Taking the lead in the annual compensation decision-making process
As we head into the year-end, HR and Reward Professionals turn their attention to the annual compensation decision-making process. This presents a great opportunity for these individuals to take the lead in a process that requires consideration of business results, the relative contributions of individuals and teams to these results, retention and recognition requirements of the workforce and the economic impact of reward payments to the bottom line and on-going business success. Not surprisingly, the role played by HR and Reward during year-end varies significantly from firm to firm. At the most fundamental level, Reward Teams provide lists of names, current/historical compensation levels for those named and, possibly, individual performance review results. Typically, these materials are handed off to HR Business Partners or Finance for completion of the review and decision process. After decisions are taken, the Reward Team ensures correct payments are made, including cash, stock, and deferred reward vehicles. A big and important role to be sure, but a fundamentally administrative and low value-added type of role. Contrast this role to one where – in addition to the administrative activities described above – the Reward Leader begins the annual process with a high-level review of business results, brings together Finance, Risk Management and Business Area Leaders to review how these results impact potential reward levels, and facilitates and supports the decision-making process with data and analytics. From the RemCo down through to individual remuneration levels, Reward Professionals frame the discussion and provide the data and analytics to support good decision-making, and provide feedback to senior leadership on how effectively the process is using available resources. Sure, we need good admin of lists and payments, but the Reward function is in the best position to frame the decision-making and support it with facts to guide the choices made at the C-suite and individual level. While many Reward Leaders aspire to this more strategic role, few consistently operate at that level.At MCR, we see the role of Reward as operating in a hierarchy. Excellent admin supports operational excellence, which in turn drives robust analytics and provides insight for reward decision-making.
We believe that while decision-making insight is the greatest value area for Reward Professionals, solid admin and operational excellence must be in place to manage the day-to-day housekeeping. Often, we find those Reward Managers striving to provide insight to business leaders are undermined by bad data, inaccurate reports or policy blunders that destroy the Reward Team’s credibility. In other cases, Reward Professionals may not have the experience or background to take their team to the next level. This is especially true where start-ups or other fast growth companies focus on getting the basics right and may lack the bandwidth to raise their game. In Financial Services, compensation is typically the largest single expense area and can run to over 50% of revenues in some cases. Reward Professionals must be at the centre of the management of these resources. Finance may be responsible for the overall bottom line, but Reward Teams must assure that funds allocated to individual rewards are spent as wisely as possible. This is why the potential value add of Reward Professionals is so high in Financial Services. At MCR , our team operates with an ‘inverted pyramid’ consulting model, and the resources we make available to clients are top-heavy with experienced professionals. If your team is ‘stuck’ in administrative or operational tasks, we can help you identify those areas where you can quickly raise your game and add value at the Big Table. Reach out to our Financial Services Reward Practice Lead randal.tajer@mcr.consulting to talk through your year-end timetable and identify opportunities to add more value. Leverage our knowledge and experience to increase your impact on your business.
Copyright © 2022 Randal Tajer
