You can keep your moneyAs the idea of 'enough reward' gains momentum, is it time to look further beyond basic remuneration?
What is the measure of career success? Twenty or even 10 years ago, the answer to this question would have been a no-brainer: your position in the employment pecking order and, inextricably linked to this, your salary.
But for the Gen-Y demographic finding their feet on the bottom rungs of today’s career ladder, it seems that this simple equation of financial reward with success is a lot less simple than it seems.
“I entered the work market with an unswerving, ingrained belief that hard work brought rewards, and that reward equated to status,” wrote David Fairs, lead partner of KPMG’s P³ (people powered performance) team, in a recent thought piece on the future of reward.
“My generation – and the one immediately behind it – was brought up to work harder, longer, faster and to always aspire to climbing the next rung on the ladder. I think that more recent entrants to the workforce are now bringing with them different beliefs, predicated on how much reward is actually enough.
“There will always be those for whom working to 120 per cent of their capacity will not faze them so long as they suitably rewarded above and beyond the mean. But I think there will be an increasingly large proportion of the workforce for whom any incremental reward increase above and beyond what they deem to be enough to sustain their lifestyle will hold very little appeal.”
Fairs’ views sprang from a series of discussions with graduates joining KPMG and conversations with directors recruiting in other businesses.
Intrigued, he and his team embarked on a series of focus groups with KPMG employees – new joiners, those with a year’s experience and those with two to three years under their belt – to discover what they were really looking for in their career.
Beyond job security, what emerged was a preoccupation not with status and salary, but with work-life balance and, above all, a desire for new learning experiences.
If Fairs is right, and financial reward for this generation has a ceiling beyond which it ceases to have any meaningful impact on engagement, then this clearly has immense implications for HR reward strategies going forward. But is he right?
Michael Rose, founder of management consultancy Rewards Consulting and author of Reward Management, thinks Fairs has a point.
“It is the classic assumption by many managers that you can use money to incentivise everyone,” he says. “There is a wealth of research showing how ineffective financial incentives are likely to be, yet there is an embedded, unquestioning belief that they work and deliver value to an organisation. This is [only] the case in very limited situations.”
In terms of what ‘enough’ means in the context of financial reward, Fairs is vague, arguing that it means different things to different people – from enough to pay the rent to enough to go on nice holidays.
Rose pins it down: “You seem to have to pay people around median in the market but after that increasing levels of pay seem to have little impact on engagement.”
But not everyone is convinced. Stuart Gray, founder and chairman of employee benefit consultancy Portus Consulting, believes you dismiss the importance of monetary incentives at your peril.
“We feel there are certain people that won’t be so bothered by financial reward, but they will be the outliers,” he says.
“It’s all about cost of living. The focus for a lot of people is being able to buy a house. And [that largely depends on] your salary, because that drives the amount you can borrow in terms of the mortgage. Housing for most of us is a fairly emotive subject.”
Fairs, however, disagrees that home-owning ambitions are a key motivator for this generation. “[For most people] in their early 20s that’s not on the horizon,” he says. “I suspect it’s probably much later that people start thinking about saving for a mortgage.”
While Gray is at odds with Fairs and Rose over the importance of financial reward, they are in agreement on one point: that if HR is serious about increasing engagement, it needs to get creative about how it frames its reward and recognition strategies moving forward.
According to Rose, a key focus must be the alignment of a company’s reward strategy with its values.
“The values of organisations, in particular financial service businesses, have often been more honoured in the breach. But this is starting to change in response to the financial crisis: banks such as Barclays and HSBC have been moving to a more values-driven approach with reward having less of an ‘incentive’ role.”
For example, if a company purports to value openness, it should ensure transparency in both the rewards it offers and how they are explained, says Rose. Similarly, if a company claims to be customer-focused, its reward system must not drive behaviours such as misselling.
Fairs, meanwhile, sees huge potential for HR to incorporate non-financial incentives such as learning experiences into its reward offerings to better engage staff. “Overwhelmingly, creating new learning experiences is likely to motivate much more than pure pounds,” he says.
According to Fairs, some of the employees they questioned actually said they would forgo a pay rise in their current job to try out a different role within the company. “The feedback [from our research was] that people would be prepared to trade higher pay for experiences,” he says.
Such is the incentivising power of new opportunities, he adds, that there is even an argument that employees moving to different role could be asked to take a pay cut until they get up to speed.
“I have someone working with me at the moment who was a senior manager in another part of the firm [and] effectively went backwards one grade in order to learn some new skills,” he says.
Gray agrees that learning and development opportunities can be highly motivating. “We’re definitely seeing more focus on [helping people improve], which while clearly non-financial in the short term can be hugely rewarding in terms of where it takes them in the future.”
When devising a reward strategy to motivate the Gen-Y workforce in particular, one of the most important factors is flexibility, says Rose – and this must incorporate not only financial incentives such as flexible benefits, but also non-financial ones related to where, when and how much people work.
“This generation seem to want time back more than previous generations and want to learn quickly by getting good feedback, recognition and coaching,” he observes. “Organisations will need to think more about valuing outputs and giving [employees] more control over their time [and] how the output is achieved.”
In line with this emphasis on outputs, long-service related rewards – such as holiday packages that increase incrementally with years of service – should be replaced with performance-related alternatives, he adds.
Gray agrees giving employees more choice over when and where they work will become crucial in the future, as will catering for those who want time off for volunteering or sabbaticals
“A lot of employers we work with [already] embrace that, but we think the number will increase,” he says. “Pretty much everyone in our business works flexibly in one way or another, and our view is they’re actually far more productive than if we were saying, ‘You have to be in the office from 9-5.30pm every day.’”
Another key motivator for the upcoming generation, as Rose notes, is recognition, and he predicts a move towards “lots of small, non-financial rewards and celebrations reinforcing the great things individuals and teams are doing.”
But can non-monetary recognition schemes – such as online platforms whereby exceptional employees can be nominated to appear on a ‘recognition wall’ – really have that much impact?
Gray believes they can: “If you’re a person who continually exceeds the norm, you’re becoming more high-profile within the business; you’re feeling more engaged. Equally, more opportunities should open up for you.”
The device is even more effective if linked to on-the-spot, non-cash prizes, he adds. “Recently, one of our employees had been exceptional, so we sent her and her partner to Paris for a weekend. If we had given her the equivalent cash value, it would have had nowhere near the level of impact: she constantly talks about what they did in Paris. What we’ve done is we’ve bought memories.”
But to make recognition strategies truly effective, it’s important to take a holistic approach, says Rose. “There’s little point introducing an awards-based recognition programme run by the reward team without examining how recognition can be built into management training.”
Future of reward
When it comes to what a typical reward package in 2020 might look like, the general consensus is there will be no such thing – although there will, says Rose, be an emphasis on flexible pay ranges, flexible benefits and “really smart online total reward statements”.
“We will see an increase in focus on the total reward position, and giving [employees] choice and freedom within that,” agrees Gray.
“You’ve got people at different stages in their career that are looking for very different things out of their working life and also their reward package,” says Fairs. “I think we’ll get more into what I call ‘mass individualism’. I, as an individual, will agree a contract with my employer; I will be prepared to do these things and in return the employer will give me these experiences or this type of reward.
“I think technology is now at a stage where we can have that level of individualism without it creating a huge headache for payroll and HR.”