to under-estimate the hassle of creating this architecture.? But once you have it, the job code enables you to map every employee to your chosen external pay data for benchmarking purposes.? You can see where this is heading.? The mapping is rules based (and if it isn’t, it should be).? Which means you can benchmark your global population using an automated approach that requires little or no human intervention.
• That benchmarking can be used to construct pay ranges.? Pay transparency and equity requires that your pay ranges be constructed with some consistency.? Consistency requires rules and order.? And, assuming you set your rules correctly, you can keep your pay ranges up to date on a similarly automated basis.
• When it comes to pay review, the idea of letting your managers set pay within the band sounds great.? But the problem is that manager discretion is not our friend in managing pay inequality.? We want to pay more to people who sit lower in band who have the same skills and capability as those who sit higher in band.? That’s (you read it here first), a rules-based approach that can be automated.?
• Taking this to its logical conclusion, it is possible to benchmark pay, build pay ranges and produce a pro-forma allocation of pay spend using a rules-based approach - that means the exercise is largely automatic. How many people does that require?? Not that many.

It’s not that every reward function has got there.? But they all will soon.? Which means, very gradually, that the reward team will shift further into the trusted adviser space. As they have freed up the time to do so.? With no loss of service or impact on user experience.? It’s the perfect example of how HR teams can change – but done in a way that is supremely unshowy and quiet.? The team reaps the benefits of the freed-up time to do other things.? The reputation of the team as a body of people who get thigs done grows ever more.? A virtuous circle.

So, what is the answer (as in what is the future of the reward function)?

We know this already.?

If we think about reward, learning, development, talent, performance and culture all as “employee experience” – we start to get closer to a model that our current reward function can sit comfortably within.? Where a big chunk of the reward team is dedicated to broader people experience and working in teams across the business making the people experience better.?

And from there, its not too much of a leap forward for our reward director to transition seamlessly into the Chief People Officer of the future.? Which is not a sentence I would have written ten years ago.? The future is bright…