How to align your reward strategy with your organisation’s ESG goals : Innecto Reward Consulting

Posted by Justine Woolf on 04 November 2022

How to align your reward strategy with your organisation’s ESG goals

Over the last five to 10 years, Environmental, Social and Governance (ESG) has grown in prominence as organisations have looked to show internally and externally that they are getting serious about being responsible. Increasingly, companies committing to equitable and sustainable business are outperforming those simply meeting legal obligations, and are also building happier workforces.

Many companies are being proactive in driving pay parity, promoting fairness and inclusivity, and increasing representation of women or ethnic minorities in their workforce, and in their boardrooms. Adobe, for example, talks about having 1-1 pay parity from a gender and ethnicity perspective, and about having 60% of their board composed of women or underrepresented communities.

ESG goals are easy to create but it’s far harder to drive them home with a well-thought-out reward strategy, typically forged by answering some tough questions: How are we managing our practices around base pay? How do we want to think about well-being? How do we want to manage variable pay and recognition? For each of these, what checks and balances can we overlay to make sure we’re also achieving our ESG goals?

Driving equity and fairness in pay

Typically, the purpose of base pay is to recruit, attract, retain and motivate staff, setting pay levels against the market and differentiating when you need to. Looking at it through an ESG lens, there are many questions to consider. Do your processes around base pay also allow you to achieve fairness and pay parity? Do you have guiding principles around pay fairness and equity? Are you monitoring pay fairness? Are you checking work of equal value is being attributed correctly? Do you have transparent pay ranges? It’s one thing to set lofty goals around fair pay and another to achieve it.

With variable pay, many companies fall into the trap of creating ESG goals and thinking they’ve done enough, without connecting them to an overall strategy. If the ESG goal is to improve employee engagement or to increase diversity, executives need specific actions and objectives enabling them to influence these things. So, do your managers have line-of-sight to appreciate how they can impact that goal? Are they able to impact it? It’s not enough to throw ESG metrics into the mix and trust that they will happen because they are front of mind. You need to join the dots.

Making a habit of Well-being

Well-being is now key to any Employee Value Proposition, and yet earlier this year the HSE reported that stress, anxiety and depression caused half of all work-related illnesses in 2021. Employee burnout has been well-documented since the lockdown. If your ESG goal is to reduce absenteeism by having a healthy workforce, again don’t fall into the trap of a superficial fix. Running a ‘Cycle to Work’ scheme is all well and good, but does it guarantee staff wellbeing? Instead, consider strategies that encourage your workforce to constantly act in a healthy way. For example, how are you designing and delivering work practices? How are you training your managers? How are you measuring feedback and trends in employee health and happiness? These are important questions to ask if you want to reduce burn-out at the source.

Rewarding Community values

Aligning ESG values with Recognition is all about making people feel valued, having a purpose and aligning that with the company's goals and direction. As leadership groups and managers have struggled with mass resignations and attrition rates in recent times, the focus may have moved from thanking staff to fighting fires. To turn back the clock on this, leaders and managers need to be incentivised to reward behaviours and actions that promote those values and uphold your company culture.

Are you thanking staff who go the extra mile? Do you have a recognition scheme in place that enables this, either through managerial or peer-to-peer recognition? If you do have something in place, can it reach everyone, or is it excluding chunks of your workforce?

Organic Diversity and Inclusion

Looking longer-term at driving diversity and inclusion, are you considering your succession planning and performance management structures? This is not a quick fix but if your processes around recruitment, talent nurturing and succession planning are transparent, unbiased, and geared towards developing a diverse pipeline of talent, logically you stand a better chance of ending up with a diverse board aligned with your ESG values.

Again, don’t be afraid to question your methods: are promotions being applied fairly and transparently? Are you promoting men and women at an equal rate, or by the same percentage increase? How much is negotiation playing a part in salary increases, either inside or outside of the pay cycle? How transparent are those processes?

By encouraging and enabling a diverse and home-grown talent pool to move up through the gears, not only will you save on the cost of recruitment, but you’ll also promote employee happiness and wellbeing by boosting motivation and aspiration.