Different reward for a new generation

If you read nothing else, read this …

Changing demographics and technological advances have increased the potential and demand for flexible working practices.

Against the backdrop of an uncertain economic environment and unaffordable house prices, pay is becoming more important to graduate recruits.

Coaching and development opportunities are highly valued by generation Y.

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Case study: John Lewis targets young tastes

The John Lewis Partnership ensures its reward package is up to date by including fun benefits, such as giving access to a box at the O2 arena in London, while communicating perks using the latest advances in technology.

In May, it rolled out total reward statements for the 75,000 staff in John Lewis and Waitrose stores. The paper-based statements include quick-response codes, which can be scanned using a smart phone to take employees directly to relevant benefits information online.

The statements include three quick-response codes that focus on different benefits. For example, one code takes staff to online information about the final salary pension scheme.

Jon White, manager of leisure benefits at the John Lewis Partnership, says: “We know not everybody has got a smartphone, but it is a really good way of engaging with employees who are tech savvy.”

In August, John Lewis took a box at London’s O2 arena, enabling 15 to 20 staff to attend concerts and events, with the recipients chosen by random ballot.

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Case study: Grant Thornton plays fair with graduates

Grant Thornton attracts and retains new talent by offering a combination of benefits to suit individual lifestyles, and training and development opportunities, including graduate recruitment programmes and internships.

The accountancy firm works to emphasise its flexible working practices and sabbaticals to younger employees. It also allows staff to buy up to 10 days’ additional holiday a year through its flexible benefits scheme.

Martin Todd, head of reward at Grant Thornton, says: “What you get with this generation of employees is the fact that they would rather work to live rather than live to work.”

Grant Thornton also offers financial modelling tools and financial assistance to graduates, who may be starting work in significant debt.

Todd says internships and work experience are an important way to identify talent and it is essential to treat young people on such programmes fairly. “We do not get our interns in and pay them a complete pittance for doing general or basic roles. We will pay them what we consider would be the appropriate rate for a level one position.

“That will vary depending on location. You are not going to attract anyone in London on what I would call an insulting way of paying someone.”

The company, which recruits about 200 graduates a year, negotiates contracts via text messages and provides mentors to support new recruits, whose salary is linked to performance. Once an employee is on a training contract, how they progress through salary levels is very much down to them and their performance.†

“Four or five years ago, it was a hugely competitive market,” says Todd. “From my personal point of view, the graduate starting salaries started to escalate and you got quite a lot of graduate salary drift because of the sheer competition.

“Because there are such a lot of graduates coming onto the market now, I do not think employers have to keep moving the graduate starting salary.”

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Employers will have to redraw their reward to suit a new generation of recruits, says Nicola Sullivan

A picture of what the UK workplace will look like in the future is beginning to emerge as employers grapple with technological advances, the impact of globalisation, continued growth of a knowledge economy, and an ageing population. The deal in 2020: a Delphi study of the future of the employment relationship, published by The Work Foundation in June 2010, predicts that the war for talent will become more intense and HR departments will be under greater pressure to develop or, in some cases, redesign their reward and benefits offerings to catch the attention of top performers.

Stephen Bevan, managing director of The Work Foundation, says: “Employers are getting challenged more and more by the people they are recruiting, particularly those who are perhaps in demand because of their skills and qualifications, to prove they are good employers and are able to offer a great place to work. Even in a climate of high unemployment, people at the top end of the labour market coming in as graduates or management trainees are still quite demanding. When you look at the things they say they want from a prospective employer, pay and the package is near the top, but other things like work-life balance are also important. This is interesting because they have not done any work yet.

“That suggests to me that they anticipate working in the City or in a professional services organisation or any type of organisation is going to be tough because the pressure is on to deliver more with less, to improve productivity and profitability.”

There is plenty of research into the characteristics that define young people’s relationship to work, particularly generation Y (those born between roughly 1981 and 2001). Oxygenz, a research project led by Global Workplace Innovation, asked 3,000 18 to 25-year-olds what they wanted from their future workplaces. It found this age group has desires and expectations of mobility and flexible working, and a focus on team working and collaboration, both formal and informal. Generation Y also puts a high value on opportunities for learning and is interested in the physical environment of work, while being very environmentally conscious.

Flexible working

Some of these findings may be news to employers, but many are already aware of how changing demographics and technology have increased demand for more flexible ways of working. The Confederation of British Industry and Harvey Nash’s employment trends survey Navigating choppy waters, published in June, found that of the 335 employers it canvassed, 96% offer at least one form of flexible working and 70% offer three or more types. This includes part-time working, flexi and term-time working, and job sharing. Almost 60% of employers also offered tele-working to staff this year, compared with 46% in 2008 and just 14% in 2006. Many employers are incorporating tele-working into employees’ contracts.

Helen Murlis, an independent consultant and co-author of Reward management: A handbook of remuneration strategy and practice, says: “A lot of the new working patterns depend absolutely on employers expecting high standards of work, but also trusting their employees to do it pretty much when and where they want to do it.”

As well as affecting working patterns, technological advances and social networking sites will also continue to change working relationships, the way in which information is shared and processed, and how employers and employees communicate. In turn, this will have a huge impact on an organisation’s reward strategy.

Peter Cheese, chairman of the Institute of Leadership and Management, says: “The generations leaving school really have grown up with technology as part of their lives. At one level, it puts this increasing emphasis on how organisations embrace technology and social media. Social networking is part of working life. This is how the younger generation think of it. They think it very peculiar if they come into an organisation and they are dealing with antiquated technology and they cannot access Facebook.”

Social networking

Mark Thompson, associate director at the Hay Group, says employers need to embrace the power of social networking sites, which can be of huge benefit to the workplace, and not simply see them as a distraction to staff. LinkedIn, for example, can be used by HR professionals and other employees to share information with others in their field. “Keeping up to date with your particular discipline or skill is much easier with modern technology than before,” says Thompson.

Technology also has the power to revolutionise how reward and benefits are communicated to staff, which is influencing the products and services developed by consultants and providers. For example, Hay Group develops products using an approach styled on Wikipedia, whereby an outline proposal is put online before individuals go in and log their comments. Email updates are then sent out to relevant parties to inform them of amendments.

“As time goes by, you collaboratively develop an agreed approach to something,” says Thompson. “This could be used to develop a new reward system or job family definitions. A lot of organisations are replacing, or at least supporting, their grading structures to clarify what the difference is between one grade and another by developing job family profiles.

“Employees can make remarks and it is then very much a community kind of exercise. This could be much more effective than the old way, getting people together in a focus group. You can liaise with many more people through this approach using new technology. It is tapping into the wisdom of crowds.”

Sophisticated technology

Increasingly sophisticated technology is also being used to communicate reward packages. Murlis says: “If employers want to signal something new, they have to signal it in media that employees use regularly, using words and phrases they understand.”

In May, the John Lewis Partnership rolled out total reward statements incorporating quick response codes, which can be scanned using a smart phone to take staff directly to relevant information online (see box left).

The general consensus is that the younger generation of employees are also interested in career development and coaching opportunities. Thompson says: “They are more likely to be turned on by talent management systems that enable then to learn and to develop their employability.”

Cheese adds: “I think a lot of generation Y look for real coaching support from managers. One characteristic of generation Y is that they look for more immediate and regular feedback, not just in terms of a pat on the back, but how they are performing, what they need to learn next, what the opportunities are for career development and how they are progressing.”

However, economic instability, unaffordable housing, rising prices and loan repayments have made cash increasingly important to graduates. According to Graduate pay 2011, research released by Hay Group in August, an overwhelming majority (93%) of this year’s graduates describe base pay as an important or very important factor in their career choice.

Top criteria

The study also showed that graduates’ top three criteria after salary were all financial: benefits were cited by 51%, followed by future earnings outlook (45%) and bonus potential (37%). Passion for the job was an important factor for just 16%, as were the values and beliefs of the organisation. The ability to make a difference was the least important consideration of all, registering in just 4% of graduates’ top three criteria. However, on average, graduates underestimated the starting wage they could expect across six sectors, including engineering, legal and IT, by almost £7,500.

Christopher Smith, reward information consultant at Hay Group, says: “Confronted by an uncertain outlook, graduates have lowered their remuneration expectations from the UK’s largest graduate employers.”

Engagement surveys are one of the most effective ways for organisations to discover how employees rate their benefits package, working environment and employer brand. But when analysing the data, employers may be better off grouping staff by behaviours rather than age.

Age-driven factors

Jake Outram, employee research consultant at Aon Hewitt, says: “Employers do not really want to confuse these new generational groups with differences that are not really to do with age and age-driven factors. If you take the millennials [another word for Generation Y], for example, they are supposedly impatient, resentful of command-and-control type management and value off-the-job pursuits.

“Each of the generations, when you look at them in their 20s, are probably almost identical. Generation X workers were originally described as being slackers and whiners, but they were also the ones that fuelled the dot-com boom, working all the hours they could.”

When conducting engagement surveys for employers, Aon Hewitt identifies which staff fall into to six profiles determined by drivers of engagement. The profiles range from passionate advocates, who are highly engaged, know what is expected of them and are committed to the organisation’s goals, to detractors, who are woefully disengaged and have little faith in their organisation and little respect for their leadership.

Outram says: “When employers are really identifying groups of like-minded people, who they are and where they sit, they can really target interventions that mean the most to them. It can come down to reward, but it can also come down to wider people practices as well.”

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Hiring young staff as interns

With 20% unemployment among younger workers, internships can be a way for them to gain work experience and for employers to get work done cheaply.

However, organisations could be vulnerable to litigation if the interns they hire are deemed to have worker status, which means they must be paid the national minimum wage. If there is no clear distinction between the duties of interns compared with other employees, then they could qualify as workers. But if there is no obligation on the intern to attend and carry out work, then this is unlikely to be the case.

Keri Hudson, 21, who had worked for six weeks as an intern for online review site The Village, successfully took TPG Web Publishing to tribunal and in May 2011 was awarded £1,025 for five weeks’ work at the national minimum wage, plus pro-rata holiday pay.

A survey conducted by YouGov in February this year on behalf of campaign group Internocracy found that 84% of people who knew about internships did not realise that unpaid or expenses-only internships might be breaking the law.

Employers also need to bear in mind the Agency Workers Regulations 2010 which come into force on 1 October 2011 and will be fully effective from 25 December. After 12 weeks’ service, agency workers will be entitled to equality in basic terms and conditions, including pay and some bonuses.

Read Planning ahead for an ageing workforce