10 May 2019

How the fourth industrial revolution will impact reward strategies in the future

Each industrial revolution has heralded a series of social, political, cultural, and economic upheavals. Like the First Industrial Revolution’s steam-powered factories, the Second Industrial Revolution’s application of science to mass production and manufacturing, and the Third Industrial Revolution’s early phase digitisation, the Fourth Industrial Revolution’s (4IR) technologies such as artificial intelligence, robotics and the Internet of Things offer new ways to create, exchange, and distribute value and will ultimately change the way in which we work, the skills required and where we do work.

Technology has already transformed how and where we do work. Remote working is nothing new but emerging immersive technologies, such as virtual and augmented reality provide the opportunity to transform co/working experiences – with virtual meeting rooms, avatars, white boards, virtual gestures and advanced translation capability. This might all sound a bit futuristic but take a look at companies like Rummi, Improov, or Cisco Spark VR and the products they have to offer. As an employer it is becoming increasingly possible to leverage the best talent wherever it is located, in an agile way that is in line with the pace of businesses change.

The alternate workforce goes mainstream
One talent source on the rise is the off balance-sheet or alternate workforce. Deloitte’s recent Human Capital Trends Report 2019 highlights that “By 2020, for instance, the number of self-employed workers in the United States is projected to triple to 42 million people. Freelancers are the fastest-growing labor group in the European Union, with their number doubling between 2000 and 2014; growth in freelancing has been faster than overall employment growth in the United Kingdom, France, and the Netherlands.” Merging the alternate workforce into our existing employment infrastructure is a challenge. Employment law has some way to catch up to allow all types of workers to be treated with respect and equity, high profile cases such as Uber and Pimlico Plumbers underline this. From a reward perspective managing multiple talent models will require new segmentation-based reward plans to meet the needs of each different employee group together with the ability to provide traditional employee benefits to all classes of employees on an equitable basis.

AI and the skills upheaval
The 4IR AI is also changing what work humans will do. Our understanding of how AI will impact today’s jobs has moved on from the “Robot’s are coming for our Jobs” headlines and the automation anxiety this brought. Although it’s still worth checking how your job may be impacted at Will Robots Take My Job.Com. But, we are reconciling to a better understanding of the impact AI and machine learning will have on the workplace. We know it will eliminate some jobs but also create new jobs and new skill requirements. I firmly believe that we will see a rise in the importance of skills based work as opposed to job based work. We need an agile workforce that can adapt, re-shape and acquire new skills at pace. Creating and disbanding jobs and recruiting and releasing people from those jobs will be too time consuming and costly for the new world of work in the 4IR. This may mean the traditional sense of jobs will start to disappear and work will be done by individuals or teams remotely, deploying skill blocks – these are also being called Activity sets. People may even ‘rent’ their skills to one or more organizations. So work deployment will become quite complex.

Skills based work immediately gives us a big challenge in reward. Mainly because traditional approaches to reward have been based on paying for the job and not the person or skills. Skills based pay isn’t necessarily anything new, after all we had competency based pay in the late 80’s and broad banding in the late 1990’s. More recently we have seen market rate pay, more often seen in new start-up companies who have done away with pay bands with a focus on paying the upper market rate for the scare skills they need. But all these approaches still centre on the concept of an individual in a job. And this is the major problem we have - how do we pay for skills, how do we value them when most market pricing is based on jobs?

Teamwork and collaboration become the new DNA of organisations
Another impact of 4IR technologies is the transformation of organisations from traditional hierarchical to dynamic lattice based structures. In these work will completed by teams and encouraging networking and relationships will be key. This holacratic way of working will drive the breakdown of individually determined reward to dynamic team based rewards. So whereas pay today tends to ratchet around achievement of business or personal KPI’s on an annual basis in the future it will be about rewarding successful deployment of skills in teams at the time they deliver output or Real-time team based reward.

Broader 4IR impacts on Reward
There is a broader hope that the use of 4IR technologies will provide opportunities to improve productivity levels in the workforce and drive us out of what the Social Market Foundation calls “the lost decade of wage growth” and back into a world where living standards start to show sustained improvements again. But it will never be just “back to the way it was” as societal changes and the transparency new technologies bring to data mean the demand for greater equity and wealth distribution is on the rise. Reward needs to significantly reinvent itself to be fit for purpose for the new world of work and now is as good a time as any to take stock and ask some key questions: