Article: What rewards would look like in the workplace of the future?

#RedefiningRewards

What rewards would look like in the workplace of the future?

Architecting appropriate engagement models with the relevant reward structures will be key to attracting the right workforce and skills
What rewards would look like in the workplace of the future?
 

Companies are likely to look at how to access necessary skill sets and capabilities without committing to a fixed base of high cost

 

Workforce in the green world is likely to be driven by the difference they make in their sphere of play, and will look for opportunities to collaborate

 

Global megatrends have been driving changes in our workplaces and our workforce. The very concept of a workplace is one that is difficult to define, as the concept of ‘work’ has spread to include aspects such as networking, ideating, re-building a damaged business relationship, proxy-thinking for a client’s action or simply staying abreast of trends. At the same time, the workforce has also been impacted by different factors. Technology advancements have enabled distributed workforces, remote working and made jobs redundant. The double digit wage inflation that our economy has seen year-on-year will lead to more thoughtful approaches to headcount increase. Companies are likely to look at how to access necessary skill sets and capabilities without committing to a fixed base of high cost – not just in terms of wage cost but also the necessary infrastructure and associated complexity to manage. Approaches are likely to include working with talent in suppliers and distributors, building an ecosystem of specialists and hyper-specialists to tap, and looking at ways to bring in alternate career paths that encourage far more flexibility than available today. The concept of career progression as an upward linear slope is one that is going to be challenged. Other megatrends such as resource scarcity and urbanization are also having an impact. 

So what does all this mean for the future of work?

The workforce and workplace are likely to polarize into three distinct worlds of work – one where the workforce values long term and structured careers with well-known brands and are willing to trade some freedom for that; second where workforce values flexibility, variety and learning and wants to operate at the fringes of an organizational ecosystem; and the third where workforce is driven primarily by environment and sustainability issues. We call these the blue, orange and green worlds of work.

In some sense, these three worlds already exist. We see large technology organizations begin to look at ways to engage with flexible and specialist workforce, while retaining a ‘core’ of leadership skills to steer the company within. Consumer goods companies and automotive players are engaging with external product development and industrial design capabilities rather than try to build them in-house. Talent marketplaces which allow organizations to access on-demand talent and let the individual pick an assignment, have found business backing, and we see a young workforce around us driven by issues of purpose and sustainability, wanting to associate with organizations working in these areas, as well as those who seek continuous learning, freedom and challenge and opt for flexible arrangements – with the risk of no income security. At the same time, large employers are able to find talent that value association with a strong corporate brand and the resultant assurance of income, predictability and progression (at least to some measure) that it confers. These worlds co-exist around us.

Implications on Reward systems

Reward systems need to evolve to cater to these three worlds of work and their workforce. 

Blue world: In this world, stability and internal equity are likely to be defining features. In addition, some degree of entrepreneurship and performance accountability will be driven through variable pay and perhaps prevalence of long term incentive. The degree to which this is emphasized can vary, and we sometimes see organizations that drive ‘intrapreneurship’ through cultures that incentivize moderate degree of risk-taking with associated reward trade-offs. However, this requires many other systems including recruitment and leadership development, to be aligned to build this culture and is likely to prevail predominantly at senior levels.  At most other levels, fixed pay will be in a defined band with clearly stated targets for variable rewards based on predefined performance outcomes. Reward structures in the blue world are also likely to be benefits heavy, given that they comprise an integral and visible part of the overall proposition. Volatility of earning will have to be managed in a minimal band, and internal differentiation will also have to be within defined parameters.

Orange world: Reward structures in the orange world will see much greater degrees of differentiation and flexibility. Typically, the engagement between organization and workforce here will be contractual in nature and bargaining power of workforce will be determined by the area of specialization and organizational need. High degree of ‘role’ or ‘skill’ premium will prevail, and it is likely to develop a strong marketplace for these skills with transparency in compensation levels. Organizations will be able to manage affordability issues here through restricting compensation to only periods of time when the particular skills are required. Where skill sets are crucial for an organization, retainer arrangements could evolve with some minimal degree of assured compensation. Performance pay is likely for lower end skill sets where incentives linked to productivity or output could be designed; for higher end skills, the reputational risk of unmet performance goals is likely to be a stronger driver. Benefits and long term incentives have no place in the orange world, though models of shared risk or outcome-based models (including equity sharing) could evolve. A recent example we came across is where a young organization engaged with their Head of Technology in a contractual arrangement with equity grants in a model reminding us of the orange world. Large companies could see such models emerge too, including where they are trying to incubate new businesses.

Green world: This world is where monetary rewards will have the least role to play in the overall workforce value proposition. ‘Purpose’ will be the plank on which workforce associates with organizations in this world, and rewards will need to be at levels that allow for living needs to be met. Performance pay is unlikely to play a role here though surplus sharing plans could exist. Differentiation of performance or reward will not be a strong feature of this world. Workforce in the green world is likely to be driven by the difference they make in their sphere of play, and will look for opportunities to collaborate rather than compete on performance and reward. Benefits may exist only to the extent they help compensate for low pay, and to help attract talent at different life stages.

Framework

In summary, the blue, orange and green worlds provide a helpful construct to look at approaches to managing workforce and rewards. However, it is important to realize that organizations could be part of all three worlds concurrently, and also that workforce could pass through different worlds at different stages in their working careers. Architecting appropriate engagement models with the relevant reward structures will be key to attracting the right workforce and skills that can make a competitive difference. Organizations will have no choice but to do this, given economic structures and continuing pressure on getting the right skills. Whatever philosophy your organization currently follows, it’s going to look very different, a decade from now. 

 

Topics: #RedefiningRewards, Benefits & Rewards, Compensation & Benefits

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