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BSB Assessment 2016 – remuneration and reward strategy

Remuneration and reward was an issue we explored with the boards, non-executive directors and executives of the firms we assessed. We wanted to gain a fuller understanding of what their remuneration strategy was intended to achieve, how this linked to their firm’s purpose and values, and how they assessed the impact of changes in remuneration and reward structures on the behaviour of staff and on customer or client outcomes. Employees in focus groups also brought up remuneration, reward and performance management processes, both as issues of themselves and when discussing different characteristics within the BSB framework – in particular, shared purpose, accountability and openness.

Some common themes emerged:

  • Boards and executives say that behaviour now has a stronger influence on remuneration. The boards and executives of many firms told us that their remuneration processes now more closely took into account behaviour in line with the firm’s values. Changes made had included the removal of sales targets from frontline employees, the use of balanced scorecards, and/ or taking into account behavioural objectives as well as business targets. In a number of firms, such changes had been accompanied by a simplification of processes and schemes, such as reducing the number of different pay and reward schemes. Employees in many firms recognised that behavioural objectives had become a more prominent and important part of the performance review and remuneration process.
  • Employees would like more guidance on how behavioural objectives are measured and evaluated. In many firms, employees welcomed the inclusion of behavioural objectives related to the firm’s values and purpose in remuneration and performance management processes. They thought that this resulted in better behaviour overall, and encouraged better customer service. At the same time, however, many also said that they found it more difficult to assess and measure success in the absence of concrete targets. Executives in some firms recognised this issue and said that they had made efforts to clarify the behaviour that was expected. These included guidance on behavioural expectations for people starting new and particularly key roles (e.g. branch managers), training to help line managers develop capability in assessing behaviour, and leaders describing and celebrating examples of behaviour that demonstrated a firm’s values.
  • Remuneration policies are seen as very complex. Across many of the firms we assessed, employees, executives and non-executive directors (including several Remuneration Committee Chairmen) described the remuneration policies of their firms as too complex. Employees in many firms told us that they also found their firms’ remuneration and reward policies confusing, in particular with respect to how the different elements of performance assessment, fixed and variable pay linked together. Some employees described processes in which performance assessment appeared to be taken without  input from colleagues. Some said that while they expected performance assessments to feed into remuneration decisions, in their case reward decisions had been taken prior to performance assessments.  Some said that, while they knew that customer feedback fed into remuneration decisions, they were unsure as to how this happened and the influence it had. Employees in these situations said that they thought this made reward processes seem less fair as decisions could appear arbitrary.
  • The focus of Remuneration Committees appears to be primarily on executives and the highest paid employees; a view expressed by several non-executive directors.
  • Many firms  do not measure the impact of changes to remuneration and reward structures on customer outcomes and staff behaviour. Many Board members and executives described how changes made to remuneration and reward structures should lead to improved behaviour and better customer outcomes, but were generally less clear about how the firm was measuring this.