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Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits, Lloyds TSB

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Page 1: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Effective Reward Strategies

Reward Strategy in practice – the Lloyds TSB experience

London Councils – September 2007

Tim Fevyer, Compensation & Benefits, Lloyds TSB

Page 2: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,
Page 3: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Historic approach to reward strategyHistoric approach to reward strategy

Page 4: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Historic way of working…

• Start with a grand plan– Adopted a ‘classical’ approach to strategy development

– Top down, heavily planned and very rational

– Ordered and rigid

• Start with a grand plan– Adopted a ‘classical’ approach to strategy development

– Top down, heavily planned and very rational

– Ordered and rigid

• The centre has all the answers– What the offer should comprise

– Who should get what

– What individuals’ pay adjustments should be

• The centre has all the answers– What the offer should comprise

– Who should get what

– What individuals’ pay adjustments should be

• Focus on pay– Pay to get people in

– Pay to keep people

– Pay to increase performance

• Focus on pay– Pay to get people in

– Pay to keep people

– Pay to increase performance

Page 5: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Historic way of working…

• Outcomes

– Sheep-dip approach to package design

– Reward is done to you (missing ownership)

– Broad-brush decision making (un-equal pay)

– Value of reward spend is wasted

– Over reliance on a pay ‘panacea’

• Outcomes

– Sheep-dip approach to package design

– Reward is done to you (missing ownership)

– Broad-brush decision making (un-equal pay)

– Value of reward spend is wasted

– Over reliance on a pay ‘panacea’

Page 6: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Base pay context: pre-1980s

• Low competition

• Few products

• Privilege to be a customer!

• Homogeneous workforce

• Jobs for life

• Strong hierarchy

Page 7: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Base pay choices: pre-1980s

Time based progression line

– People get a service based increase

– Increase mainly determined by cost of living

Everyone progresses to top of scale over time

Ignores performance, ignores worth & value

Generates significant, unjustifiable, pay disparity

Everyone progresses to top of scale over time

Ignores performance, ignores worth & value

Generates significant, unjustifiable, pay disparity

Page 8: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Base pay context: the 80s and 90s

• Deregulation

• Greater competition

• More products – sales emerge

• Greater customer choice and expectation

• Increasing diversity of the workforce

• Jobs less secure

Page 9: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Base pay choices: the 80s and 90s (stage 1)

The ‘fixed matrix’

– People rated according to their performance

– Rating then determines their pay adjustment

People rewarded every year for something they did in one year

Risks ignoring true worth or value

Unjustifiable pay disparity remains

People rewarded every year for something they did in one year

Risks ignoring true worth or value

Unjustifiable pay disparity remains

3.0%Performance Rating 3

4.5%Performance Rating 2

3.0%Performance Rating 3

4.5%Performance Rating 2

Page 10: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Base pay choices: the 80s and 90s (stage 2)

The ‘variable matrix’

– People rated according to their performance

– Rating determines the adjustment range

Enables market position to be factored in

Still risks unjustifiable pay disparity

Still reward people every year for something they did in one year

Enables market position to be factored in

Still risks unjustifiable pay disparity

Still reward people every year for something they did in one year

3.00%

4.50%

98% to 102%

92% to 97%

Position in scale:

3.75%Performance Rating 3

5.25%Performance Rating 2

3.00%

4.50%

98% to 102%

92% to 97%

Position in scale:

3.75%Performance Rating 3

5.25%Performance Rating 2

Page 11: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Today’s approachToday’s approach

Page 12: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

In reality…

• Outcomes much more fluid, emergent, responsive

• Create overall framework, within which responses are flexible

• Consider: internal politics, cultural norms, what actually works

• Start with a few simple questions for the business:

What are we in business for?

What are our core objectives?

What are our people goals?

How does our reward strategy support the above?

What changes could be made to make it even better?

Page 13: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Where do we find the answers?…

• Design

– Spend much more time talking to people

– Plan for initiatives adapt to their implementation

– Incorporate inherent flexibility

– Aim for locally owned change

• Decision making

– Pay decisions made where the information is– No centrally dictated pay adjustments or matrices– Local decisions Central framework– Shifting emphasis of Line, HR and the centre

Page 14: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Determining what really matters…Determining what really matters…

Page 15: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Is money the answer…?

• Traditionally pay was the answer to everything

• Found its impact limited…unless you get it wrong!

• How long do pay increases last?

• Are people ever happy with pay?

• Focus on what really drives engagement

Page 16: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

What drives performance?

Source: Corporate Leadership Council Study, 2002

Page 17: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Implications…

MarketPositioning

IndividualContribution

RewardingPerformance

FlexibilityTotal Reward

Customer FocusMarketing

• Get the basics right but then focus on what really does make a difference

Page 18: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Determining the basics…Determining the basics…

Page 19: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Where should we pitch base pay?

0% 20% 40% 60% 80% 100%

Below market

About market

Above market

Percentage of employees

Planning to leave Not planning to leave

Source: Watson Wyatt Total Reward survey 2004

Proportion of employees actively considering leaving their current job in the next 12 months categorised by perceived market positioning

Page 20: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

What high performing organisations do…

• Base pay typically managed around 50th percentile

• Then highly differentiated according to contribution

• Business success shared with those who make a difference

• Consider and use total reward…not just pay

• Clearly communicated and marketed coherent total offer

• Clear vertical line of sight to business goals

Source: Bespoke Hewitt research 2004

Towers Perrin HPO research 2003

• Base pay typically managed around 50th percentile

• Then highly differentiated according to contribution

• Business success shared with those who make a difference

• Consider and use total reward…not just pay

• Clearly communicated and marketed coherent total offer

• Clear vertical line of sight to business goals

Source: Bespoke Hewitt research 2004

Towers Perrin HPO research 2003

Page 21: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Managing individual contribution

– Three simple questions•Paid less than contribution?...increase pay•Paid equal to contribution?...move pay with market•Paid more that contribution?...don’t adjust pay

Local decision making within a frameworkof the relevant market and pay pot

Local decision making within a frameworkof the relevant market and pay pot

£

100% marketmedian

90%

120%

Page 22: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Getting pay right - markets

National market for allNational market for all

National market for mostFunctional market for some

National market for mostFunctional market for some

Functional markets for manyNational market for someGeographical markets for some

Functional markets for manyNational market for someGeographical markets for some

Page 23: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

The cultural shift…

I’m paid to perform and if I get an increase it will be because the market

has moved, or I bring extra value beyond normal expectations.

I’m paid to perform and if I get an increase it will be because the market

has moved, or I bring extra value beyond normal expectations.

I’ve performed well this year so I should get a salary increase

I’ve performed well this year so I should get a salary increase

Page 24: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Variable Pay – rewarding performance

• Base pay reflects individual contribution

• Variable pay reflects annual performance

• Business performance determines the pot

• Individual performance determines the allocation

• Overall opportunities linked to relevant market

Page 25: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

What really makes a difference?What really makes a difference?

Page 26: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

What really makes a difference?

MarketPositioning

IndividualContribution

RewardingPerformance

FlexibilityTotal Reward

Customer FocusMarketing

Page 27: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Flexibility: managing to needs

• The best companies need talent with a diverse range of backgrounds, skills, mindsets…

• Meeting diverse needs through flexible reward can:– increase value to individual and company– encourage people to join – encourage people to stay – help people feel better about the company

• Overwhelming call for flexibility

• Held together within a consistent framework

Page 28: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Stage 1 Stage 2 Stage 3 Stage 4

Focus onBase Pay

Offer definedby Salary

Focus on main ‘tangible’ elements

Offer defined by Total Comp’

Focus onBase and Bonus

Offer defined by Total Cash

Focus on all main package

elements

Offer defined by what it’s like to

be here

Total Reward: managing the whole

Base salary

Variable pay

Recognition

Stock

Health care

Retirement

Savings

Time off

Career development

Learning experiences

Performance management

Succession planning

Training

Pay Benefits

Learning and Development Work Environment

Leadership

Culture

Involvement

Diversity

Work/life balance

Total Reward

Base salary

Variable pay

Recognition

Stock

Health care

Retirement

Savings

Time off

Career development

Learning experiences

Performance management

Succession planning

Training

Pay Benefits

Learning and Development Work Environment

Pay Benefits

Learning and Development Work Environment

Leadership

Culture

Involvement

Diversity

Work/life balance

Total RewardTowers Perrin Total Reward Model

Page 29: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Customer Focus: employee treatment

Take Up by Grade

0%

20%

40%

60%

80%

1 2 3 4 5 6 7 8

Grade

Per

cent

age

Take

Up

Take Up by Age

0%

20%

40%

60%

80%

16 - 24 25 - 29 30 - 39 40 - 49 50+

Age

Per

cent

age

Take

Up

Take Up by Length of Service

0%

20%

40%

60%

80%

<1 year 1 - 2 years 3 - 5 years 6 - 10 years 11+ years

Length of Service

Per

cent

age

Take

Up

• 70,000 employees: not one homogeneous group

• Identifiable groupings with low participation levels

• Framework for further research

• Springboard to segmentation

5 key segments with clear differences in:- what they value;- where they spend money;- what they like doing.

Page 30: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Customer Focus: segmenting employees

May be settingup a home

More computer literateLive for now

Not financially astute, little debt, few financial products

Interested in things that will improve quality of their life:- spending money;

- looking good; - enjoying themselves.

Entry Bands

Age under 29(young free and single!)

Implications:Bullet-point type toneMost information posted onlineShort, simple, to the pointDon’t cover detail or how things workShow how it benefits them

Implications:Bullet-point type toneMost information posted onlineShort, simple, to the pointDon’t cover detail or how things workShow how it benefits them

Page 31: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

Marketing: managing the messages

• Do people value it? How do you know?

• Do people know about it?

• How is it communicated and positioned?

Page 32: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

The lessons for us…The lessons for us…

Page 33: Effective Reward Strategies Reward Strategy in practice – the Lloyds TSB experience London Councils – September 2007 Tim Fevyer, Compensation & Benefits,

• Base it on business needs

• Focus on what really makes a difference

• Find out what really makes a difference

• Talk to people about design

• Involve people in bringing it to life

• Create the framework but build inherent flexibility

• Push decision making closer to the answers

• Market and brand it - don’t just communicate

• Keep reviewing and refreshing it