Rearchitecting Pay: Exclusive Q&A with Josh Bersin

July 9, 2018 Dan Miller

Josh Bersin

Companies around the globe are facing a crisis largely fueled by a sparse talent pool reflective of a 3.8 percent unemployment rate, the lowest in nearly 50 years. Attracting and retaining employees is top of mind for not just HR leaders, but for CEOs and CFOs with businesses to run.

Forward-thinking companies recognize that traditional total rewards – grounded in base pay and annual bonus – may not be enough. Has the time finally arrived to consider rearchitecting pay? How can companies modernize pay?

We spoke with Josh Bersin, founder of Bersin™ by Deloitte and one of the world’s leading HR and workplace analysts, about the opportunity for leaders to rethink their total rewards strategy.

Globoforce: What are some of the challenges of rearchitecting pay?

Josh: The rewards industry is behind. Most of the pay practices we’ve studied are very traditional, and our most recent research showed that only 42 percent of companies believe their reward strategy aligns with their business strategy. C’mon, that’s way too low.

Sales commissions, bonuses, stock options – these types of rewards have been around forever. We are now embarking on continuous performance management with feedback taking place almost all the time. Why do you have to wait until December to get a raise or bonus? And why do we all get the same benefits as each other? If I’m a young worker I may want more cash; as I get older I may want more vacation or more comprehensive healthcare benefits. Let’s get more creative here.

Globoforce: Why the lack of innovation regarding pay?

Josh: For the most part, I believe HR leaders are risk-averse. Many of them are beholden to the CFO because they are being asked to hold down costs. They often don’t understand that paying people more money can actually reduce overall costs. For example, higher pay for top performers results in higher overall corporate productivity.

We also have basic cost pressures. Today the cost of employee healthcare is around 32 percent of pay – it has been ticking up the last 20 years – so companies are worried about these fixed expenses. And companies now have dozens of benefits available. Even though many of these are rarely used, there is a fear of taking them away.

We need to move to a world where pay is highly tailored to each individual and we treat everyone like a potential high-performer. Right now, managers just don’t have the tools, education, or authority to do this, so we tend to pay everyone equally.

I actually think that now, in this hyper-competitive labor market, we are going to see more innovation take place. If you’re competing for talent in a world where there are more jobs than people – as was recently reported – you’re going to get creative with pay. For example, I recently came across a company that pays job applicants to come in to interview, even if they don’t get the job. We need more ideas like that to make pay a more strategic weapon in the war for talent.

Globoforce: Do you see a future where the traditional annual bonus goes away?

Josh: Yes, companies are recognizing that they need to have more agile compensation practices. Roughly 10 to 15 percent of companies are reviewing pay quarterly now. Given the pace of business, the rapid rate of market change, and the data available with tools like yours, there is really no excuse to wait until the end of a fiscal year to reward employees. 

By the way, one of the most valuable practices I think HR managers should adopt is what is called conjoint analysis. This is a technique that surveys employees and helps really understand the true economic value of each part of your company’s benefit programs. By doing this type of project – it’s a form of design thinking – you can quickly see that certain pay practices – bonuses, for example – may be even more important than you realized, and others – tuition reimbursement, for example – may be of lesser importance to some employees. Ideally each employee’s reward program should be customized to that individual.   

Globoforce: And who really likes annual performance reviews?

Josh: No one likes them! Managers resent the time required to complete annual evaluation forms, which are often very lengthy. If you’ve got a lot of employees to evaluate, you tend to rush through the process as quickly as you can. Employees also dislike the process because they recognize it’s forced. Typically, the feedback they get is not that helpful or timely. That’s why there is a massive revolution going on to put in place continuous feedback and performance discussion practices.

Stay tuned for part 2 of our Q&A with Josh, which delves into how crowdsourced feedback can provide a foundation for core people analytics.

About the Author

Dan Miller

Dan Miller is the director of content marketing for Workhuman.