Total Rewards Quarterly

The Future of Rewards: Technology, Trust and Transparency

Over the past couple of years we have witnessed changes in HR priorities that have long lasting effects on people, business and the organization as a whole. Aon invited HR leaders from leading organizations with diverse mindsets to discuss the changing imperatives for HR and more specifically rewards, and how they envision rewards managers to become better business partners. The session saw participation from diverse industries and gave a foray into the minds of the leaders who will be leading the HR function in this next wave of evolution.

The following are insights drawn from this interaction:

What is going to change for rewards as a function? In light of these changes, how would the role of rewards managers evolve?

Traditionally, compensation is one of the biggest reasons of disengagement – however, the correlation between compensation and engagement is diminishing and it ceases to be a differentiator. The availability of data on third-party portals have made it imperative for employers to bring transparency which will play a bigger role in shaping the role of rewards as a function. In such a situation compensation as a function within HR has moved away from being a payroll and data management function that is typically viewed as a tool to manage employees and moved beyond.

The changing stakeholders and their expectations have also been instrumental in the changing face of compensation today. These stakeholders including Boards are no longer seeking information – they are seeking market insights in order to make informed decisions on what to do, and more importantly, on what not to do. Even the type and quantum of information that Boards of companies seek from HR has pushed them to maintain transparency.

There is also a power imbalance created since the team on the budgeting side would always have tighter controls than the HR leaders. To a large extent, the answer to the power struggle lies in enabling and empowering the line manager activity which is integrated with the entire engagement framework.

However, over investment in compensation without any insights into productivity has led to money being spent in anticipation of better productivity sometimes accompanied by outdated or irrelevant rationale.

Are organizations looking at multigenerational and grade linked benefits to address the needs and requirements of the changing workforce dynamics?

The workforce demographics have changed so much and so fast that today we have a 30-year-old CEO and a 45-year-old account manager and both of them have a very different say in decision-making but have a varied set of expectations and requirements. The change in workforce demographics have certainly created various strata of people who are at different stages in life, coming from different social backgrounds and have very different set of expectations from their employers.

Today we have employees who would want to work with multiple employers or might want to work part time and thus, the environment needs to be flexible. However, data proves that when the employees are offered choice of options, 85% stick to consistent patterns. From an organizational standpoint, very often HR is not well-equipped to differentiate between segments of employees and thus, not able to decisively put together benefits plans that would be valued.

In light of this, it would be important to understand whether employees are looking for choices and if benefits would act as strategic differentiators. In today’s fast changing environment, employee preferences are also changing and it is important to listen. HR is a key stakeholder that needs to carry out such listening exercises in order to articulate benefits-related needs of the employees and would need to look beyond demographics and generational changes. The fundamental impact drivers are the ability to segment effectively, manage the cost and return equation smartly and keep track of the fast changing mindsets of employees today.

How do you envision the role of big data in HR?

Analytics has emerged as a key tool driving decisionmaking across businesses. Organizations are using analytics to understand and predict consumer behavior for business needs. HR is also using analytics to better understand internal and external customers, so as to engage them better. While the adoption rate within business functions has been high, HR and allied functions have been slightly behind the curve. Given the extremely volatile business scenario, deriving a direct causal relationship between HR initiatives and business outcomes is proving to be a challenge. This is a primary reason for the low adoption of analytics in HR. Although measuring the return on investment and direct business impact might be a challenge, HR professionals are slowly realizing that tracking and analyzing the plethora of employee data that they have access to, can enable them to take more informed decisions and also increase workforce productivity.

A few big data trends in HR that we are witnessing are:

  • Vanity metrics are fading away, metrics which do not provide insights are no longer appreciated
  • Organizations are being able to put a value to human capital assets
  • Organizations are starting to leverage sensory information, through online listening portals, and internal monitoring systems to follow the productivity of the workforce in real-time

The advent of business intelligence platforms and other easy to use analytics tools, has increased the adoption of analytics in the HR function. Analytics is enabling HR professionals to stitch together a story using data and visualization techniques thereby enabling them to highlight their contribution and impact on the business

How do we see the different areas of HR transforming due to technology and analytics?

One of the key areas where HR would see technology linked transformation would be the use of analytics in order to streamline HR costs and increase the return on investment for human capital costs. The second key area would be talent acquisition and leadership development where analytics is used to build predictive models to identify potential recruits and future leaders for the firms.

Talent acquisition professionals are utilizing analytics to identify the following:

  • Which are the best sources of talent for different profiles across functions
  • What is the most effective sourcing channel
  • Predictive models to ascertain the future performance of the hires and possible tenure in the organization

Leadership development professionals are utilizing analytics to identify the top competencies and behaviors displayed by leaders across the organization. This is being combined with talent acquisition data to increase the probability of hiring future leaders. These inputs are also being utilized to improve the effectiveness of the training and developmental initiatives.

The third area where technology is helping HR in making strides is attrition. Organizations are utilizing the vast swathes of data from different functions to identify the potential attrition risk. This is proving to be a very useful tool in talent management and improving the retention of critical talent. They are also utilizing the data to answer questions like whether higher incentives lead to greater sense of ownership in the organization, does higher salary increases lead to better engagement at entry level, etc.

Rewards professionals have started utilizing analytics in understanding the effectiveness of the variable pay programs. Historically, organizations were facing a lot of unknowns that exist in the measurement of incentive parameters which they are attempting to solve using analytics. Organizations are critically examining the incentives which have a direct impact on driving the desired behavior. The conversations are shifting from the design parameters of the incentive plans to the effectiveness of such plans in their entirety.

With the growing need for customization, what are the emerging views on rewards communication?

Organizations spend approximately 20-30% of the fixed pay of an employee as additional costs in the form of benefits but employees still continue to consider the amount on their pay slip as the entire value proposition of their employment. Rewards communication has therefore gained prevalence because organizations have realized that their investment in multiple avenues is not being appreciated.

The primary focus for rewards communications across organizations is to educate the employees on the benefits that are available to them and more importantly, to drive utilization of the same. Organizations are also utilizing rewards communications to drive greater transparency in pay management across different levels of employees. The focus on communication has gained impetus to the extent that organizations are employing specialists in the field of communication to increase the penetration of the messages across the firm.

Organizations have realized that transparency in communication is critical to improve the employee’s understanding and satisfaction with the rewards. They also realize that there is a significant amount of education of middle managers that is a prerequisite before adopting such initiatives. The middle managers are the owners and drivers of such communication.

While this is being seen as a critical intervention to drive employee satisfaction with pay management, with the ultimate goal to drive retention, social rewards have emerged as a key driver of engagement. Recognition platforms highlighting good performance, excellence in business delivery and execution and extending the engagement to the extended family of the employee, and other interventions which were widely prevalent in the public sector institutions are gaining more acceptance. These initiatives have also proved to be useful in engaging the millennials as well.

The future of rewards is therefore not limited to doing better what organizations have always done, but rather to think outside-the-box. There is a need for rewards professionals to understand the changes in their employee segments and to listen to them in order to better align their benefits and remuneration. Early investment in technology and analytics, would better help organizations walk the extra mile especially in their endeavor to better engage their internal customers. As the age old proverb says, the only constant is change and it would be imperative for HR professionals to be adaptable to such changes.

Participants in the Discussion Panel

  1. Dhruv Prakash, Fund Advisor, Jungle Ventures
  2. L. Gurunathan, Associate Professor, XLRI
  3. Amit Chincholikar, SVP Group HR, Tata Sons
  4. Judhajit Das, CHRO, ICICI Prudential Life
  5. Sandeep Chaudhary, CEO, Aon India

Compiled by

Prakhar Tripathi
Senior Consultant,
Aon India Consulting

Vamsi Karavadi
Senior Consultant,
Aon Hewitt Consulting

For more information, please write to us at total.rewards@aonhewitt.com
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