On Innecto’s 20-year anniversary, Director of Consulting Justine Woolf reflects how the landscape of pay and reward has changed since 2002.
In the 20 years since Innecto was founded, typical reward practices have evolved but many of the fundamentals remain the same. We still benchmark pay through methodology and surveys. We use job evaluation to compare the value of roles internally and we build pay ranges and structures and create bonus schemes. What has changed is the world in which our businesses operate.
Transparent thinking
One of the biggest issues in organisations has always been when people do not understand why they are paid what they are paid, how they compare to their peers and how they compare to the market. And they haven’t been able to trust the fact that decisions could be made in a fair and equitable way.
For a while now, the younger generation has been pushing us towards more purpose-led working cultures, with more of a lens on the environment and sustainability, and crucially greater transparency. Whereas pay ranges used to be a big secret everywhere except the public sector, now there is a greater emphasis on openness. The same thinking – and legislation – has also paved the way for other key advances like gender pay reporting and CEO pay ratios, all of which have increased transparency and fed through to the way we manage and communicate reward.
A greater emphasis on business being purposeful, sustainable and fair is also leading companies to align responsible reward with Environmental, Social and Governance (ESG) policy, being driven top-down by investors asking boards what they are doing to satisfy law, and bottom-up by employees demanding it because it feels right.
All these drivers for fair pay, equality, and transparency have evolved into Responsible Reward where employee wellbeing has become a key component of any package and working life.
We continue to evolve the concept of a Fair Pay Dashboard, bringing all this together in one place to give companies an immediate insight into things like in-work poverty, which is particularly relevant post-pandemic and with the energy crisis.
Advances in tech
While our Fair Pay Dashboard is still work in progress, other advances in technology have already dramatically altered the way we operate and manage our reward structures. At the turn of the century compensation planning tools were available to help manage pay review but were clunky, admin heavy and only accessible to bigger companies able to invest large sums. Newer technology is more agile, user-friendly, and universally accessible.
Whereas benchmarking data used to go from a survey into a flat spreadsheet, today’s tools allow companies to interrogate themselves: how are our people paid against each other within a team? Across the organisation? In the market? Have we got equal pay risks?
There are caveats and pitfalls to be avoided, with products like Glassdoor and Payscale bringing a layer of ‘data’ to the market on the one hand, but often being too generic to compare apples with apples on the other, leading to potentially misleading outcomes. The more recent, enlightened trend has been towards benchmarking surveys and digital platforms providing job evaluation and pay review, and the next step on from that is to achieve connectivity between all these elements. This is what Innecto’s digital software solutions are looking to achieve, alongside the consultative analysis that guarantees a more personalised approach.
With more intelligent data harvesting and insight, companies are now able to make informed, fair and equitable decisions around pay, with greater transparency around those decisions: a clear framework from which to build trust with workers.
As a result of these philosophical and technological advances, and the legislation that has followed, we have also seen public and private sector approaches diverge. From the poles-apart position, they found themselves in 2002, they are now more of a blend. Traditionally the public sector has inherently been more transparent because of the level of accountability and scrutiny in things like pay scales and incremental progression. The challenges were mainly twofold: firstly, the assumption that everyone performs the same and second, the heavy cost burden. There has been a steady erosion of those public sector principles over time with performance pay on the rise and reductions in incremental pay progression. Conversely, we’ve seen more demand for transparency in the private sector.
The Great Disruptor
If evolution happened in the 18 years between 2002 and 2020, March 2020 brought a seismic disruption that has accelerated all kinds of change in how we approach work practices and reward.
Covid’s most obvious effect has been the shift towards adopting hybrid working: how companies manage and communicate effectively with home-based workers, maintain productivity and reward appropriately. Questions abound: are pay differentials still valid if staff members have relocated from cities to the shires? If remote workers were historically paid to come into the office, how should that be managed now? Can companies force staff to travel to use an office? Are old business models still relevant?
Some of the more nuanced impacts of Covid were there before - around mental health and wellbeing - but the pandemic has brought them to the forefront. Now in the aftermath, there is an even greater shift towards inclusivity, and businesses having a conscience. Twenty years ago, the menopause was almost taboo. Now by listening to employees, companies are looking to provide support. Twenty years ago, the concept of male weakness did not sit well in boardrooms. Now companies are embracing a more compassionate approach and talking about male suicide rates when offering help with the financial debt. Crucially too, that kind of support and flexible benefits package, including financial wellbeing, is being equalised and made available to staff at all levels, rather than only those at the top. More important signs of inclusivity and transparency.
The fundamentals are the same as they were in 2002 but a force of will is driving change. By listening to their people businesses are becoming more open, agile and compassionate, and legislation is just about keeping pace.
Key dates: A Timeline of Change
1998 - National minimum wage introduced, which many companies were still coming to terms with in 2002
2009 - Daniel Pink’s fourth book Drive: The Surprising Truth About What Motivates Us started to question the validity of performance bonuses and performance-related pay as a motivator.
2010 - UK Corporate Governance Code (evolved from the The Combined Codes 2008), guides boards to structure remuneration with incentives designed to maximise corporate value in the long term. A sizeable proportion of executive directors’ remuneration should also link to long-term success.
2010 – an increased emphasis on employee segmentation - identifying groups and generations (Gen Z, Gen Y) - and tailoring reward propositions around them. This continues to evolve.
2015 - UN Sustainable Development Goals launched, accelerating the path towards the ESG expectations prevalent now.
2016 – In April, the National Living Wage was introduced for workers aged 25 and over
2017 – In April, Gender Pay Reporting was introduced in the UK, plus greater focus on ethnicity pay
2017 – Compelling evidence that ‘people analytics’ had shifted from being a supplementary function within HR to a core component. A report by the Corporate Research Forum ‘Strategic Workforce Analytics’ revealed that 69 per cent of companies with 10,000 employees or more had a people analytics team.
2018 - for quoted companies with 250 or more employees the ‘Companies (Miscellaneous Reporting) Regulations 2018’ amends company reporting requirements to include information on the ratios between Chief Executive Officer and average staff pay for financial years beginning on or after 1 January 2019.
2020 – March 20, UK chancellor announces the Coronavirus Job Retention Scheme would cover 80% of a furloughed employee’s wages, up to £2,500 per month. Six days later, the first UK lockdown measures come into force, ordering people to ‘stay at home’ with many companies and workers adapting to new hybrid working models, many of which would stay in place.
More recent insight from Justine Woolf
How are employees’ environmental and social values changing and what does this mean for your engagement strategy?
How to utilise workforce data to inform pay fairness in your reward strategy
The Great Re-Engagement: How has Employee Engagement changed post-pandemic?
