Cover story: Delivering the perfect reward package

Picking the right reward strategy can be totally transformative -

The rules of reward have been ripped up over the last few crisis-hit years. Dan Cave finds out how this chaos could drive a more equitable, productive future.

For over four decades, author Michael Armstrong’s handbooks on pay and reward have offered slowly evolving guidance for those charged with incentivising an organisation’s workers.

However, Armstrong’s seventh and latest edition of Reward Management Practice, published in October, marks an abrupt departure from what came before – it was almost entirely rewritten.

The comprehensive overhaul was necessary to keep pace with employers as they responded to the financial, political, talent and global health crises of the last few years, explains Duncan Brown, co-author of the latest edition and principal associate at the Institute for Employment Studies (IES). 

“And [the book] can justifiably claim to be a profile of contemporary reward management strategies,” he adds.

Unresolved tensions

A rewriting of a reward handbook is only the tip of the iceberg that is the topsy-turvy narrative of contemporary reward management strategy in recent times. As challenges abounded – Brexit, supply chain issues, the pandemic, and then labour market and broader financial instability – compensation norms rapidly changed. 

Salaries and sick pay were uprated, cost of living bonuses were doled out and physical, mental and financial wellbeing provision was supercharged while flexibility has become significantly more commonplace. 

This was not just a change in trends, but also a reflection of questions being asked about the fundamental nature of reward, ranging from whether reward was working before recent macro-challenges and how reward should work for the business.

Amid all these challenges, Brown also adds that a mixture of industrial action, ESG agenda items and media attention are raising the level of scrutiny on reward offerings.

He explains: “Pay, and especially benefits, used to be regarded as a somnolent area of management practice.

“However, contemporary reward is playing an increasingly important part in ensuring organisational staffing and survival in our now heavily services-based and knowledge-driven economy.”

Practitioners and commentators are also asking what reward should and can be today (as well as what to offer). Whether to revert to pre-pandemic reward strategies and how reward intersects with other important areas of HR — as well as how this impacts HR’s own standing.


A whistlestop history

To understand how reward has changed, defining it is a logical starting place.

The CIPD’s conception of total reward, explains Charles Cotton, award advisor at the CIPD, includes financial, non-financial and structural elements. This includes pay and benefits, career development and flexible working options; and more typical people management-focused elements, like expectations around having a supportive line manager. 

Essentially, most of what an employer delivers.

Cotton adds that effective rewards also need to align with the workforce’s changing – and limited – conception of what can be considered fair.

He says: “What once was part of reward for the most progressive employers are now so normalised I don’t think anyone would see these as a benefit any longer.”

Similarly to Cotton, Gethin Nadin, chief innovation officer at workplace technology firm Benefex, adds that reward should always be designed with organisational goals in mind but should never involve short-selling the workforce.

“Reward is not mandatory leave, it’s not sick pay, it’s not flexible working, it’s not even hybrid or home working,” he says.

And though employers have always had different takes on what they can conceivably count as reward, like Nadin and many other employers, Kate Palmer, HR director at Peninsula, confirms that, especially in recent times, reward has been geared towards driving individual performance.

She says: “It has resulted in a pay and grading system that tied performance and position with job evaluation.”


Reward unravels

Yet it’s this individualisation of reward, according to Brown, that has played a role in forcing reward to change over the last few years.

As Brown lays out, the UK inherited US market reward practices in the 1980s, in which reward was individualised based on performance and seniority.  

Alongside business cost-cutting, outsourcing and historic levels of real-term pay cuts during the 2010s, many firms ended up in a position where their reward and pay were no longer enough to deliver for the workforce – especially when crises hit.

He says: “The apotheosis of this reward mindset was P&O [firing and re-hiring on worse conditions] but before that we had chipping away at sick pay and other defined benefits all under the banner of individual choice [of reward and benefits].” 

Brown isn’t the only critic of this incentive- and cost-focused state of play, in which well-remunerated executives contrasted withemployees who were given moreprecarious pensions and little access to in-house benefits.

By the end of the 2010s, 3.5 million were paid less than the real living wage. High Pay Centre analysis found the CEO-median employee pay differential had jumped to 53:1 by 2019, while Full Fact analysis showed that by 2019 UK earnings were still below 2008 levels. 

Similarly, workers’ statutory sick pay (SSP) was falling behind. The UK was rated worse than all countries, bar South Korea and the US, out of all OECD-developed economies.

Pregnant Then Screwed figures still show that only one in four mums are taking full maternity leave due to financial hardship. Despite the fascination with tech fims and startups that had gleaming benefits offerings – think Brewdog’s pet-focused leave or Meta’s campus with on-site dentists, surgeons, gyms and eateries – Christina Kelly, reward manager at Reward Gateway, says many employees had come to not expect much.

She says: “There was a reliance on managers to give physical gifts for birthdays or work anniversaries, and the biggest, or only, wellbeing benefit was health insurance.”

And with numbers in gig work tripling to 4.4 million between 2016 and 2021, some remuneration ties between employees and employers were almost being cut altogether. 

Indeed, as Emily Trant, head of inclusion and impact at Wagestream, says: “While national minimum wage uprating has generally been pretty good, almost doubling over the 2010s, the overall model of reward was stingy, and this was causing employees to worry about money.

“We had decades of erosion and whittling down to the leanest possible reward you could give to an employee.

“But some employers were beginning to understand that employees worrying about money was a business problem.”


This is part one of an article that appears in the November/December 2023 print issue.

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