Here’s What Rewards Will Look Like Beyond 2021

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Welcome to another exciting episode of All About HR! This is the podcast & video series for all HR Professionals and business leaders who want to future-proof their organization and learn about the latest trends & insights from industry experts, CHROs, and thought leaders. 

This is the second part of our interview with Unilever’s Global Reward Counselor, Peter Newhouse. Peter is an expert on pay and a forward-thinking reward innovator. 

In this episode, we ask, what will reward look like in the future? Reward systems are being transformed due to advanced technology and data availability. With those things in hand, organizations can establish a much more varied approach to reward and provide employees with a choice regarding the composition of their reward packages. 

Determining a reward system has its own unique challenges. To retain your talent and sustain engagement and commitment in your organization, your reward system decisions should be open, fair, consistent, and explainable. 

In this episode, we touch upon: 

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  • Leveraging data in reward
  • Implementing employees’ feedback to create better reward systems
  • Using rewards to create greater diversity and inclusion

And much more!

Have you watched the first part of this interview? Find the full episode here and discover the key elements of successful reward systems!

Transcript:

Neelie Verlinden: Something I wanted to ask you about as well, Peter, you mentioned feedback. Feedback, of course, is a hot topic right now we see it everywhere. And you said feedback wasn’t necessarily used enough. And when it comes to reward, I do believe, however, that at Unilever, you actually have to find a way to let people give feedback on their total rewards. Right? 

Peter Newhouse: Yeah, that’s right. And so this is, you know, to me, this is really important, because it’s extraordinary that in reward, we really don’t want to hear what people think about how we are close to that, because it raises too many problems. You know, for a start, I think, quite erroneously, we believe that people wouldn’t give us genuine feedback, we believe that they would be self interested in their point of view, I don’t believe that I think that people are capable of giving you very accurate feedback. And so we have been very systematic about getting as much feedback as we can. And we’ve done it through technology. So we have a technology platform that we built ourselves. It gives you a total reward statement online, 24, seven, or is available, updated regularly, in fact, every day, and so therefore, you can look at what you earn, in all kinds of detail. And you can give feedback on that as to whether you find it something that is meaningful to you or not, you know, do you have enough information about it? So we have been gathering that kind of feedback? And I think it really is essential for the development of an effectively engaging reward system to get that feedback, because after all, if it’s not relevant to you, you will look elsewhere for something that you feel fits you better.

Neelie Verlinden: I believe so. Yes. And I believe what you said. That’s interesting, as well as giving people their total reward statement. That’s, I believe, what you call it right, but they can access it at any time, and that it gets updated every day. So basically, what they see is in real time, I believe that is rather unusual still, isn’t it? 

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Peter Newhouse: Yeah. Cuz it’s really difficult to do. So if you imagine, you know, a company with 150,000 employees there, you know, then every package has got about 10 elements. So you’re up into the millions of data points very quickly. And it’s all moving around, you know, with exchange rates, and updating and all this kind of thing. And so it’s really complicated. But what we managed to do was to create a rules engine, because reward is nothing but numbers and rules. And so even if it comes down to an exception, it’s a rule of one that applies to only one person, but it’s a rule. And so we put into our system, the rules that actually create the packages that people receive. And therefore we can replicate every package through the system that has lots of really interesting consequences, because it means that reward information is available everywhere, to anybody, all the time. And so I don’t need to be in a country to get the information about what those people are. And that’s incredibly useful from a governance point of view. Because if reward is too localized, then the tendency is to be overly self interested in one’s own reward. And there’s a lack of clarity and visibility about what’s being done. So to have a system which enables everybody who is approved and authorized to do so to look at what’s going on, is key to good governance. So I think that’s one good feature. Second good feature is that for reward organization points of view, you can deploy your resources more effectively, because you don’t need to have people who are on the ground everywhere to do stuff, you know, you can begin to do things more remotely, then there’s the data, you know, so of course, you have an amazing repository of information of data. All of that’s being updated moving all the time. So you can have trends and it gives you capacity, that is really game changing in terms of how you do things. Yeah. So yeah, pretty useful. And that’s something which we have created over the course of many years. And it’s really, really useful. It sounds to me like a very sophisticated plumber project, so to speak. Yeah, we were working on that one for quite a long time. And so now even you know, we’ve now even created a spin out company, or do you flex reward, which is, which is made that system available to other companies. Because again, it would be better from our point of view, if more people used that system, because if they did, you could benchmark across a much wider population of companies. And you’d have real data rather than representative data which you get salary surveys, so salary surveys are not that helpful because you only look at representative data. That’s very partial and doesn’t give you a complete picture. But if you had, you know, 100 companies participating in the same data with anonymity and privacy, of course, could then benchmark much more extensively across that data set in different dimensions. So then another thing would be, you know, how much does a company spend on its HR function, finance function, marketing, activities legal? You know, what kind of profile it got opens up so many possibilities. And I think that, you know, if we were to have this conversation in 10 years time, I think you’ll find that reward has transformed beyond all recognition, because of technology and the availability of data.

Neelie Verlinden: Yeah, yeah, exactly. So another good example, though, I think of how Unilever is setting an example for other companies.

Peter Newhouse: One of our values is pioneering. And so I’m proud and happy to say that we were allowed to pioneer very new things in Unilever, because that fits the company’s values. And so we were able to do some, you know, vastly innovative things that we’ve now been able to also make available to others so that it’s not just about us, it’s also how can we change the way things are done in this area, a bit like living wage, you know, we can also transform the way that reward is, is done by other companies too. And I think that helps to get society into a better place, it also helps capitalism to get into a better place where it isn’t at odds with the interests of society, but is aligned to the interests of society and is doing useful things for society, rather than getting a reputation for simply pillaging and maximizing profitability.

Neelie Verlinden: Yeah, perhaps you can speak about, you know, capitalism for good in this sense.

Peter Newhouse: You know, that’s always a difficult conversation, because there’s lots of conflicts of interest in that. But without some kind of giving back to society, companies don’t really have the right to be there. And I think that, you know, that that is a risk to the system. And, you know, the system that we’ve developed isn’t perfect, but I’m talking about capitalism. That is not a perfect system by any stretch of the imagination, but the alternatives to it don’t seem to be much better. And so, you know, if you run the risk of having that overthrown, it wouldn’t be the thing for society, in my view, anyway. 

Neelie Verlinden: Absolutely. There’s a lot of information out there about Unilever when it comes to reward. And one of the numbers that actually stood out, obviously, I think, is that you’ll spend about 6.6 billion a year on pay? That is a huge amount, and how do you spend that amount? Is it in the hands of the rewards team? 

Peter Newhouse: Yeah, not entirely. No, because obviously, it’s a business expense. But yeah, that’s true. You know. So when you think about it, you know, the reward in every organization is a massive proportion of the total spend, in Unilever. Yep, it’s above, it’s above 6 billion euros a year. So colossal. And, you know, therefore, you need to know as much as you possibly can about it. Now, that requires a lot of governance. As you can imagine, it also requires quite a strong grasp on the basics. Like, who gets what. When I arrived at Unilever, you can see it in the annual report, it’s got a little section there. It says how much Unilever spends on rewards, everybody can see it. And one of the questions I asked at the outset was, well, how do we spend that, you know, who gets what and why. And it was a rocket, we’re not unusual. But this is like 10 years ago, we didn’t really know the answer to the question, how do we actually do that? That was all based on financial assumptions. We built our system to begin to get a better grip on how we distribute that money, and what value do we receive in return for it? How do people feel about it, which is really key. Now, I think, you know, I was fortunate enough in Unilever, to have a sufficient level of trust from senior management to be able to build the kind of systems that gives us more transparency and firmer governance over how we do that stuff. I do know that all organizations struggle with the same kind of issues. But yeah, a train set is kind of a big train set. It’s kind of quite a big thing to play with. So it’s kind of exciting and interesting, and quite a big responsibility. 

Neelie Verlinden: A massive responsibility, I think and can you share with the listeners how can you go about building that trust? I know, it’s a difficult question. 

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Peter Newhouse: Yeah, it’s a difficult question. I think it comes back to and it’s fragile. I mean, trust is fragile, because you’re dealing with emotional issues like pay. But I think fairness, openness, consistency and ability to explain is really the key. So you do have to have a pretty good grasp on those concepts. They’re basic, they’re simple, but the thing that I find hurts people the most is the idea that somebody else is getting a better deal than they are inside the organization. You know, the idea that you’re being taken advantage of, or that you’re not getting as much as somebody else is really painful. And so to have trust in the organization, consistency is really important. And if you can build it, it takes a long time to build it, if you can build it, then people will relax a lot more about what is being done to them, because they know that it’s, it’s fair, that somebody else isn’t getting a better deal than they are inside the company.

Neelie Verlinden: Now, Peter, we are, unfortunately, nearing the end of our conversation today. But before we are going to wrap up, I really wanted to take a little look at the future with you. Because we touched on it a few times during our conversation today. And yes, I was really wondering about some of the biggest changes that you expect to see in rewards. Now, I know that you mentioned a few of them already. There was the personalization aspect, among other things. But what changes do you see coming?

Peter Newhouse: Yeah, and this is, you know, again, my personal point of view. I hope I’m right, you know, because I think it would be good not only to be right, but because of what the benefits that this could bring. And it’s really about inclusivity. Again, so I’m a great believer in diversity. And in my view, everybody’s different. And so to have the kind of reward system that tells you what’s good for you, and gives you what’s available, but no choice seems to me to be misguided. And so with sufficiently advanced technology, we should be able to manage a much, much more varied approach to reward where we basically sort of say the company is prepared to pay you a certain amount and how you decide to take that is up to you may not change the total cost of the company. But the provision of that can be something that really suits your lifestyle, or your life cycle, you know, everybody goes through changes, and usually when we look for a different job is because we’re hitting a bump in the road where we need to do something different, you may be starting a family, you may be needing to buy a bigger house, a bigger car, you hit a bump in the road, and your package doesn’t really stretch as far as it needs to. And rather than the company being responsive to that difficulty, you start looking for another job, because that other job might give you what you need to do well, why can’t we give you that choice of changing the composition of your package so that it suits you better. And it could be later you’ll change it again, you know, so, you know people, both younger and later in life are more able to take risks because of their own personal situation. So at that point, why not give you a premium for taking more incentive, for example, at other times in your life, you need more fixed certainty in how you’re paid. So why not give you the opportunity to flex your page? So I would say that that’s probably you know, my prediction would be that’s the single most important aspect that we all need to work on in rewards, making more engagement, making it a two way street where you can interact with your reward rather than simply receive it. So I think that’s really key, in my view.

Neelie Verlinden: A bit of a loaded question here. Maybe Peter, but could you see that go as far as people at some point, being able to determine their own salary?

Peter Newhouse: It shouldn’t be a question of saying, what should the company be paying me in totality? I think the company always needs to decide the value that you offer, but they need to manage that effectively. That’s their core, you know, the company should be to say, we’re prepared to spend this much money on your package. But how you take you know, the proportion, you take a salary that should be up to you. If you wanted to take a very large proportion of the total in salary, rather than incentives or benefits. Well, I’d say that’s up to you. But that doesn’t change how much you’re paid in totality. You see the distinction? I do? Yeah, I do. I think that way, it’s a good two way street. And of course, the company’s job is to make sure that what is paying you is a fair representation of the value you bring to the organization. Because if they don’t do that, then you will leave.

Neelie Verlinden: What do you think organizations need to do or can start doing now to get there?

Peter Newhouse: Well, it’s really technology and and so if you don’t have the technology to manage that complexity, you haven’t got a chance, you know, so then it’s all hopeless. So the first thing is technology, companies need to get the technology to better manage that level of complexity and that level of choice. So that’s, you know, that’s the absolute base point. I think, then there’s lots of interesting ideas around what is engaging beyond simple choice, you know, because of course, you need to have information, you need to be sufficiently aware and conscious of the choices you’re making, to make the right kind of choices. So education, financial education, all that kind of stuff that goes hand in glove with choice is something that also needs to be brought to bear on this advance in the way that we pay people. You can’t just give people a choice and expect them to move necessarily, you know, they must be informed choices rather than informational. 

Neelie Verlinden: Yes. That’s exactly what I was gonna say. They need to be able to make informed decisions. 

Peter Newhouse: You know, for many decades, annual bonus plans have been not motivation, you know, I kind of want to speak at conferences and stuff these days off, do a little routine saying, you know, let’s have a vote on whether your bonus system is motivational and whether it improves performance. 85% of people attending those things say, our bonus system is not motivational. And about 50% of them say it improves performance. That’s terrible. You know, when you think about the millions, millions, hundreds of millions of euros spent on annual bonus plans, if it’s not motivational, and it doesn’t improve performance, it’s a disaster. So my feeling is that we should probably be shifting that spend to shorter term recognition, which seems to be far more effective according to the evidence, and also to long term incentives that really help people create wealth over the longer term, because pensions are less likely to do that than they used to be decades ago. And so wealth creation opportunities really should be bound up with the success of the organization. That’s highly motivating over the long term.

Neelie Verlinden: Yeah, yeah. And then one, one thing that when you see that they should perhaps be more short term recognition. So what should we think about them?

Peter Newhouse: Well, I think that, you know, behavior is in the here and now. And so if you want to reinforce culture, if you want people to understand what the company is looking for, if a manager wants to, you know, show people the kind of behavior that the manager is expecting, then short term recognition is really important. And people aren’t very good at it, you know, so they tend not to say thank you, they tend not to say, Hey, that was a really good job equally, they don’t say didn’t really work out. And if only you’ve done this, instead of that, it would have been better for everybody. You know, we’re not very good at honesty in that respect. And so having some kind of organized short term recognition plan that allows managers to actually show people the behavior that they value, I think would be really useful.

Neelie Verlinden: That’s a whole other topic actually to explore, but yes, I totally agree with you on that one. Now, I kind of kept this one till the end, because I didn’t want to make our conversation about COVID. But, of course, the events of the last, let’s say 1516 months, they have, let’s do an acceleration of hybrid work for a lot of organizations. Now, that comes with a lot of challenges, and a lot of questions that need to be answered. But when we specifically look at reward, one of the things that we were really wondering about is, have you already seen some best practices, for instance, how to then go about creating global pay scales, because I think especially in the US, what we see, and also here in Europe is that a lot of people that used to live in big cities, because they had to go there to the office a lot, they actually decide, decided to move out to different places in the US, for instance, where the cost of living is a lot less high. Now as a company, how do you go about that? So imagine you have a New York City based company with 300 people 60% of its talent is now working remotely across the globe? Should you as a company then be paid and based on the New York standards? Of course, or are you going to have a different scheme for everyone? Depending on where they are?

Peter Newhouse: Yeah, it’s a really great question. But it’s not a new question, it’s really quite an old question. Because if you think about international mobility, expatriation, this is exactly what we confront. And I mentioned previously, that we have this urinary system, yeah, we really have a kind of international rate of pay that we apply to our senior people, and also to our international mobile people. So it’s not necessarily new. And it’s not that difficult to do. It’s a bit unusual. But it can be done. But underneath the question is a really interesting problem, which is that reward is always local, you know, so the difficulty with the reward is there’s always reference to what other people get paid if if other companies didn’t pay their people, I wouldn’t pay my people either. You know, so we’re all in this kind of looking at each other kind of position where we’re trying to be competitive, whatever that is, and years ago, appear in another company reward guy, good plumber, he said, Yeah, people talk about a labor market. But it’s the only market where the product has an opinion about its own price. And I just thought that’s such a great statement. Because of course, that’s exactly the way that it works. And so, as somebody who has an opinion about my own price, you know, I’m trying to maximize my own value. So if I can maximize my value by being paid, as if I’m in one place, but I’m actually somewhere else, that’s great. You know, and for decades, people have done that by becoming international mobile. And now we’re confronting a similar sort of difficulty with people who are not internationally mobile, but actually remotely mobile, you know, so they can do their work from a different place that raises so many issues, and it does really confront one of the dilemmas of reward which is equity. What’s fair, is it fair to pay people a rate of pay, as if they’re based in a very expensive city when they’re not. Yeah. So it gets us back to all the same old things. And it’s really all about what’s fair. Yeah, I have this little thing. I mean, my little mantra for reward is open, fair, consistent and explainable. You know, as a reward plumber, my goal is always to try to hit those four things with a yes. Is what I’m doing open. Is it fair? Is it consistent and explainable? And usually, if I can hit three of those, like, open, consistent and explainable, then the fairness follows, you know, because being fair is a really difficult question. What’s fair? Well, it all depends on who or what. But consistency, openness and explainability gets you a long way,

Neelie Verlinden: We are getting to the very last part of our episode, and I always love to ask every guest that joins me to share an epic win and or an epic fail with us, because it’s nice to hear these anecdotes most of the time, and we are also all about learning from each other. So can I ask you to share an epic win? Or an epic fail with us? Or maybe both?

Peter Newhouse: Maybe both? Yeah. Yes, I think it’s always easier to think of the epic wins, you know. But I think on a consistent theme, both epic win and epic fail, I would say, you know, mid-career recruit, I’m not quite mobile in my career, do you think that my time at Unilever has been a great success, and it’s been personally very satisfying. I think I’ve done lots of really useful things to the company, for the company. And, a lot of that was cultural fit, you know, so the cultural fit within was really great, you know, so I felt as if I had the right kind of toolkit, right place, right time, right skill set, which is always the sweet spot. That’s always the best place to be. But I have to admit that previously, before I ran my own company, this is going back to the late 1990s 2000. You know, 20 years ago, I joined a North American automotive company called Ford as an expatriate. So I was in the UK, I joined them to work in North America, and everything that could go wrong went wrong. And at the bottom of all of that, there was a very poor cultural fit between me and the organization, the way that they thought about things was very different to the way that I thought about things. The way that I saw my role was very different to the way they saw my role. And a perfect example of this is that before I got my visa to go to North America, I went into the local office in the outskirts of London, close to Dagenham, which is where the big car factories are. And at the end of my time there, I realized that their working hours started about three quarters of an hour before I thought they did, because nobody had ever told me and I’d never asked. So for the entire time that I’d been there. I’ve been turning up to work late every single day. And I thought, wow, they must think that I’m such a you know, what do they think about me? And they must think I’m so arrogant, having come every day late like this. And, it was actually that I just didn’t know. I always thought that they stopped work really early here. But I didn’t realize that it wasn’t voluntary. It was actually it was supposed to and so it was like so yeah. So you know, sometimes you win, sometimes you lose.

Neelie Verlinden: Yes, definitely. And thank you very much for sharing that. I think that was a fabulous example, to be honest, both the uni level one which I think is a great success story, and the example from when you were in the US and then cheers again, the importance of just communication but also cultural fit. So thank you so much. And thank you for joining me for today. 

Peter Newhouse: Thank you very much for the invitation. 

Neelie Verlinden: Yes, thank you everyone for listening to today’s episode. As always, do not forget to subscribe to the channel, hit the notification bell and like this video. Thank you very much and see you again soon for a new episode. Bye

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