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23 Oct 2023
by Dr Duncan Brown

Reward strategies in the 2020s: the model for the future

During research for the new edition of the Handbook of Reward Management textbook, one question kept coming up: where next? Dr Duncan Brown summarises the reward strategies increasingly evident in the 2020s

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Pay and, especially, benefits used to be regarded as a somewhat specialist, somnolent area of management practice, administering the ‘pay and rations’ of employees. Armstrong’s Handbook of Pay Administration first edition was the go-to guidance.

Six editions of  Armstrong’s handbook later, the series of crises affecting the UK since Covid-19 crossed the Channel in early 2020 and our wide-ranging responses have transformed reward, propelling reward professionals from back rooms to regular board-room presence.

Where next?

Michael Armstrong and my forthcoming Handbook of Reward Management Practice, which will be published next month, has involved an almost complete rewrite of our 2019 edition. As we chatted to the reward directors and university professors in researching it, gathering details of all their new schemes, a deeper set of questions emerged, centred on the future: where next?

Should reward professionals be leading a return to the policies of the 2010s as these recent crises hopefully recede? Or, in a more uncertain, wider ESG and stakeholder-influenced, skills-short environment, are different reward strategies called for?

2010’s reward austerity

The last austerity-dominated, supposed ‘jobs miracle’ decade in reality witnessed a huge growth in low-paid, low-skilled jobs filled especially by young and female workers employed on precarious short-term contracts, while shareholder- and individual-driven incentive plans fuelled continuing escalation in executive remuneration and market-driven pay and supplements imported and further widened specialist pay gaps in male-dominated occupations such as IT and finance.

These trends were not driven by some uncontrollable economic market force, Adam Smith’s “invisible hand”, but by a myriad of individual employer, remuneration committee and HR and reward leader decisions.

The results by the start of 2020s were that approaching four million employees were (and still are) paid the legal minimum wage (which is less than a real Living Wage) and millions of children living in poverty in working families. No wonder the editor of the influential HRM Journal Tony Dundon predicted the death of the HR function for “selling out” the interests of employees.

Emerging 2020s reward model

“How can we create a more equitable, collective, compassionate approach to reward and people management after this crisis and avoid just a knee-jerk return to the status quo?”

That comment came from a colleague at the first online meeting of our self-styled “fair rewards” group of fellow reward researchers and leaders when we were first locked down in 2020.

The Covid-19 pandemic showed that the flexible, ‘just-in-time’ economic and rewards model has often failed. What might this mean in terms of future reward strategies?

In the handbook we highlight half a dozen areas of particular focus that are increasingly evolving from crisis responses into a more broadly based and productive reward management strategies.

1. An emphasis on ‘fair’ pay policies, paying people a decent wage, providing career and pay progression opportunities for all; recognising growth in skills and added value in their pay. Our research on reward effectiveness showed that lowest pay and benefits strategies often end up costing employers more in the medium-term. IES’s Progression in Employment project highlights the actions that employers are taking to support the progression of low-skilled workers – from career conversations to multi-skill training and skills-based-pay-progression.

2. A new era of transparent pay structures, so that all staff, including executives, are paid on a common, more demonstrably fair and consistent basis. We document the spread of pay equity legislation among US states and the recently agreed EU pay transparency directive, with strengthened pay disclosure and equal pay requirements. Major UK employers are following suit.

3. More collective bonus plans and sharing in successThe CIPD’s latest reward management survey finds that individual performance is the most common form of variable pay. Yet collective bonus plans have a much stronger record in research and are now the fastest-growing variant. Greater use of collective pay schemes such as gainsharing coincides with better organisation performance (Eurofound, 2015).

4. More hybrid and shared risk pension and benefits plans are also increasingly evident, such as the recently-legalised CDC schemes being introduced by the Post Office, for example, so as to better share the risks, costs and benefits between employers and employees.

5. Greater attention to the strongly linked areas of employee mental health and financial wellbeing has moved from Covid response to now being permanent and mainstream HR and rewards practice, as REBA’s leading work demonstrates.

A final word

When pandemics were last experienced in the UK, Shakespeare’s great rival Edward Spenser in Book II of Faerie Queen, wrote that life was ‘all for love, and nothing for reward’. The evidence we have gathered for our new Handbook of Reward Management indicates that it’s not a financial/non-financial, ‘either/or’ choice anymore: your employees and your labour market are demanding both.

As we conclude in the Handbook:

‘It is a more people-investment, fairness-focused rewards model that establishes a stronger foundation, through the emphasis on protection, wellbeing and welfare, on which a high engagement, high performance workforce can be established and sustained’.

Armstrong’s Handbook of Reward Management Practice 7th Edition will be available in early November.