I believe it was Benjamin Franklin who once said that “Failing to plan is planning to fail.”

In light of the significant changes COVID-19 has brought to both our working and personal lives, we would like to offer some ideas to help organisations think about the implications of the pandemic for reward – and plan accordingly.

After all, you wouldn’t like to be thinking back of the quote above when you find your reward strategy is not working for your organisation and its people, would you?

In this article we aim to provide an overview of key considerations for reward after the pandemic, with a view to expanding on a number of these topics in separate articles and other media.

Having spoken at length with clients in a variety of sectors of their challenges and plans, reviewed numerous reports and other publications, and taken the time to digest these findings and reflect on how reward is changing, we believe that there are two main areas that should be considered when planning a post-pandemic reward strategy. These areas involve a recalibration of reward principles and a (re)valuation of contribution.

Recalibrating reward principles

We have always been strong advocates of the importance of having well-thought-out principles embedded in the organisation in order to guide decisions pertaining to reward, create greater accountability and support transparency and consistency of these decisions.

COVID-19 has brought principles into the spotlight as a result of increasing challenges to seemingly unjustifiable differences in pay and a general view that in many organisations reward is just not right.

In our opinion, any review of reward principles should start with developing a strong Employee Value Proposition (EVP) – or reviewing the current one. Organisations who succeed in building a relevant, well articulated and properly communicated EVP transcend the view that reward is primarily about pay, enabling wider conversations about an all-encompassing ‘employee deal’. This results in higher employee engagement, improved recruitment and retention, and less pressure on pay.

With employer brands suffering or strengthening as a result of the response of organisations to COVID-19, it is now critical to be clear about what an organisation stands for as an employer and what that means for reward.

Against this backdrop, organisations will be in a much better position to respond to the fundamental question of “How do we make reward decisions?”, Revised reward principles will only work with employee acceptance, and supported by leadership, aligned to business imperatives.

In the current climate, we have identified some areas that merit particular attention in this conversation as follows.

First and foremost is the question of employee wellbeing. COVID-19 has put even greater emphasis on what already was a rising topic on the people agenda. There is a pressing need to establish how organisations care for employees, what the right balance of duty of care and personal responsibility is, and how to develop greater organisational empathy to listen to employees and understand what matters to and affects them – and respond to that.

The response so far has been centred in interventions such as increasing the frequency and channels used to capture employee input, strengthening support offered to employees at different levels, revisiting some benefit programmes (in particular protection benefits), and implementing different measures to protect employee earnings.

What should follow is a wider and more strategic review of organisations’ approaches to wellbeing looking across all dimensions e.g. mental, physical, financial, and social. This review should be informed by the learnings from the pandemic, employee input and, yes, the organisation’s EVP.

Internal equity is also becoming a fundamental issue at the heart of the conversation about employee reward. In addition to the ongoing focus on Equal Pay and the gender and ethnicity pay gaps, there is now growing pressure on justifying the validity of pay differentials across hierarchical levels with particular emphasis on the lower and the highest (and typically most senior) paid roles.

We have all witnessed the debate around pay levels for a number of key worker roles and, by extension, about pay for employees in low incomes who are more likely to be impacted by the pandemic. With no simple answer to this challenge, organisations can take initial steps in the right direction by: testing the suitability of mechanisms they use to determine pay for these roles; exploring sustainable options to help vulnerable employees manage the risks triggered by a sudden drop of income and/or unexpected expenditure; and, reviewing the ability to target investment for these roles in line with overall principles and affordability.

At the other end of the organisational hierarchy, senior pay is likely to be exposed to even greater scrutiny. The ability of organisations to justify remuneration packages, especially if seemingly onerous, will be challenged in light of aspects including social responsibility and calls to ‘shoulder the burden’, links between organisational performance and individual pay, and any potential dissonance between senior pay decisions and wider organisational reward outcomes.

Overall, it is important to balance calls for organisations to just spend more with business continuity and sustainability. This should be underpinned by an open dialogue between the organisation and employees and a genuine commitment from business leaders to develop a clear position on internal equity as a matter of priority for the organisation – and direct investment accordingly.

One thing is clear though, organisations need to start transitioning from seeing reward spend as a cost to be minimised and towards a view that this is a real and necessary investment.

Part of this change in mindset will involve a re-think of the role of incentives. We have rarely found examples of incentives delivering the expected step-change in performance, actually finding more instances when they do the very opposite. This is not to say organisations should do away with incentives altogether. Organisations just need to be clearer about what they use them for.

In the current environment, we find value in seeking closer alignment between incentive awards and organisational performance, focusing more on collective measures as opposed to individual objectives with the right level of flexibility built into them to manage the volatility brought about by the pandemic.

Moreover, providing greater visibility of and context behind business results and the impact on individual awards – particularly in cases where organisational performance dips – will be key to building credibility and trust on incentive plans.

At a more tactical level, the degree of influence of market data on pay decisions, and the rationale for regional pay and remote-working compensation should also be prioritised for review.

On the point of market data, we believe it is important to review the balance between external market practice and internal equity in informing reward decisions. Whilst the merit of having visibility of pay rates for comparable roles in other organisations is still there, decision-makers should avoid disrupting internal equity and potentially ‘importing’ unjustifiable biases from the market.

In terms of regional pay, organisations need to test whether the rationale for differentiating pay on the basis of location is still valid in a post-pandemic world.

Typically, these differences were intended to reflect the financial impact for employees required to live within a ‘commutable’ distance to a workplace located in high cost of living locations. With the requirement to be in the office changing in numerous organisations, where to live becomes a matter of employee choice rather than an employer-driven factor. Consequently, any differences in pay exclusively on this basis would be harder to justify and could go against the spirit of internal equity.

This, of course, should be informed by having a clear view of the extent to which it is desirable and feasible to transition significant numbers of employees to remote-working arrangements, which is not necessarily the case for all organisations and sectors of the economy.

In addition, with an increasing number of employees being asked or allowed to work from home either temporarily or permanently, organisations will need to determine whether and how this impacts on reward.

Any decisions in this space call for a balance of employee choice and responsibility with employer-mandated conditions and duty of care, starting with the health and safety imperative that requires employers to ensure employees can perform their job in an adequate setting. We support the actions taken by organisations who helped employees cover part or all of the costs to improve their remote working set up and have the equipment and connectivity they need to do their job. However, we see this more as a matter of business continuity rather than something within the core reward agenda.

We also think it is important to allow for greater flexibility in working patterns to help employees balance caring responsibilities and, overall, achieve a good integration of their work and personal lives, especially now that the boundaries between the two have been blurred.

On a particular point of debate, there are questions about whether and how the savings employees make on travel, lunches, etc. should be considered in reward arrangements. We do not believe so. These were and will continue to be aspects of work heavily influenced by employee choice and, as such, typically not reflected on reward. Therefore these factors should not impact on reward going forward.

Critically, in considering any of the above suggested changes, organisations will have to take their employees with them on the journey of change and have developed reward principles with senior leadership involvement and support – aligned to business priorities.

(Re)Valuing contribution

You may have seen references to Oscar Wilde’s quote “The cynic knows the price of everything and the value of nothing” in articles and conversations concerning reward over the last few months. We find that this sets the stage well for an exploration and test of the links between employee contribution and reward.

The question at the centre of this debate is whether pay and wider reward are adequately aligned to the contribution employees make?

We do recognise that for some organisations finding an answer to this question may actually involve finding the means to value contribution, whereas for others the call is to review their current practices. Hence the deliberate use in the header of this section of “(Re)”.

Let’s start with Job Evaluation. Traditionally this has been the preferred method to measure contribution and underpin reward systems. In recent years, Job Evaluation has been transitioning from complex and at times overly-academic methodologies to more business-friendly and easier to communicate frameworks, including “contribution models”.

These models have been allowing organisations to build a hierarchy of jobs, and subsequent links to reward, on the basis of the level of contribution different roles make to the organisation. As such, we find that these frameworks can provide a useful tool to recognise the value of the contribution of employees in organisations.

In addition, we believe organisations need to be mindful of instances where COVID-19 has placed additional demands on workers in terms of working hours, risk, hardship, etc. In our view, these factors merit consideration for reward and recognition.

However, it is important to position and communicate these interventions carefully. Organisations need to be clear on which aspects of reward relate to contribution and what the job is there to do (e.g. salary and standard benefits), and which aspects constitute vehicles to recognise extraordinary and potentially temporary circumstances (e.g. allowances, one-off financial awards, targeted appreciation gestures, etc.)

Another area that is relevant in the space of valuing contribution is performance management.

With the conventional approach based on SMART objectives, mid-year and full year appraisals, and distribution-driven ratings already under increasing challenge, COVID-19 has created an opportunity to accelerate a transition to more effective and suitable approaches to drive performance.

The current disruption to work patterns has forced organisations to do two things in this space: 1) Trust employees to do their work; and 2) Find ways to enable them to do that.

These are actually the principles that sit at the heart of a new “performance development” approach we have seen gaining increasing traction in the market. In essence, this involves focusing on priorities to enable employees to do their best work, providing the support required to do this, and having frequent conversations to review progress against these priorities – and adjusting them as required.

Any links to reward are not determined as a direct result of this process but as a separate assessment. This assessment is based on fewer ratings that clearly encapsulate what great performance looks like in each organisation from an outcomes and behaviours point of view – not as a measure of fulfilment of often abstract, irrelevant or unachievable objectives.

We also find that this approach is more likely to have a positive impact on productivity than conventional practices. This as a result of providing greater room for creativity and innovation, and managers acting more as facilitators of high performance rather than enforcers of objective fulfilment.

Time to make lemonade

At a time that has been difficult and challenging, we find value in making lemonade with the lemons COVID-19 has given us.

Now more than ever it is important to remember that the “H” in “HR” stands for “Human”. Let’s build on the greater empathy we have developed towards each other and make reward work better for everyone.

We hope that the ideas in this article will help you do that.

Contact us if you would like to use us as a sounding board to test your ideas or if you would like a hand with developing plans to manage reward after the pandemic.

Juan Novoa, Lead Consultant at QCG – August 2020