Welcome to our Reward insight for
autumn 2016, providing key viewpoints
from your peers in the industry
3 Our market in brief
4 Keynote interview: Victoria Milford, Reward Consultancy Specialist:
The National Living Wage – just a Reward issue?
“Welcome to Reward insight for autumn 2016,
our first since the EU Referendum.
In this edition’s market digest I explore the immediate
consequences of the Brexit vote and as my keynote interview,
I discuss the National Living Wage and its impact on Reward
strategies with Reward thought leader, Victoria Milford.
As ever, my aim is to share the knowledge and views of your
industry colleagues and peers. Thank you for your continued
support and feedback and I hope you enjoy.”
Toby Burton – Partner
Executive Reward Search & Interim
Mobile 07766 746 253
Our market in brief
The last time I wrote to you, Brexit
was considered by most people to be
a wholly unlikely scenario... just shows
what most people know! In fact, it
all seems to cast doubt on what any
‘expert’ really knows when it comes
to predicting situations of magnitude.
But there you have it, we have Brexit.
And with Brexit (widely touted as the
reason the recruitment market had no
definitive direction in the first half of
2016) does this mean we now have
sufficient ambiguity to warrant concern?
Certainly most quarters predicted dismal
short-term economic consequences…
From a recruitment perspective it’s
been a mixed picture. No surprise there
really, given that from an economic
and political standpoint things remain
very unclear. However, the more I read
and sought to uncover the immediate
impact on UK leadership hires post-Brexit,
the more I found cause for positivity.
Positivity in businesses sticking with
the UK, and positivity with international
businesses moving here as well.
It is still early days but, according to last
week’s broadsheets, the UK economy
should avoid the immediate post-Brexit
vote recession that many forecasters
had predicted. The Office for National
Statistics seemed to support this message
as it released the first pieces of hard
evidence on how the UK performed after
the vote to leave. For example, the
services sector (80% of the UK economy)
expanded by 0.4% in July alone.
Hopes of avoiding a recession were
further strengthened by the upward
revision to growth forecasts in the second
quarter, from 0.6% to 0.7%. The economy
had some momentum before the Brexit
vote, and while it may slow slightly in the
second half of 2016 there is little evidence
(I could source*) even with a fluctuating
pound, to suggest the dreaded two
consecutive quarters of falling output
which define a recession.
In my capacity as a Reward focused
headhunter, over the summer and
early autumn I have witnessed
plenty of recruitment activity across
the full Reward spectrum, both interim
and permanent. I have, however,
seen this activity bunched together
somewhat at the mid-senior range
of the market, with a little less activity
at Group Leadership level. There
is some, just not a deluge and this
feels about right for the broader
Human Resources market too.
There is work out there, however
whether candidate or headhunter,
we have to be focused on working
hard at our relationships to really
ensure we keep adding value.
My personal view is this: we’ve
had a very mixed outlook for years
now and this pronounced uncertainty
just feels like the new norm. Amidst
varied political shenanigans and
difficult economic challenges, we
will always move forward and take
positive decisions to tackle critical
leadership hiring head on.
*Accepting that I am not
The National Living Wage – just a Reward issue?
I recently met Victoria Milford, Reward Consultancy Specialist, to
chew the fat on the National Living Wage. I knew what it was and
when it came in, but what does it really mean, and have businesses
really prepared for the challenges it presents over the next five
years and beyond? I’ve worked on some great Reward searches
in the first half of 2016 where preparing for the National Living
Wage has been highly relevant; retail, hospitality and leisure,
healthcare and logistics. The more anecdotal evidence I heard, the
more curious I became; has anyone really got the strategy right?
Victoria Milford has a fascinating
background, spanning (then) Big Five
consulting through to General
Management with retailer Comet.
Along the journey, Victoria has worked
in Finance, Operational, Reward and
HR roles. It is this breadth that made her
not just passionate, but extremely well
positioned to consult with a portfolio
of clients surrounding Reward, the
pay debate, and now specifically the
National Living Wage.
The pro and con debate as to whether
the Government’s new National Living
Wage will do Britain ‘more harm
than good’ or ‘more good than harm’
has economists split down the middle.
There is a real lack of certainty.
Will we as a country be more
productive? Can we afford it? Will it
cost jobs? All tough questions, only
time will tell. Through my conversation
with Victoria we did not seek to
answer the big economic questions,
though they provide useful context.
I’m grateful to Victoria for her time
in allowing me to explore what
the National Living Wage means for
the Reward mix, for talent management
challenges, for resourcing strategies.
How will employers rise to the
challenge of (in some cases) adding
hundreds of millions on to the wage
bill over the next few years.
Victoria, how did you move into
Reward consultancy from Finance
and General Management?
For me, Reward brings everything
together. Reward is an incredibly
powerful messaging tool and people do
not often realise how powerful. There
is an old adage of ‘what gets measured
gets done’. Yes that’s true, but what
gets paid for, definitely gets done.
People, are generally the largest cost
for businesses. How this cost is managed
is key, whether this cost is engaged,
motivated and ultimately retained is
critical to the success of the business.
If you tell the workforce, ‘you’ll be
paid more or recognised as great
for doing ‘X’’ then most people will
do that. Reward is a critical business
driver. I’m not convinced that all
Boards understand just how powerful.
It is almost like the Chief Exec talking
to every colleague personally on a
daily basis, something that is just not
achievable through any other means.
On a personal level, my background
means that I am looking for solutions
that are not only well modelled and
financial viable, not only in line with
employment law and engaging,
but actually workable on the shop
floor, not just great on paper.
If industry is not fully prepared
for the National Living Wage, what
makes it so challenging?
The National Living Wage was
announced July last year and has been
law from April 2016. The announcement
was that employers would need to
pay £7.20 initially and rising to around
£9.00 by 2020 for any employee age
25 or above. It was an easy message
for the Government to deliver.
Reward connects the Exec team
with the front line. It enables Strategy
to be translated into Reality. It has the
biggest impact on your people, and
your people have the biggest impact
on your bottom line.
The CEO and Exec team can set out
a business strategy but if the Reward
framework does not absolutely align
to that, then what employees are
effectively being ‘told’ on a daily basis
will be at odds. How will they get
promoted, how will they be bonused?
“Reward connects the Exec team with the
front line. It enables Strategy to be translated
into Reality. It has the biggest impact on
your people, and your people have
the biggest impact on your bottom line.”
“The key word for me on this is flexibility.
Flexibility in contracts, flexibility in reward
and overall flexibility in creating cultures
to be an employer of choice.”
However, what sits behind it is a very
complicated set of issues, including
whether to reward only from age 25,
what the trajectory looks like, what the
impact on other parts of the reward
package is, what the differentials between
roles and levels should be, what the
relationship is with other regulated activity
like Salary Sacrifice and Pensions. Some
employers have seemed to say ‘it’s just
another 50p for this group of people,
job done,’ or even think that it didn’t
affect them, but it just isn’t that simple.
The world has changed. Brexit wasn’t
even a twinkle in anyone’s eye back in
the summer of 2015. Pay awards have
been falling generally, and the notion
of now going up close to £9.00 per
hour is going to be at least 5%,
perhaps closer to 7%, year on year
for the next four years. This is when, on
balance the rest of the workforce will
be receiving 1-2% increases on average.
The increase will suck money from
other places in the business at a time
when no-one else is getting this kind
of award. Ultimately companies
will have to find it from somewhere!
What will be the likely impact of Brexit?
Although we still don’t know what Brexit
will mean, the biggest issue seemed
to be around immigration. By 2020 this
could mean that this cost burden could
well be coupled with a restricted talent
pipeline, with employees no longer
readily available from outside of the UK.
Organisations, notably the service
industries, are going to have to
get creative with how they attract talent.
And how will organisations do this?
The key word for me on this is flexibility.
Flexibility in contracts, flexibility in
reward and overall flexibility in creating
cultures to be an employer of choice.
As one example, there is a huge market
created by mothers, and to a lesser extent
fathers, who would work if ‘term time’
contracts existed. As our population
ages, we will work longer and employers
need to further embrace this through
contracts, and environments, that appeal
to those in their 60s, 70s and beyond.
The days of a workforce comprised
of 18-60 year olds working full time in
a single job are over. Industries like
Retail and Services are very well placed
to offer great opportunities in the
so-called gig economy, but corporate
thinking and systems have got to change.
Ultimately post-Brexit, at a macro
level, the Government has a role to play
in unlocking markets to try and bridge
the talent gaps and to create a greater
incentive to mobilise the workforce.
How will companies materially be
impacted by the National Living Wage?
Government was slow off the mark in
terms of backing up the headline, what
was going to be happening regarding
the National Living Wage and how
it was actually going to be implemented.
This left industry best guessing for several
months. For example, no guidance was
given for the relationship between salary
sacrifice and National Living Wage.
I set up a Reward forum with some
of the leading UK organisations who
would likely be most affected. Within a
few minutes’ discussion we had worked
out the National Living Wage would cost
us alone around £1 billion over the first
five years! So there was of course lots
of concern from a pure cost perspective.
The new median is £7.20. Lower
quartile pay doesn’t really exist
anymore and upper quartile payers
are going to get caught up very quickly
by the National Living Wage unless
they really push their reward mix.
For year one, the costs weren’t too
extreme and many businesses have
been able to absorb them. The real
challenge will be year two onwards,
where most employers are likely
to be affected across most retail and
service industries in the UK.
So how are employers going to fund this?
Realistically there are only three
choices for businesses:
1 Customer pays – Increase prices –
this will be very hard as we live in
a price sensitive society where
making comparisons is very easy,
particularly where the product
or service is not specific to a brand.
2 Shareholders pay – Lower profits –
this may be palatable for a year or
so but cannot be a long term strategy.
3 No overall change for employees –
this is the most likely scenario.
The Reward mix will be shuffled
around to ensure base pay is
higher but the ‘Total Reward Pot’ per
employee is not likely to increase.
This is a real shame as it was
the objective of raising the
National Living Wage but it does
not recognise economic reality.
So how are employers likely look
at the make-up of employee Reward?
Employers could well take from the
more controllable pots to fund the gap.
Bonuses and benefits will be the
obvious factor to come under pressure,
also overtime and shift premiums.
None of this is easy and some will
“The real challenge will be year two onwards,
where most employers are likely to be affected
across most retail and service industries in the UK.”
“Looking at the opportunities of technology
is the right long term solution.”
We’ve been through tough times
economically as a country. Remember
this started before Brexit, and many firms
are already stripped back pretty far.
So it’s going to be tough for employers.
Is this not an opportunity for them
to try to make their businesses more
efficient, to use technology to complete
that re-organisation, to be lean, to
be more effective, creative, innovative?
Absolutely, but this could mean job losses,
and the last thing a company wants is
fewer people facing the customer, so
redundancies will be avoided wherever
possible. The unfortunate reality
is that big projects designed to drive
efficiencies, can themselves cost
millions, so could represent a harder
journey for corporate spend. Looking
at the opportunities of technology is
the right long term solution.
Many of those projects will now be
economically more viable than before,
but will also take a certain amount of
time to be implemented so will not resolve
the issue in the first couple of years.
On the up side, over the last 10 years
we have seen a massive swing in the
amount the customer is willing and wants
to do for themselves via the internet
rather than having to call a contact
centre or go into a store. Some of the
work can be redirected to the customer
via technology but of course this will
mean fewer jobs on the front line.
In the short term there is a lot that
can be done to evolve the Reward mix.
Return on investment is very difficult to
measure. How much is attributed to
base, to bonus, to benefits, to legacy
parts of the contract?
Employers need to get out there
and find out from their employees
what they actually need and value
in their lives today.
And industry must think creatively,
it should not only be those impacted
by the National Living Wage set
to fund the wage increase. What ROI
is the employer gaining on its head
office bonus scheme or executive
healthcare policy, for example?
It should all be in the mix.
What consequences will we actually
see in terms of Reward strategy?
Companies need to put the whole
organisation’s Reward package
on the table. Look at every element
then say ‘what are our constraints?
How much of our budget is governed
by staff at the bottom end?’
Organisations are likely to flatten
their structures. The consequence of
raising the entry point will be, ultimately,
you are paying entry level staff the
same as team-leads or senior sales
staff. Paying staff more money for long
service will likely become a thing of
the past. So these sorts of job titles
and roles could disappear.
On the front line, the gap between
the lowest and the highest will narrow
and remove some of the ability to
differentiate on pay. Companies will
need to create a strong employer brand
proposition to attract the best talent.
They will have to ask themselves;
how do we become a much better
place to work? How can we attract
different talent populations? How
can we retain the strongest talent?
recruit a more mature population,
and ultimately have a happier
workforce. This should be a
fundamental pillar in building out a
volume-based Resourcing strategy.
In time, as the National Living Wage
increases and we see the market
settling close to it, employers with high
labour turnover will really have to ask
themselves if people actually leave
because of the money, as that ‘excuse’
will be far less robust.
So a key consequence in the
longer term could be a war for talent
around brand proposition, around
flexibility? That sounds like a real
positive move for the better!
Yes, it could be. Employers of course
are really up against it in respect of
delivering weekly sales figures and
getting someone in front of the
customer is still critical to sales.
The challenge is more around how
broad and long term will businesses
be in their thinking, because the
status quo is not going to be viable.
What advice would you give to an
HRD, in approaching their leadership
team or Board to ensure they are as
fully prepared as possible?
Firstly, I would say that this is not
an HR problem. It is a whole business
issue and a whole business opportunity.
The HRD first needs to understand
what are the costs and the scale
of the challenge, and encourage the
whole Board to see that it is not just
the problem of say, a retail or sales
director, but a business wide
challenge around how collectively
we can evolve and fund this change.
And the answer? They have to be
creative! They must start to truly
embrace flexible contracts and not just
concentrate on customer demand and
equate that to 40 hour contracts.
By hiring people when they want to
work you can retain them, you can
“Firstly, I would say that this is not an HR problem. It is a
whole business issue and a whole business opportunity.”
“Ultimately it is a difficult business issue and an exciting
reward challenge. The main task is for businesses to
embrace it, tackle it head on and think about the medium
and long term impact on both Reward and engagement.”
The Board need to truly understand
not just the organisation, but more
importantly its people today and
tomorrow, and what they want in order
for them to feel it is a great place
for them to work and hence offer their
labour. It is not always money!
Bottom line, they need to GET GOING,
get a project team together, start now –
it needs to involve IT, Operations, HR,
Finance, in fact all areas of the business!
How do we ensure that we are an
attractive company in five years’ time
when the National Living Wage has
really kicked in? How do we differentiate
ourselves? If we are creative and
flexible in our practices now, can
we fund National Living Wage
through savings from lower labour
turnover and not have to pay upper
quartile to be attractive?
Ultimately it is a difficult business issue
and an exciting reward challenge.
The main task is for businesses to
embrace it, tackle it head on and think
about the medium and long term impact
on both Reward and engagement.
Victoria, once more thank you for your
time, it was a really engaging discussion
and you have an enviable level of
knowledge on what is such a key Reward
theme for commerce and industry today.
Huge challenges and huge
opportunity is my sense from this
discussion. I can see how, in the short
term, companies will probably shuffle
around the elements of the reward
package to pay for the increase in
basic pay. This doesn’t necessarily
benefit the employee, though hopefully
they won’t go backwards.
The opportunity to drive creativity
and flexibility through the many
industries impacted by the National
Living Wage really resonates.
It could make for stronger D&I practice,
strong retention and improved
motivation, which for me is the key
to improved performance.
Toby Burton delivers specialist Reward
assignments on a Search and Interim basis to
clients across UK industry. For further advice
contact Toby Burton on 01753 303 600 or
Mobile 07766 746 253