Are your managers able to communicate about pay, pay fairness, and pay transparency?
This is a hot topic. New regulations are forcing organizations to think about pay transparency and fair pay on a global level. Pay management, governance practices and reward communication are now urgent focus areas.
In our latest survey, we found that:
=> 24% of companies say their lack of a clear job architecture and job levelling frameworks was a factor holding back increased pay programme communication
=> 33% indicated that one reason for a lack of pay transparency was because their pay programmes were simply not ready.
Probably the most interesting finding is just how crucial managers are when it comes to communicating about rewards:
=> Eight in 10 organizations report using managers to communicate pay program information to their workforce
=> Yet, few report adequately preparing managers for this task. Only two in five say they are effective at educating managers on pay and pay equity issues.
Ouch.
What can you do?
=> One success factor in reward communications is effective use of digital platforms to personalise information for employees and managers. This is an area of employee experience that’s going to become more and more important very quickly.
Yes. Almost 1 in 5 companies see this pattern. So what can you do if you’re one of them?
Source: WTW
Finding engagement
Employee engagement is something that many organisations measure and track, often through surveys. There are good reasons for doing this. Monitoring engagement is seen as good governance. There’s also evidence that high-perfoming companies build a virtuous circle of engaged teams with strong business results.
“Engagement” has a variety of definitions, but there is broad agreement on what it’s trying to get at, i.e. things like:
Sense of belonging and connection
Pride and advocacy
Willingness to invest discretionary effort
William Kahn is usually credited with providing the first formal definition of engagement. He talked about:
“The harnessing of organisation members’ selves to their work roles; in engagement, people employ and express themselves physically, cognitively, and emotionally.”
The degree to which employees find engagement is the result of both individual characteristics and factors that are related to their experience at work.
Employee experience (EX) factors include day-to-day elements, such as the job itself, and how you interact with your manager and your team. Some of these stand out as being especially important, such as feeling recognised by your manager and having a sense of psychological safety.
Engagement drivers also include broader organisational factors. For example, the ability to grow a career and your confidence in leadership. In my experience, there are systemic capabilities that can provide an engagement lift if you get them right, such as performance enablement and effective communications.
When the CIPD developed an umbrella approach to employee engagement a few years back, it identified the following useful framework:
Source: CIPD
The key point here is that engagement is typically seen as a condition in its own right. In the CIPD’s words, engagement relates to a “state of being”. It’s common to view engagement through the lens of self-determination theory. Another perspective on engagement is to consider it as something akin to “flow”. It’s one reason why engagement has been linked to improved performance outcomes (safety, productivity, sales, etc.)
Engagement is not retention
While you can expect that engagement is related to retention, it’s also different. Retention refers to employees’ intention to stay with their current employer. (Note that I’m using plain language here and avoiding more technical terms like retention rates.) The opposite of retention is turnover — and here I’m mainly thinking about people leaving voluntarily for another job in a different company.
When employees make a decision to leave in this way, it’s the result of a complicated equation that reflects a wide range of considerations.
Some of those are external to your experience at work.
One very obvious external factor is the economy. Is unemployment low? Is your sector growing? Are your skills in demand?
In the last 18 months, another factor has been people simply wanting to make a change after the slog of the pandemic and lockdowns.
In addition, there has been high inflation. If you look at the data behind the “Great Resignation” you see that lots of people have made sideways moves. This may be due to people looking for even a small pay increase during a cost-of-living crisis.
As well as these external factors, turnover is a result of individual characteristics (e.g. risk appetite) and, of course, employees’ experience at their current place of work. Do you have an idiot for a boss? Do you feel your pay is unfair? Is your team short staffed? Are you feeling overwhelmed and even burnt out?
There is lots of research into these EX retention drivers, some of which is summarised below (these data come from the WTW Global Attitudes Survey):
Source: WTW
What’s noticeable is the prevalence of total rewards in retention drivers. That’s not the case for engagement. Engagement is driven by more relational factors. In fact, if you think about employee experience in terms of both “connection” and “contribution” (as I sometimes do — shown below) then engagement is more strongly related to connection (to the people you work with and the sense of purpose you get from work) and retention is more strongly related to contribution (the opportunity to have an impact through your work and the recognition you receive for your efforts).
Source: WTW
Linking engagement, performance and retention
In summary then, engagement is different to retention, but both are impacted — to some degree — by your experience at work. In many scenarios, therefore, you can expect engagement and retention to track one another.
A recent piece of research into employee experience “value drivers” by my colleagues Angela Paul and Steve Young looked in detail at exactly this linkage.
They segmented 350 organisations according to both the level of employee engagement and the level of retention, comparing each to their respective industry average.
They found four segments as shown here:
Source: WTW
The good news is that 37% of companies have highly engaged employees who are looking to stay. Engagement and retention go hand-in-hand here.
These “value drive” companies also have a performance advantage, delivering the best profits and growth, as shown below:
Source: WTW
At the other end of the spectrum are 30% of organisations that have disengaged employees who are looking to leave (“value drag”). Of course, engagement and retention (and performance) are linked here too.
There’s a rump of 15% of companies, which suffer from low engagement, but where employees are not looking for the exit (“value potential”). You can imagine reasons why people might be “stuck” like this. Perhaps these organisations are older corporates with relatively high numbers of long-tenured employees, for example.
What interests me most is the 18% of companies that have the pattern I described at the top of this piece — high engagement, but also high turnover (“value risk”).
It’s worth saying that some leaders I’ve worked with don’t think this pattern is a big problem. They feel it shows they’re doing a great job of developing ambitious people. They might even expect their most-engaged talent to be on the lookout for opportunities— it’s a sign of success.
Moreover, if folks are walking out of the door engaged, then you are building a fantastic pool of potential re-hires. There’s research that shows re-hires can be among the most productive of employees. In some industries, it’s not uncommon for people to move around a lot (and you can argue that this is going to become more common in the future of work).
There’s some truth in this. But there is a cost to turnover and it’s significant. The real total cost of losing someone includes the cost of hiring, onboarding and training a replacement. You also need to account for the loss in productivity and the impact on those who remain (in terms of morale and climate, for example). This can easily end up to a multiple of the leaver’s salary.
You can see from the above analysis that these “value risk” organisations are not as profitable or as fast-growing as their “value drive” peers. There is an overall performance disadvantage. It’s likely that these companies are facing too-high a retention risk; they’ve crossed what might be considered a healthy (or “optimal”) level of turnover.
Three key steps for taking action
To return to the second question I posed at the start of this article, what can you do if “value risk” is a pattern that you see at your company?
There are three key steps you can follow, which I will go on to summarise at a very high level: Understand — Prioritise — Spark Change.
1. Understand
According to the research, there are some areas where the employee experience differs for these “value risk” organisations. For example, employees:
Are less likely to believe their voice matters
Perceive less equity when it comes to advancement opportunities
Feel their organisation doesn’t really match rewards to performance
Source: WTW
This is the general case. You need to understand your own workforce dynamics by analysing people data to build your own picture.
Here is an outline of some of the ways you can do that:
i. What did people who left tell you before they departed?
This is a simple analysis, but powerful. Tag leavers in your prior engagement survey, and review the results for those who were engaged but left vs. those who stayed. Are there specific topics where there are big gaps?
ii. Segment
You can segment engaged leavers and stayers by function, role, and critical talent group. You should also segment by length of service. When in the employee lifecycle do gaps emerge and on what topics?
iii. Analyse
You can model retention by treating the decision to leave as an outcome. Are there experiences and opinions that can be linked to the decision of engaged employees to exit? In this phase, it’s key to integrate and triangulate — to add-in demographic and other data. This might include individual variables such as time since last promotion and pay rate compared to co-workers, and so on. It might also include data on fitness for the job at the point of hire. You can also connect insights from exit surveys, such as reasons for leaving.
iv. Add colour and richness
One way to add colour is by looking at employees’ stated intention to stay or leave (for example, in an engagement survey) and their actual stay/leave decision. If you do that, you can identify people who intended to stay and did, and folks who intended to leave and did, but far more interestingly people who you might call “surprise leavers” and “surprise stayers”. Looking at these “surprise groups” in detail can provide a lot of insights.
If you have multiple surveys, the data becomes even more colourful. For example, you can identify people who have changed their mind (about whether to leave or stay) and isolate the factors that led them to reconsider.
You can also review qualitative data (e.g. survey comments), performance feedback, and exit interview data to add richness.
v. Engage and involve (and validate)
It’s important to validate your analysis with people. We sometimes use virtual focus groups (chat-based discussions at scale). You can engage with Employee Resource Groups and other communities. You can co-create solutions by using ideation/crowdsourcing tools and platforms.
Obviously, I’ve run through all of the above in super-quick fashion, but I hope you get a sense for some of the options available. (Feel free to ask me about them if you would like more detail. The screen shots shown above are from WTW’s Engage software.)
2. Prioritise
The second step is to translate insights into actions. Are there people priorities that need to be accelerated? Are there programme changes you should make? Are there particular EX moments you should focus on?
When we did research into “Transformative EX” organisations, for example, we identified a number of breakthrough moments:
Making flexible work work
Modernising total rewards and enabling performance
Equipping managers to lead through change with empathy
Investing in employee wellbeing
Encouraging inclusion and psychological safety
When it comes to “value risk” organisations, we know from our research, that one key area relates to fair pay:
A second focus area relates to career experiences and career architecture. In all organisations, careers are evolving:
Source: WTW
As a result, many organisations are shifting from traditional approaches to more of a career ecosystem:
Source: WTW
These are example priority areas to focus on in order to optimise turnover, particularly if you have identified a pattern of “value risk” in your employee experience through the kind of analysis described in Step 1.
3. Spark behaviour change
The third step is to translate actions into impact. When it comes to activating career experiences, for example, most organisations combine tools for employees and managers with consumer-grade technology that personalises communication.
Source: WTW
We recently worked with a global pharma company, for example, to develop a careers platform called “Navigator”. The platform integrates their existing development content with a new role framework — bringing career development to life for employees.
On Navigator employees can:
Explore all role families and role profiles across the organisation
Identify areas of interest and the skills required for different paths
View their current role and suggested upward and lateral moves, making their Navigator experience personal to them
Create a career development plan.
You can deploy similar technology to communicate total rewards and to tackle issues related to fair pay.
Source: WTW
I’m skimming the surface here, but you can read lots about this on our website.
Recap — “Value risk” can be minimised
Employee engagement has been a leadership focus for more than a decade. Since the pandemic, and especially in areas where key skills are in short supply, retention has also become a top priority. In many cases, the two go hand-in-hand, but in around 20% of companies it’s possible to see a pattern of high engagement and high turnover risk.
If this is something you see in your organisation, you need to analyse the people data you have to really understand the drivers of retention for engaged leavers. Based on our research, these are likely to be related to “contribution” elements of EX (such as total rewards and careers).
Once you’ve done the kind of analyses shown here to really understand the key factors for your workforce, you can then prioritise programmes and changes that will help to optimise turnover.
In areas like total rewards and career experiences, organisations are increasingly using digital technologies to spark behaviour change and to create lasting impact. I’ve touched on that very lightly here, but for sure it’s something I will write a lot more about in the near future.
NOTE: This is a draft I’m working on. Ping me a message with your thoughts; I’d love to hear what you think — Nick
The biggest challenge facing organisations today is inflation and the cost-of-living crisis. What role can people analytics play in helping leaders and employees tackle these issues?
The biggest challenge facing organisations today is inflation and the cost-of-living crisis. In this presentation, I will ask a simple question: What role can people analytics play in helping leaders and employees tackle these issues?
Let’s start at the beginning:
HR has been doing analytics for a long time, but it’s fair to say that, in the main, HR analytics (or “people analytics”) has involved a lot of reporting.
That means counting things and measuring the effectiveness of programmes. A good deal of time has been spent on simply getting data about the workforce into shape (agreeing common definitions, cleaning data, and automating reporting).
So in 2016 Janet Marler and John Boudreau were correct, when they did a meta analysis of the field, in stating that people analytics was primarily focused on providing data for better decisions within HR.
The good news is that since then things have started to change. That relatively narrow description has been expanded. The variety of papers in this conference amply demonstrates that people analytics is evolving to address issues that provide far more value.
This shift is partly due to the pandemic. Covid gave organisations a fundamental employee experience “stress test”. HR has been asked to provide better analytics in order to help. Leaders want to know how employee experience is being affected and what this means for people management, performance development, teamwork, collaboration, and productivity.
Another important shift relates to how HR thinks about its own purpose and mission. The function is gradually evolving from an internally-focused and compliance-driven mindset. It’s becoming a more strategic function.
So Jonathan Ferrar and David Green are right to point out, in their recent book, that people analytics now is more focused on providing value. It’s about addressing business challenges and surfacing solutions. Those things need to help the business perform better, they need to support leaders with their priorities, and they should have value for employees too.
So what I want to do in this session is put that to the test. I want to think about how people analytics can provide value when it comes to addressing the biggest challenge facing, organisations, leaders and employees right now.
For sure, the biggest organisational and people challenge at the moment is rising inflation and the cost-of-living of crisis.
Employers are facing a very tough set of problems. You know the headlines. Inflation is the highest it’s been in 40 years. At the same time growth is low. And on top of that the labour market is tricky. There’s a lot of turnover and companies are finding it hard to attract people with the skills they need.
In our research, we see that three-quarters of companies are finding it hard to retain and recruit employees with digital skills and 63% of employers say the same about professional staff in general. In order to fill gaps, most companies have stepped up their recruitment efforts.
In addition, employers are facing pressure from unions and other stakeholders. In the UK, the number of strikes is already at a decades-long high.
For all these reasons, “inflation and financial/market instability” is the Number 1 concern for CEOs (according to the Summer 2022 Fortune/Deloitte CEO Survey.)
From an employee perspective, of course, things are also very difficult:
Employees are under pressure. As an example, again according to our research, 36% of employees say they’re living from pay cheque to pay cheque. One-on-three say financial problems are having a negative impact.
36% of employees are living pay cheque to pay cheque
There’s a cost for individuals and businesses to this. At an individual level, financial wellbeing and anxiety impacts people’s physical, social, and emotional wellbeing too. For businesses, there are operational costs, such as absence and presenteeism (and perhaps “Quiet Quitting”). Of course, people are also more likely to move jobs if they can pick up even a small pay increase.
If you look at the data that sits behind the headline of a “Great Resignation” then it appears there are a lot of people making sideways moves. Some of this may be because people are re-evaluating their job after lockdown. It’s also very likely due to this urgent need to earn more as living costs rise.
In response, employers are having to react. These are some of the changes companies are making:
They’re targeting salary increases and offering one-off payments and they’re investing in broader support and assistance for employees.
These changes are potentially expensive and in some cases they’re being made quickly as an urgent response to events. Rather than being evidence-based, they’re sometimes driven by anecdote and leaders’ instinct. What’s often missing is an understanding of motivation that’s rooted in behavioural science.
What’s often missing is an understanding of motivation that’s rooted in behavioural science
Surely there’s a role for great analytics here?
Let’s begin by trying to break things down a little and to consider the kinds of questions we might want to answer:
At the risk of sounding like Donald Rumsfeld, what are our known-knowns and known-unknowns? More specifically, when it comes to total-rewards, what are we spending money on and are these the things that employees really value?
By total rewards, I mean three things:
Foundational elements like pay and benefits
Performance-based components like merit-increases and incentives
Plus career and environmental dimensions, such as learning and development
Take just benefits, for a moment. In my experience, established companies often have programmes that are designed for their legacy workforce rather than the needs of their future and up-and-coming talent. As such, it’s possible that you’re spending money on things that your mission-critical talent doesn’t really value. This is obviously a waste.
Benefits needs and preferences aren’t static; they change with the times.
One example is how employees’ views about private health in the UK have changed following the pandemic. Health insurance has been seen as a benefit for senior leaders. But there’s growing interest generally in health plans as people struggle to see their GP and get appointments on the NHS. By being more innovative when it comes to health plans both employees and employers can “win”.
Another example is “green benefits”. These can include things like supporting people to buy electric cars or introducing cycling-to-work schemes or investing pensions in sustainably-focused funds. These can help with your overall Net Zero commitments and they’re a way of tapping into the energy that your employees have about climate action.
As well as understanding needs and costs we should also ask ourselves if we’re incentivising the right behaviours. Specifically, are we driving high engagement and motivation? Are we encouraging collaboration and innovation? Are we doing enough to encourage people (that we want to stay) to grow a career here?
And there are other important considerations, such as ensuring we’re building an organisation that’s inclusive and where rewards and recognition are aligned to our values.
What these questions show is that you need to think systemically about total rewards. The danger is that you might “fix” one problem over here, just to create another problem somewhere else.
That’s enough theory.
How can you operationalise this kind of thinking?
The first question we should try to answer is what it is that people really need and want when it comes to their total rewards (so that we’re not simply responding reflexively to problems as and when they occur).
It makes sense to begin with, “what do we already know?” It might be a lot. For example, you know take up rates for benefits and you have feedback on providers, and you can look at data from your Employee Assistance Programmes, and so on.
But even with all that, you may still not be able to answer the question fully.
So you can ask people — through surveys and focus groups, for example. Surveys can be of various degrees of sophistication. We sometimes use Max-Diff surveys in order to force choices.
I find focus groups valuable. We often run them virtually (using a chat-based tool). They provide rich insights and a deep understanding of preferences. However, it’s hard to connect that feedback to specific cost data.
In terms of what you may or may not know already, here’s an example: I’m currently working with a very large tech company that has vast quantities of information about and from their people. I mean “enormous”. They are super data rich. They run very frequent pulse surveys using a survey widget tool. They run lots of polls. They have masses of open feedback on internal social media. They have input from Employee Resource Groups. They get insights from team huddles and other events. But having sifted through it none of it is specific enough to help them answer the exam question for total rewards: “What do employees really need and want?” It’s all noise and no signal.
So if this is the case for you too, how do you get a clear signal — what’s another option?
The approach that we find most useful is conjoint, which you may or may not be familiar with.
In case you’re not, then adaptive conjoint was first used in the 1980s in market research. It’s a way of testing different product attributes to estimate a preference score. It yields better information than asking people about each attribute individually.
That’s because a conjoint survey asks you to make trade offs between different sets of choices. The software is adaptive in that it tries to be efficient by testing the most relevant choices based on earlier responses.
There are two elements. You have to design a Reward Matrix with different rewards and options (typically decrease, stay the same, and increase). You can, of course, also calculate the cost of these options.
And then a conjoint survey tests those in combination. It’s a very different experience from an opinion survey. You have to make some tough choices. And the communication of the survey is important since you’re talking about people’s reward and you’re presenting options where it can decrease.
After running a conjoint survey, you can then use the results to understand the perceived value of different reward elements. This is the second step in what we call Total Rewards Optimization (TRO).
You can run a simulation of the impact on the perceived value of potential reward changes and the implications for costs. Effectively, these are “What-If Analyses”.
For example, are there simple changes that don’t cost much that would be greatly valued? Are there expensive programmes you’re paying for that people don’t actually value very much?
Are there simple changes that don’t cost much that would be greatly valued? Are there expensive programmes you’re paying for that people don’t actually value very much?
The graph on the right (above) shows the change in value for different reward elements and the associated cost
You can also segment the results for different talent and demographic groups. Are you offering rewards that are valued by your long-tenured employees, but not so much by new, younger hires? Can you build a better understanding of the needs and preferences of those critical talent groups you’re struggling to retain or attract?
As a third step, you can then build a model of all the potential options. In this graph, the cost or investment is shown on the horizontal / x-axis and the perceived value on the vertical / y-axis. It also shows an efficient frontier — based on plotting the most efficient allocations at various cost levels.
This means you can find your total rewards “sweet spot”.
For example, that could be spending the same amount of money, but increasing value. Or it could be spending less, because you need to cut cost, but doing so in a way that preserves value. Or perhaps you want to increase value and don’t mind spending a bit more in order to maximise talent retention. The point is that these are options based on analytics rather than instinct.
And typically we run an online simulation that’s used to build different portfolios as an aid to decision-making in a workshop setting:
It’s worth reflecting that traditionally, decisions on rewards have been set from the top-down (think budgets cascading through a hierarchy). The approach I’m outlining here to TRO is about building-in an understanding of employee needs to make sure you’re aware of the impact of those decisions on engagement and behaviour. It’s about understanding and mitigating risks. It’s also about involving people and capturing employee voice.
TRO is about building-in an understanding of employee needs to make sure you’re aware of the impact of those decisions on engagement and behaviour
So that’s the analytics. What happens to those findings? How are they turned into actions?
Here are a couple of examples.
In this first case (below) the analysis was turned into programme changes. This is a large global organisation that was struggling with turnover. Through the analysis they realised they had been too concerned by those foundational elements of total rewards (like pay) and that they weren’t paying sufficient attention to elements like Learning & Development. The analysis was able to quantify the impact of focusing more on L&D which meant there was a business case for investing in some of the programmes shown here. And there was indeed a payoff. Turnover dropped and engagement increased and they saved some money.
This second example is a recent and topical one. It’s from another large organisation that had a focus on recruitment, especially graduates and experienced hires:
In this case, the review of total rewards highlighted a need for more than programme changes. The top priority was actually financial wellbeing — things like assistance, education and tools on topics like clearing debt, building up savings, and applying for a mortgage.
They built a microsite to deliver employees with a semi-personalised experience. Effectively, as an employee, after answering some questions, you’re given a “score” and directed to particular resources that are relevant for your situation.
Their curriculum was based around four life stages. It mainly delivers financial education (as opposed to advice — although you can imagine “robo-advice” being deployed in the future).
It’s proven to be very popular. The resources are all “bite size”, so the average user visit only lasts around 15 minutes. And the peak time of day for accessing the portal is between 5pm and 6pm, in other words as people are transitioning from core working hours. Of course, everything is mobile-first.
The tool and the curriculum has continued to evolve based on feedback.
It’s also part of a broader shift in communications that the company is building out over time, whereby employees are delivered a personalised employee experience. In other words, rather than employees hunting for information on an intranet, as is typical in most places, it’s about delivering content that’s relevant to you, on your phone, in the moments that matter for you.
It’s worth building this point out a little. If people analytics is about providing value to the business and employees, then at heart it’s about improving employee experience (EX).
That might be a bit of a controversial statement here and it certainly requires a longer discussion. But if you ask me “what is people analytics for?” then my answer is “transforming employee experience”.
If you ask me “what is people analytics for?” then my answer is “transforming employee experience”
When I talk about employee experience, I’m including total rewards as one of the core dimensions of EX alongside the work itself, the sense of purpose you get from your job, and the culture and climate of the organisation you work for.
When it comes to thinking this way, there are always three steps to take when “Utilising People Analytics To Provide Deeper Insights”:
The first is to begin by really understanding employee needs; this is also a great way to start involving people of course
The second is to use those insights to help prioritise and plan changes; your “organisational compass points” here are your people strategy, your values, and your EVP
The third is to spark behaviour change through people leadership capability and technology; again involvement is key through design-thinking, testing and iteration
Of course, this all needs to be aligned to some kind of ambition or “blueprint”.
When you start thinking this way, you can broaden your horizons further.
Organisations have traditionally considered people’s experience at work quite narrowly. The focus is on roles, levels, training, compensation, benefits, etc. But it’s just as important to think about what those things mean in human terms.
The goal is to translate ”employee experience” and “the deal” into how I think about “my health, my wealth, and my career”.
When providing value to employees (as well as the business) it’s really about helping me achieve success at work and in life (however I define that.)
So, I’ve covered an awful lot of ground in this talk. But this is where some of my clients that are using people analytics to transform EX are heading.
They’re using people analytics to transform EX through human-centred design that’s based on a deep understanding of needs and wants.
Using people analytics to transform EX through human-centred design that’s based on a deep understanding of needs and wants
This presentation — or at least a version of it, as I skipped around a bit — was given to the HR Analytics Summit in London on the 8th of September 2022.
The field of of people analytics has seen rapid growth over the last years. As someone who has explored the links between people and performance throughout my career, it’s been great to see this explosion of interest.
There are various definitions of people analytics, which is sometimes called HR analytics or workforce analytics. Janet Maher and John Boudreau call it “An evidence-based approach for making better decisions on the people side of the business; it consists of an array of tools and technologies, ranging from simple reporting of HR metrics all the way up to predictive modelling.”
Jonathan Ferrar and David Green in their book Excellence in People Analytics emphasise the importance of using people data to provide business value. They describe different ages in the evolution of the field with most companies now focusing on supporting leaders to navigate key challenges: “People analytics is an absolute must-have for any Chief Executive Officer or Chief Human Resources Officer.”
There is a potential hitch in all this progress, however. HR has long been a siloed function and it strikes me that this characteristic is being reflected in the work that is now published and shared in the people analytics community. Recent people analytics books, collections, conferences, and articles all seem to have a glaring gap; hardly any of them make any mention of rewards.
Recent people analytics books, collections, conferences, and articles all seem to have a glaring gap; hardly any of them make any mention of rewards.
There are a few notable exceptions. There has been some great work looking at gender and ethnicity pay gaps, for example. It’s also true that, because of the nature of rewards work, it can be harder to share the outputs in public. But in the main, reward analytics operates as a separate field from people analytics, just as rewards is usually a separate sub-function from talent. Even though rewards is full of data-savvy and analytically-minded people. This feels like a missed opportunity.
That’s because decisions about rewards are important business ones. Payroll is a significant percentage of revenue. Companies source and offer a complicated mix of pay, incentives and benefits. It’s an area where smart analytics can provide a lot of business value and generate a return on investment.
Reward design choices are also important human decisions. Rewards carry emotional as well as practical weight. A lot of organisational energy is spent discussing them. And incentives affect behaviour, often in oblique ways.
Getting total rewards right can mean the difference between competing effectively in the global talent marketplace and being left behind. A consumer-grade total rewards portfolio of pay, benefits, wellbeing and career programmes serves as a catalyst, driving attraction, retention and engagement of talent essential to business success. Yet, in many organisations, total rewards are not evolving quickly enough to keep pace with changes in the world of work.
All of this underlines that when it comes to employee experience (EX), rewards obviously matter. It’s why in our work we include total rewards as one of the four key dimensions of a High-Performance EX, as shown below:
Let me expand on this point about employee experience. I have written quite a bit about EX, and one of the things I believe strongly is that EX requires a shift in perspective. In essence, it means moving away from a traditional and top-down view of organisations towards a messy, conversational, and more personal view of life at work.
From an EX point of view, therefore, all the following things are super-interconnected: jobs, work, performance, skills, careers, learning, pay, benefits, inclusion, engagement, well-being, communications, culture…
It’s a blatantly obvious point, but worth stating — employees don’t experience life at work through a HR lens. Rather, HR needs to think about organisational effectiveness from an employee perspective. That’s the fundamental trick in making EX work.
The same logic applies to people analytics. Talent metrics only address part of the humans and work equation. If you exclude rewards, you’re not capturing the whole picture and you’re not thinking systemically.
Talent metrics only address part of the humans and work equation. If you exclude rewards, you’re not capturing the whole picture and you’re not thinking systemically.
So what does it look like to bring reward into people analytics? One example is the work we do around optimisation. Specifically, Total Rewards Optimisation (TRO) allows you to align reward investments with the employee experience. We talk about finding the “sweet spot” — the intersection that aligns what and how much you spend on total rewards with what your employees value most and least across what you offer — while uncovering how reward changes affect employee behaviour and performance on the job.
There are four key parts to TRO:
Understand which rewards employees value most and least using conjoint analysis, a survey methodology used in market research to understand customer preferences. You can also pull in selection data from your flex and benefit programmes to understand actual employee choices and trade offs. We also bring in employee engagement, retention, and performance data in order to analyse the linkages.
Assess the return on your total rewards investment, as well as the impact of the programme on your workforce, by combining employee preferences with financial data. We model various investment scenarios in order to help leaders decide how much to spend and where to get the best possible results for the right size of investment.
Modelling total reward options along an efficient frontier
Use data to understand what employees see as the most and least valuable components of their reward packages. We help leaders make investment decisions and deliver a talent value proposition that is likely to foster desired attitudes and behaviours at a cost the organisation can afford.
Heat map of perceived value by talent segments
Use segmentation to understand the different priorities and attitudes of a diverse and multigenerational workforce towards benefits, cash and work/life balance and build a competitive edge in attracting, retaining and engaging top talent.
Modelling the impact of total reward changes on the engagement of key talent segments
To my mind, TRO is a great piece of people analytics. It’s got interesting and important data, cool maths, fun modelling, nice data visualisation. More importantly, you’re linking together employee preferences and behaviours to business and financial data in order to understand trade-offs and ROI. And those scenarios are typically explored interactively with leaders as different hypotheses are tested and analysed.
My broader argument, however, is that this is an example of how it’s possible to include rewards in people analytics and that this is an important thing to do. It’s one thing to look at engagement, retention and performance drivers for your key talent, and to make decisions based on that data. It’s another to look at those things alongside what you spend on total rewards and how you shape, customise and communicate your value proposition. The latter is taking a step towards thinking holistically about employee experience.
This is especially important right now as leaders are acutely aware of the importance of retaining and attracting key talent in the midst of a period of high turnover. Rather than throwing money at a problem, finding the sweet spot matters more than ever.
There’s also a point here about the state of people analytics at the current time. It’s possible to see the recent rapid growth in people analytics as a transitory moment. A point when data became more available and HR began to explore how it can be used for improving decision making. At first, growth in analytics has mostly occurred with a traditional HR mindset, within HR silos, reflecting long-held budgets and distinct backgrounds and skillsets. But in the near future, the picture might look quite different. As datafication continues apace, the current people analytics community may merge with others to become the analytics engine of an EX function or even an EX analytics team within a business intelligence function. In some of my clients, this shift is already happening.
As datafication continues apace, the current people analytics community may merge with others to become the analytics engine of an EX function.
Jonathan Ferrar and David Green also refer to this kind of transition in their recent book, as they herald a new Age of Excellence in people analytics where “the human resources function itself becomes even more data literate.”
A key question for me is whether that means “business as usual” (such as continuing to think in HR terms) or taking a leap and embedding analytics and design thinking within a truly EX mindset.
