The Top 10 Common Reward Misconceptions … from HR and others

I appreciate that some of these are slightly tongue in cheek, but equally they have all been said to me in meetings, or written in the media, or hinted at in conversation. Some of these deeply frustrate me and need to be re-thought but for others there is an element of truth, but they are being fundamentally misunderstood.

1.      Reward folk in financial services singlehandedly caused the 2008 Global Financial Crisis through irresponsibly incentivising front office staff!

Thoughts:

It is absolutely ridiculous to suggest that negligent reward folk caused the collapse of various financial institutions in 2008. However, one could argue that incentivisation unchecked within a badly regulated and unmonitored environment can lead to problems. Taking risk has always been a necessary evil in the banking system in order to make notable returns. You could argue that if you are incentivised to take excessive risk, human nature will inevitably lead you to make bad decisions. So perhaps badly designed reward policies and bonus plans may have played a minor part in the 2008 crisis? Either way, seeing a Reward Professional berated for “ruining the economy” at a BBQ last year did lead me to conclude that this was a common misconception!

2.      Gender Pay Gap reporting is purely a reward issue to deal with.

Thoughts:

This is a big one and an ongoing debate. Reward are of course responsible for the analysis and reporting of Gender Pay statistics, but the common misconception is that this is a problem either caused by Reward or something that reward can solve. It is important to remember that the Pay Gap issue is not about pay inequality, and therefore it is wrong to suggest that it is Rewards fault or problem to solve alone. Reward can come up with the data, but actually when an organisation starts to look at root causes behind a pay gap, more often than not these are wider HR issues around things like talent attraction, the infrastructure to really offer and support flexible working, and supporting parents returning to work and managing their family commitments. Therefore, Gender Pay is most certainly not just a Reward issue.

3.      Benefits work is much easier and more “airy fairy”, when compared to Compensation!

Thoughts:

Another huge misconception is often that Benefits professionals have an easier job than compensation folk. Some HR professionals have even suggested to me that benefits professionals should be paid less than their more important compensation peers!?!?!? I would agree that the concept of employee benefits is not rocket science, but neither is designing a commission scheme or a basic LTIP! With an increasing Millennial population now flooding the workforce, designing a truly engaging benefits offering that is cost effective and increases engagement, is a real art and incredibly complex.  Add in employee wellbeing and the increasing focus on mindfulness and the agenda looks very comparable in size to the compensation arena and equally as challenging. Benefits is not straight forward, it often involves managing a huge spend, and its usage is monitored right up to board level (it’s not easy!)

4.      Reward practitioners are hands on and into the detail folk, who struggle to think strategically or “bigger picture”.

Thoughts:

Absolute rubbish! Perhaps heading back 20 years ago Reward was more cyclical and functional and the focus was on detail and managing the day to day. People didn’t necessarily need to think about five year plans, and the development of a Reward Strategy. Fast forward to today and with increased regulation, public scrutiny, and the challenge to truly engage staff, it has led to a real need to think and plan strategic reward interventions that support the commercial goals of the business, retain your staff for as long as possible, and are cost effective and in line with the wider market. Strategy and the ability to plan is crucial to the toolkit of any aspiring Reward Director.

5.      RemCo advisers, such as The Big 4 or specialist consultancies, are there to push up pay for execs and for their “clients” rather than advise in the best interests of shareholders or the company itself.

Thoughts:

There have been a couple of articles written on this subject of late, and again it’s absolute twaddle, promoted by predominantly right wing media bashing board executives and firms associated with them. I am sure Tom Gosling at PwC probably choked on his coffee when the Evening Standard approached him for commentary on this, as in reality it’s RemCo advisers who are advising boards to push pay levels down in both the commercial interests of the business and shareholders.

6.      Reward folk are technically savvy, but still lack emotional intelligence or the ability to manage relationships, and are socially awkward!

Thoughts:

I have rallied against this before. Some HR professionals still believe that Reward folk need to be placed in a darkened room and lack social awareness and emotional intelligence, and it’s suggested that Reward folk make terrible people managers, which is grossly inaccurate. There are of course examples of reward practitioners, who are perhaps increasingly seen as “Old School” that do struggle to lead large teams and enjoy working autonomously, relishing the technical challenge of their roles. However, this type of reward “techy” is becoming more and more rare, though the perception still lingers!

7.      Those that do Reward often lack creativity, are ex actuaries and tax accountants, and spend weekends doing unusual things like working on their allotments, collecting vintage wallpaper or brass rubbing at the local church!

Thoughts:

Admittedly I do know a Reward practitioner who does collect vintage wallpaper (who knew that was an actual pastime?). However, the individual concerned was actually very creative and advanced in their reward thinking. It’s backward to suggest that technical disciplines lack creativity. It’s akin to suggesting that finance departments can’t think outside the box because it simply isn’t a creative subject! If anything in the current landscape, those pushing more creative reward strategies have more chance to improve the staff retention and engagement, and add value to their EVP and increase talent attraction. Reward has to now be creative to take competitive advantage.

8.      Executive Compensation is some sort of voodoo or dark art, and it’s much more challenging than other areas of reward.

Thoughts:

Again, complete nonsense. Executive Compensation is perceived as more challenging because it is a highly emotive topic and an discipline under immense public scrutiny. It is dealing with information that is highly sensitive and there is no room for error or inaccurate data. There are now significant ramifications for mistakes, and as such the perception is that it’s a much more challenging area of Reward. This doesn’t make it more complicated or “harder” to do than other areas though.

9.      It’s the EU that gave us all this remuneration regulation nonsense and that once we leave the EU, we will dump it and become some sort of tax/ bonus haven like the Channel Islands!

Thoughts:

The EBA and ESMA have indeed instigated some fascinating regulatory changes in the last 8 years.  CRD, UCITS, AIFMD, MIFID, Solvency II, Basel III etc etc. Each one has been reformed multiple times, hence we are now on CRD IV, UCITS V, and MIFID II. This has indeed changed the game regarding remuneration regulation and increased the challenges that Reward professionals face. However, let’s not forget the FCA & PRA have come up with their own Regulatory concepts that are arguably equally as tough; the Senior Managers & Certification Regime was a creation of our own doing! Leaving the EU will not allow us to simply dump a load of constricting remuneration blockers, as whatever passporting the government negotiates in the coming years, I am sure holding to EBA and ESMA regs will be a key requirement. We are not going to scrap the bonus cap anytime soon!

10.  Reward is far more complicated in financial services than it is in the commerce world.

Thoughts:

No it’s not! The assumption is that financial services is regulated up to the eyeballs and that all other industries fly under the radar to an extent. Changes to BIS legislation in 2013 put paid to that by making shareholder votes binding on Rem policies for all listed firms! Equally with the ongoing war on executive pay, and the threat to make shareholder votes somehow binding on DRR’s, it certainly doesn’t make the reward landscape easy! 

Hopefully some of these raised a wry smile, but equally some of these are genuine misconceptions that I do hope change in the months and years to come. Reward is such an integral discipline to any modern HR function but still receives quite negative press as being boring, bland and a necessary evil. I appreciate I am biased on this to some extent, but I would bet that those businesses out there that have the best engagement scores, attract the best talent, and have a healthy level of staff turnover, will have a well-staffed reward department at its heart executing a well thought out commercial reward strategy.

I’d welcome your thoughts on these misconceptions or any other you can come up with!