Reward insight

execappts

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Welcome to our Reward insight for

autumn 2016, providing key viewpoints

from your peers in the industry

Reward insight

Autumn 2016

Contents

3 Our market in brief

4 Keynote interview: Victoria Milford, Reward Consultancy Specialist:

The National Living Wage – just a Reward issue?


2

“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

Toby Burton

Mobile 07766 746 253

toby.burton@etonbridgepartners.com


3

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

an economist


4

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.


5

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.”


6

“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.


7

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

require consultation.

“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.”


8

“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?’


9

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.”


10

“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

email toby.burton@etonbridgepartners.com

www.etonbridgepartners.com

Toby Burton

Mobile 07766 746 253

toby.burton@etonbridgepartners.com

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