MCR

The 2026 Employee Benefits Landscape

Mon, 02 Feb 2026 11:02:14 GMT

What to look out for and how to stay ahead

As we kick off 2026, many organisations are already planning how to implement the changes that were introduced in 2025. The combination of rising employment costs, changes to legislation and continued market pressure means there is a lot for employers to navigate.

Below we look at the key changes and how they will shape the Employee Benefits and wider HR landscape in 2026. We break down each of the changes, highlight what to watch out for and set out practical steps organisations can take to stay ahead.

April 2026

Frozen Tax Thresholds
Frozen tax thresholds mean that for many employees, pay increases won’t feel like real increases this year. For those already under financial pressure, this can make things feel even tougher.

As a result, it becomes even more important to look at other ways to help employees make their money go further. The right benefits can play a key role – from Health Cash Plans that reimburse everyday healthcare costs, to discounts and practical financial and mortgage advice.

Well-designed benefits can deliver significant value for a relatively small investment – spending an extra £100 per employee per year can feel the equivalent to over £1,000 in pay, while also reinforcing that the company genuinely cares about employee wellbeing – increasing engagement and productivity.

In many cases, companies already have some great benefits in place. If so, the focus should be on communicating them clearly and regularly so employees understand what benefits are available and how to access them.

Actions:

Review benefits like Health Cash Plans that can give employees money back on healthcare costs
Consider financial wellbeing support, including mortgage advice, budgeting education and debt management
Communicate regularly so employees understand how the benefits package helps them save money and manage costs

National Living Wage Increase To £12.71 per hour

The increase in the NLW from 1st April 2026 will, for many organisations, have an impact beyond basic pay, especially for lower paid employees who may lose eligibility or headroom for salary sacrifice benefits as they cannot be deducted below the statutory minimum.

This change also increases the risk of pay compression, where differences in salary bands narrow over time. This can have a knock-on impact on role and salary linked benefits, such as pensions and insured benefits, which may need reviewing to ensure they remain fair and aligned with pay structures.

As a result, benefits design should be reviewed to ensure that it works across the full salary range, and not just for those on higher salaries who can take advantage of salary sacrifice.

Actions

Check payroll systems correctly apply the new NLW rates and prevent incorrect salary sacrifice deductions
Monitor the knock-on impact of pay compression on salary linked benefits
Review benefits design to ensure there are options available across all pay levels, not just those that are eligible for salary sacrifice

Statutory Sick Pay from Day 1
It is expected that from April 2026, SSP becomes payable from day 1 of absence and will include lower-paid employees that were not previously covered. This increase in absence related costs puts even more importance on absence management, early intervention and wellbeing support to prevent short term absence.

Equipping line managers with the skills and confidence to recognise early signs of stress, disengagement and poor mental health can reduce both absence and costs.

Some organisations have seen a reduction in unplanned short-term absence by offering the option to purchase additional holiday. This gives employees greater flexibility to manage pressure and personal commitments – supporting wellbeing and helping to reduce the risk of longer-term sickness.

Actions:

Review and update sickness absence and income protection policies
Provide line manager training to support early recognition
Review wellbeing, mental health and financial wellbeing support
Consider offering holiday purchase as part of the benefits package

Paternity Leave & Unpaid Parental Leave from Day 1
From 2026 paternity leave and unpaid parental leave become day-one rights, removing service requirements. While this is an improvement, Statutory Paternity Leave is still significantly less than most of Europe and increased partner support is shown to improve bonding and dramatically reduce the risk of post-natal depression - meaning increasing the leave further can support a more sustainable return to work for both parents.

Many companies have focused on enhancing maternity pay as part of their gender equality commitments. Reviewing paternity leave alongside this helps to reinforce that caring responsibilities are shared and supports a more balanced starting point for parents. It’s also important that policies are inclusive of same sex parents and different family structures, so support is offered fairly and consistently.

Actions:

Update policy wording, eligibility criteria and payroll processes
Review paternity leave pay and duration alongside maternity and shared parental leave
Consider whether additional policies or benefits could support employees with caring responsibilities, fertility treatment or menopause

Further Ahead

April 2027 - Mandatory Payrolling of Benefits in Kind (PBiK)
From April 2027, most taxable benefits will need to be processed via payroll rather than submitting P11Ds for that period. While this is still a year away, 2026 is critical to ensure benefit data is accurate, systems are updated and payroll processes and feeds are working correctly.

The process of setting this up can be time consuming and often uncovers issues, such as incorrect cover, taxation and processing issues. Starting early allows time to resolve issues without the pressure of the mandatory deadline.

Clear communications to employees are also key. Without this, some employees may feel like they are being taxed twice during the transition year and opt out of benefits without fully understanding the impact.

Actions:

Set up a cross-function project team including HR, Payroll and Tax/Finance
Document all taxable benefits and work with the payroll provider to configure payroll settings, taking appropriate tax advice
Audit current treatment of taxable benefits and review the joiners and leavers to ensure accuracy
Communicate early and clearly with employees to advise them of the change and timeline

April 2029 – £2,000 cap on Salary Sacrifice Pension
Announced in the 2025 budget, this change is still few years away. At this stage there is industry engagement and pressure on the government to reconsider this, given the long-term impact it will have on retirement savings when there is already a large proportion of people that are not saving sufficiently for their retirement.

While the change is not imminent, it is an important reminder to encourage employees to make the most of their tax-free limits, especially if there is a risk they may lose part of it.

This is particularly relevant for women and younger workers who, because of career breaks, lower salaries and the cost-of-living crisis, may not have been able to utilise their tax-free allowance in recent years. The proposed reduction could have a huge impact on their ability to close the gap in their savings.

Actions:

Educate and encourage employees, especially women and younger workers, to engage with their pensions
Make use of free communications, modelling tools and educational resources from pension providers

Other Benefits Trends for 2026

Ongoing premium increases
Premium increases are expected to continue in 2026, especially across Private Medical Insurance. While it is not unusual for initial quotes to show a 20-30%+ increase in costs, there are opportunities to contain and mitigate cost increases if planning is started early enough.

Approaching renewals proactively (4 months out) allows time to explore alternative structures, design changes and funding options, rather than last minute decisions with limited flexibility.

Action:

Start renewal planning early and avoid waiting for renewal quotes from providers. Engage a broker in advance to explore options and manage costs proactively

Review Benefits Holistically
Many organisations are using the upcoming changes as an opportunity to review the benefits package holistically – planning early not only to manage compliance and costs, but to ensure that the benefits remain relevant and engaging to employees – reviewing how everything fits together, from insured benefits, to leave, to wellbeing support.

Discovering where there are gaps, whether the package aligns with company values, and how the benefits are purchased and communicated can help to make a huge difference to the impact of the benefits on employees.

These reviews often uncover duplications or overspend, creating opportunities to make savings that can be reinvested to refresh the package.

Action:

Carry out an audit of existing benefits, including costs, cover eligibility and alignment with values and needs

Communications
From our extensive work with organisations, a common challenge is not the quality of the benefits package, but how it is communicated. Benefits may only be discussed as part of onboarding or annual windows, which can limit understanding and engagement.

Regular and clear communications can have a significant impact on how employees perceive both the benefits and the organisation. Actions

Ensure employees have clear visibility on what is available and how to access
Create a series of guides – from a simple one-page summary to more detailed guides explaining each benefit

Final thought

With everything that is coming up over the next year, organisations that plan early, review benefits holistically and communicate clearly will be better placed to control costs, comply with legislative changes and offer a package that genuinely engages and supports their workforce.

If you would like to discuss any part of your benefits strategy, please reach out to emma.cowling@mcr.consulting .

Long-Term Incentive Plans In Financial Services

Wed, 08 Oct 2025 09:21:09 GMT

Exploring the ways LTIPs can enhance your business

Except for the most senior roles, Financial Services (FS) firms have been late to the Long-Term Incentive Plan (LTIP) party. The direct relationship between revenues and profitability at the product level, combined with the regulatory requirement to defer a significant portion of annual bonuses, means many FS firms believe their organisation's long term-interests are ‘covered’ in terms of reward design.

Now, however, the next wave of innovation is forcing FS leadership to consider the impact of crypto, stablecoins, and other similar token-based products on new and existing financial markets. At the same time, advances in Artificial Intelligence (AI) provide new tools to develop, manage and trade these new asset classes. As a result, the use of LTIPs to focus and drive the transformation demanded by these innovations has never been more appropriate. As senior managers below the C-Suite have primary responsibility for navigating this new FS environment, tying this group’s payouts to multi-year results is the best way to assure the required changes are implemented and pay off.

Advantages to LTIPs during transformational shifts

A simple revenue-driven model of reward is great at incentivising growth and efficiency in established areas, but new investments that won’t pay back during the annual cycle can become low priority. I have sat in negotiations where product heads lobby for ‘relief’ from revenue targets if new investments are required. While this is one approach to encouraging new investments, it remains tied to the annual cycle and is therefore short-sighted – and managers not tied to performance measures on the investment can take the ‘relief’ and not deliver the goods.

A better approach to business development is to establish three-to-five-year goals for an area and base ultimate payouts on the ‘cumulative’ results during that period. The use of a “Payout Matrix” allows balancing two types of investment objectives: Quality and Quantity. Quality measures such as RoI, RoE, Risk Adjusted Return, etc help steer decisions toward valuable business opportunities. Absolute, or quantity-based measures such as revenue, net income, etc would be set for the entire period allowing early low performance to be offset in later years. Importantly, revenues of quality lower than target will negatively impact payout ensuring that it is not growth at any cost. Using both types of targets can ensure that investments made will be yielding high quality results. In addition, given the longer-term nature of the two types of target, a matrix provides some flexibility in performance outcomes as market conditions evolve from those forecast at the time of LTIP launch. We would be happy to discuss which “quality” and “quantity” metrics would be best for your situation.

Further Considerations

If your firm faces a situation where success will be attained over a multi-year period, LTIPs could be worth serious consideration. Examples where LTIPs could be appropriate for leaders below the C-suite include not only areas of new investment, but also acquisition, sale, merger, and reorganisation. Essentially, any situation where a multi-year focus is critical to business success.

Before implementing any LTIP, we would recommend a deep dive into the following issues to ensure a new LTIP both drives results and aligns with your firm’s strategic direction:

Funding/Targets – is the LTIP paid for from existing bonus arrangements or the long-term results? Is it a ‘carve out’ or ‘on top’ of existing bonuses? What are the target measures and are they ‘stretch’ or in-line with business plans?
Participation – How deep should the LTIP reach in terms of participants? It is important to include all key staff who can influence success. LTIPs are a good way to include ‘back-office’ leaders who must modify delivery platforms to achieve target financials.
LTIP Period – Two years would be the minimum and five years the maximum that should be considered if the LTIP is to represent a meaningful part of participants’ total reward. Also, whether annual, biennial, or ‘one-off’ grants are appropriate will be determined based on the nature of the targets, the business cycle and anticipated events (IPO, Sale, etc).
Units and Delivery -- Participants are usually awarded Units based on their role determining overall success. These units can be ‘phantom shares’, currency-based or actual RSUs. Use of an LTIP could actually lower required annual bonus deferrals for participants.

Reach out to randal.tajer@mcr.consulting for a discussion on how your current business situation may benefit from the use of an LTIP. The overall approach – as well as a review of the appropriate design issues for your setting – would be a useful starting point for determining if an LTIP is suitable.

Sales Incentive Plan Design – Gearing for Growth

Wed, 08 Oct 2025 09:18:13 GMT

Sign up for a FREE 1 hour review of your Sales Incentive Plans with one of our expert advisors

Growth is the key ‘buzzword’, but it's an old mantra. It is a critical mission for most businesses, whether in response to a company buyout by new investors, challenge from new competitors in the market, opportunities from new technologies, or demand from shareholders. Ultimately, the long-term goal must be to grow both in turnover and profitability.

How to grow - new products or services, new marketing strategies, new pricing architecture? Critical in delivering this agenda is the salesforce. Many incentive plans get left behind and remain unchanged and unchallenged as sales strategies change. Companies wonder why the salesforce is not as motivated as the top team and why new ambitious targets are not being achieved. With a greater urgency for growth is a need to question what plan design is going to deliver the right selling behaviours.

This drive for growth necessitates a review of sales commission/incentive plan design. The areas for review are in three categories - opportunity, structure and targets.

Opportunity
If there is a requirement to change gear in selling behaviours, it is important to review the on-target incentive opportunity. This is dependent on the role and those seeking new logos or account growth. Winning new business is tough, so why would a "20% of base pay" opportunity be sufficient to motivate a new business hunter when 40% or 50% would move the dial? There is a need to align role with on target incentive opportunity.

Structure
Are your plan structure and payout frequency right for growth? To promote growth, you need high rewards for overperformance and more regular reinforcement of performance. This must be balanced with financial risk, and can be achieved by making changes to accelerators e.g. increase accelerators for above quota performance, the removal of hard caps and the introduction of modifiers for key new products and services that are critical to your growth strategy. If recurring revenue or long-term contracts are critical to the strategy, multiply the value of these sales relative to quota. For new products, you can also use short term ‘Spiffs’ to prove the impact of incentives before incorporating modifiers into the main plan. And if success and growth rely on team performance, add in a team measure to the plan.

In terms of payout frequency, think about the opportunity to reinforce positive selling behaviour. To inject more selling urgency, increase the frequency of payouts. So, if you pay out annually, think about quarterly payouts. If you pay out quarterly, think about what elements could pay out monthly. There is a need to generate energy and dynamism behind the growth strategy. Again, this must all be balanced with financial risk.

Targets
In order to create a successful growth-based sales incentive plan, targets/quotas need to align with the strategic ambition, but they also still need to be achievable. Will the targets be set using a ‘top down’ or ‘bottom up’ approach, or a combination of both? Getting the targets right is fundamental to a successful sales incentive plan.

In addition to the above, there are some other critical dependencies to a successful shift of behaviour to support growth. These include the salesforce having regular and accurate sales data to reinforce positive performance and address poor performance. Furthermore, leadership – Sales, Finance and HR – need to be on the same page so that there is universal buy-in to the new approach and that it is communicated effectively to the salesforce.

Growth depends on sales incentive plans with the right gearing and structure and MCR is here to support you.

If you would like a free one hour review of your sales incentive plans , please reach out to either jon.clark@mcr.consulting

or vicki.badham@mcr.consulting (MCR's Sales Reward Practice Leads) or email us at hello@mcr.consulting for more information.

MCR Summer Drinks at Piano Bar Soho

Wed, 30 Jul 2025 09:24:43 GMT

Colleagues, clients and Friends of MCR Enjoying a night out at Piano Bar Soho!

What a great night we had a MCR 's Summer Drinks @The Piano Bar, Soho Live Studios on Thursday 19th June 2025! Thank you to all who came. For me, it confirmed how vital two things are in our busy professional lives - 1) F2F opportunities and 2) Fun!

If you want to know more about MCR and how we were designed through the market's lens - Outside In - rather than through a consultant's lens, and how we have grown across a really wide range of capabilities and industry sectors, you can take a look at The MCR Story or just reach out at hello@mcr.consulting if we can help you too.

Free 30 minute Wellbeing Benefits Check

Wed, 30 Jul 2025 08:20:25 GMT

Are you making the most of your Wellbeing Benefits?

Sign up for a free Free 30 minute Wellbeing Benefits Check

Support your colleagues' mental health without spending more

More and more companies are approaching us for additional wellbeing and mental health support for their employees. What we are seeing is that lots of companies already have access to some valuable free or low-cost wellbeing tools as part of their benefits package – but they don’t always know about them or are not using them to their full potential.

To help with this we are offering a limited number of free 30-minute Wellbeing Benefits Checks with one of our Employee Benefit consultants in Summer 2025 to help companies make the most of what you already have access to.

What we will cover in the 30 minutes:

Overview of your existing wellbeing benefits and policies
Find underused / free tools (like EAPs, Virtual GPs, discounts, etc.)
Explore simple, low-cost ways to improve your wellbeing offer
Quick wins and practical actions you can implement straight away
Discover fast ways to make things a little easier for your people

Please reach out to emma.cowling@mcr.consulting for more information.

Sales Compensation Trends Survey Executive Summary

Mon, 01 May 2023 08:30:00 GMT

We’ve run a survey to find out how organisations are addressing the challenges of Sales Reward in 2023.

Managing Pay in Uncertainty – Addressing reward in uncertain economic times

Mon, 05 Dec 2022 08:37:00 GMT

Our View in Summary

This has been, and continues to be, a particularly challenging year for all organisational, including pay, budgeting. Making sense of it has been rather like trying to “paint a nature scene in a storm” – with lots of movement and noise, and unstable conditions. But in our view the fundamentals are largely unchanged and good business sense must prevail in these challenging times.

The pressures on budgeting, and how to distribute spend, are multiple, complex and fluid and emanate from past, present and future factors. It would be easy – and perhaps tempting – for organisations to prioritise extraordinary, “alleviating measures” to seek to address some of the most pressing and immediate issues arising from the cost-of-living crisis and tight labour market conditions. While there is undoubtedly a place for some extraordinary steps to support employees at this time – and to address workforce capability or capacity gaps – we think it is vital that these are framed in the context of a clear pay strategy, aligned with the business strategy and priorities and taking into account market conditions, performance, affordability, sustainability and internal equity. Getting this right requires balancing short-term needs with long-term objectives in a sustainable way.

Certainly, the evidence to date is that most organisations have been approaching the situation in this fashion. Salary increases – while higher than they have been for a very long time – remain far below inflation rates, and organisations have rightly put a lot of emphasis and effort into reviewing/enhancing and communicating their employee benefits programmes, with particular focus on enabling greater personalisation overall and better supporting employee wellbeing in a more holistic way. Enhanced job design, both for multi-skilling and to increase the value of work to employees, is another area of increased organisational attention.

There are, in our view, at least two other areas that merit care and attention in this challenging period for workforce and talent management. In regard to incentive plans, we highlight the need to weigh the impact of exogenous factors on business performance so that “real performance” is understood and rewarded appropriately, and the future credibility of incentive schemes and targets is not undermined. In regard to critical talent retention, while this is a “workforce segment” that may well merit special emphasis in an organisation’s overall pay strategy, our experience and research shows that this is best addressed at the level of the individual person – for whom personal non-pay factors may be more important. The most successful “critical talent identification and retention toolkits” enable the right conversations to happen between managers and individuals, and provide for a range of possible interventions, many of which are non pay-related.

The Business Context and Challenges

2022 – and looking forward to 2023 – has presented significant and special challenges for organisational, including pay, budgeting. We see this coming from at least five angles :

1. The Cost of Living crisis (including inflation, high prices – which are likely to persist for some time even after inflation decreases – and interest rates): this has reset the expectations and needs of many employees to “temperature”/urgency levels not seen for forty years;

2. A tight labour market with both lower levels of labour participation since the pandemic and high levels of talent liquidity for many professional and skilled roles;

3. The challenge of accurately and fairly assessing, and rewarding, performance in a turbulent post-Covid performance year, with complex exogenous factors at play;

4. The reality that many organisations are operating in 2022 with budgets that were set prior to the steep rises in inflation – so there is the erosion of available budgets as well; and

5. An uncertain global economic outlook for 2023, with significant potential headwinds at the macroeconomic level.

This is an unusual and difficult mixture of pressures borne out of the recent past, the present, and the future outlook. Much has already been written about the Cost of Living crisis which continues to evolve month by month – taking the UK as an example, CPI inflation in the year to October rose by 11.1% (up from September’s figure of 10.1%) – although there is evidence that some of the global contributing factors to core inflation (e.g. supply chain issues) are stabilising. So this may be the inflationary peak – however high inflation (and certainly high prices) is likely to persist for some months until global factors feed into consumer prices.

The tightness of the labour market in 2022/23 is distinctive compared with previous periods. Capacity and skills shortages have originated and persist from a curious mix of business demand (to meet both supply chain rebuild and customer service needs, and heightened market pressure to innovate) and an increase in the number of “economically inactive people” (i.e. who don’t have a job and aren’t searching for one). Even well developed employee value propositions are straining in the face of talent mobility, long-term sickness and the pandemic’s further legacy on people’s changed expectations from working life.

In regard to the third point above – a turbulent post-Covid performance year – this year has been one of the most challenging to navigate as we advise Boards and Senior Executives in their compensation and bonus rounds. Exogenous factors have impacted performance and results both positively and negatively, depending on sector and circumstance. It is a significant challenge to interpret “real performance” in this context, in order both to maintain motivation levels and ensure that the payouts made are appropriate and understandable.

The fourth and fifth points above – “past” and “future” factors respectively – are adding further constraint and complexity for many businesses.

In the context of all of the above, the most common upward pressures on pay budgets that we are seeing cited are:

We look below at how businesses have been responding in this environment, including “MCR’s point of view” in a number of these areas.

Organisational Responses

Notwithstanding the current inflationary pressures, employers seem to be returning to a somewhat more “normal” salary review process in 2022 compared with the freezes of 2020 and 2021. The latest ONS data (Release date:15th November 2022) shows 5.7% growth in average regular pay (excluding bonuses) for UK employees in July to September 2022 (the figure is higher at 6.6% for the private sector only – a historically high rate of increase at face value). However, in real terms (adjusted for inflation) over the year, UK regular pay fell by 2.7%. Continental European and other international data on consumer vs. salary inflation show a similar, if not starker, picture. And looking ahead, many predictions forecast more of the same in 2023. Clearly, balancing the difficult factors outlined above, most organisations have been and expect to continue to implement salary increases that are well below inflation. Indeed, history shows that while pay awards track inflation they tend not to rise to inflationary peaks nor fall to inflationary troughs. While double-digit pay awards have been seen in some places in 2022 (for example where there has been an acute staff shortage, e.g. drivers) and may continue in 2023, these are unlikely to become the norm.

Certainly from MCR’s perspective, in the current economic climate most organisations would do well to avoid increasing fixed salary costs beyond the essential , especially if there is a prolonged recession around the corner. “Prudence” is advised to avoid creating issues for the long term – for example by over-inflating salaries beyond the market value of the skills required for the job, or beyond what is sustainable for the organisation at the workforce level. Wherever possible, businesses should determine targeted ways to address critical talent needs and to support the lower paid (we have seen a number of examples of one-off lump-sum “cost of living payments” to support lower paid staff, and/or salary increase budgets weighted towards the more junior grades and lower paid staff in other grades). Organisations are deciding how to focus their compensation spend for the greatest impact, including both monetary and non-monetary actions to attract and retain employees – particularly for critical or high-performing talent. Pressure on pay budgets only makes it more critical for organisations to have a clear strategy for awarding pay increases. Prioritising critical employees and vital roles, differentiating for performance, and segmenting increases all help to ensure an appropriate return on investment. Pay increases and the budgets that fund them must be aligned with the business priorities and strategy considering market conditions, performance, affordability and sustainability, and internal equity.

Base pay and base pay adjustments are of course just one piece of the employee value proposition. Organisations are also paying close attention to other important components of the total reward offering and employee experience, including incentives, health and wellbeing, career progression, and learning and development opportunities.

In terms of year-end bonus decisions – and how to assess and reward performance in this turbulent post-Covid performance year – it is critical to understand the impact of exogenous factors (supply chain issues, inflation, interest rates, energy costs, etc), in terms of:

In MCR’s view, businesses should not “reverse-engineer” the current performance year’s targets in order to account for unforeseen externals. However – in order to maintain the credibility and motivational impact of incentive plans – it is equally important to weigh the exogenous impacts, as above, in the determination of overall bonus pool funding and the distribution of funds around the business.

In regard to other areas of the employee value proposition , trends and responses in the current climate include:

1. Making the total reward offering and employee experience clearer, more people-centric and purpose-driven – and its delivery as “consumer grade” as possible;

mike.curtis@mcr.consulting

Human Capital Insights – Raising the Reward Game

Mon, 21 Nov 2022 09:55:00 GMT

As we head into the year-end, HR and Reward Professionals turn their attention to annual compensation decisions.

Human Capital Insights – The Year-End RemCo Agenda in Financial Services

Mon, 14 Nov 2022 12:56:00 GMT

Key Issues to Consider when Determining Rewards.

Keeping Your Salesforce Motivated through the ‘New Normal’

Thu, 30 Sep 2021 11:10:00 GMT

A discussion with with Vicki Badham and Jon Clark, MCR’s Sales Reward Practice Leads

The pandemic has accelerated several trends that have been disrupting the industry for more than a decade. The shift to online selling is one of them, as consumers stayed at home to stop the spread of the coronavirus. In addition, mobile apps and websites enabled customers to buy a different mix of products than they had previously purchased in stores [1] .

18 months later, organisations are trying to navigate their return to what they hope will be a more stable situation. A key part of their strategy has been focused on revising their total rewards model to reflect changes to both financial and non-financial incentives. Whilst the Employee Value Proposition work post-pandemic applies to all employees, sales teams require a separate lens and have experienced a highly unpredictable period.

We talked with Vicki Badham and Jon Clark, MCR’s Sales Reward Practice Leads, to hear their thoughts on how the pandemic has impacted sales reward. This is particularly relevant at the moment as organisations begin to consider the design of their sales reward plans for the next financial year.

How have organisations adjusted/revised sales incentive plans in light of the pandemic?

This is, to a large extent, a double-edged sword because some organisations have benefited hugely from COVID, while for other organisations, the opposite is true. The response to COVID was largely determined by the degree of financial impact to the business. For those organisations who experienced 20%+ [2] negative impact, priority outcomes included focusing on existing customers and their challenges, using sales resources well while they were spending less time selling and/or maintaining a reasonable income level for salespeople. Primarily, the degree of impact (either negative or positive) would have an effect on the extent to which the plans need to be amended, in the light of the predicted improving or worsening sales performance.

Vicki highlights “The impact of COVID had to be reflected in the commission plans. For instance, organisations have had to consider introducing soft caps and reconsider other design mechanics including commission tiers and non-cash recognition mechanisms have increased in usage”.

“Organisations are recognising that there is more value in a cross-portfolio approach than a segmented approach; sales teams that were segmented are now being linked together through different pods by geographies or customer types”. In this way organisations are trying to enhance the cross selling that can significantly increase existing account-based revenue generation.

The pandemic has also accelerated previous trends: omnichannel selling, inside sales, tech-enabled selling and e-commerce (McKinsey) [3] . 79% of B2B companies are likely to sustain these shifts for 12+ months post-COVID. Telesales have always been a prominent part of many organisation’s sales strategies, but there has been a shift to inside sales from field-based sales. However, there is a limitation to what you can sell effectively online, and post-pandemic there may well be a partial rebound to field-based sales. The balance has changed and organisations are looking at the new balance to increase selling efficiency. Clearly this has resulted in a need to repurpose some sales roles.

Jon commented: “The primary lesson coming out of the pandemic is ‘don’t jump to redesigning the plan; see what happens’. Organisations are mindful of the need to have the right talent still in place to function when they come out of the pandemic so are focusing on doing what needs to be done to keep the sales force motivated”.

What exciting and innovative practices are being undertaken by organisations to overcome the challenges above?

According to Jon and Vicki, there are a number of shifts in practice that need to be highlighted. The first is gamification which is greatly enabled by technology and is a relatively new space in sales. SPM and technology have made it much easier to set up contests, run SPIFFs, and short-term product focused incentives and technology has given businesses more tools for incentives providing more flexibility and agility in responding to the market. While SPIFFs are not new, gamification enables organisations to achieve incremental gains in difficult selling environments.

Jon adds, ‘‘The whole area of team-based reward is gaining a lot more ground, which is primarily determined by how customers want to buy’’. This is partly because technology and pharma selling are becoming more complex due to increasingly sophisticated buying and a more complex solution offering. The last 18 months have also shown that it is vital to mobilise and co-ordinate all available selling capability. It is necessary for a business to define team-oriented behaviours if they want proper collaboration. The ‘lone seller’ is a thing of the past in many sectors.

Digital disruptions and technological revolutions have changed customer preferences dramatically over the past few years. To keep with up with increased digital sales, organisations are engaging with software systems to analyse data. The systems have increased functionality allowing organisations to make data-informed decisions. The invention and reinvention of new technology is a continuous process. This is paving a way to make sales smarter and more agile. Organisations have started thinking about how they can automate selling or whether they need sales teams, sophisticated algorithms or both? The personal touch is important but there could be an exciting combination of both.

As organisations recognise the need to relook at their business models going ahead, how does sales transformation enhance an organisations’ chances of success?

To be successful, organisations need to grow, develop and diversify. Sales transformation is a part of any business transformation rather than the sole driver of it. The pandemic may have interrupted the growth trajectory of many organisations and completely undermined others. For some organisations it might only have been a minor blip. Certainly, it will have caused many to review their sales strategy, adding to a list of triggers that also includes a shift in customer focus, mergers, divestitures or moving from being locally centralised to having global ways of working. New products give organisations the fuel to maintain their market share and sustain growth.

Sales transformation is critical as businesses go through the various stages of maturity and in response to digitalisation. Any business change or transformation triggers the need to look at the sales team and how they operate and perform, in addition to other issues such as retention, low productivity and lack of alignment of sales reward to the business strategy. Vicki adds, “If you understand where a business is in any stage of its development, you can understand what sort of incentives are required” .

Sales effectiveness can also be influenced by poor sales leadership, inadequate training, a lower focus on performance management and a weak target setting process. MCR supports organisations by providing a detailed diagnostic review to assess where the gaps lie and how they could be linked to a broader sales effectiveness issue.

In setting effective and motivating sales incentive plans, where do the gaps lie?

Jon’s perspective outlines – “The pandemic has caused many to review their plans. It is worth highlighting that here are various types of gaps within sales incentive plans that need to be addressed. These gaps existed in the old normal too, but given the shift in market practice, it’s vital to get these aspects right”:

How can MCR support organisations to build appropriate sales strategies for their business?

MCR can offer an evidence-based, independent review through an expert lens and provide recommendations for change, using a tried and tested methodology to develop a defined roadmap for success. Additionally, we provide clients with a deep understanding of different environments reflected by years of experience in sales incentive design across many sectors. Whilst sales incentive design is the primary focus, we blend in total reward, organisation design, learning and development where appropriate.

Please contact vicki.badham@mcr.consulting or jon.clark@mcr.consulting for more information.

https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/what-consumer-goods-sales-leaders-must-do-to-emerge-stronger-from-the-pandemic

https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-b2b-sales-have-changed-during-covid-19

_____________________________________________________________________________________________________

Vicki has over 20 years of reward consulting experience during which time she has supported many organisations with the review and redesign of their sales incentive schemes within the context of wider sales effectiveness projects.

Jon has over 20 years reward experience, focusing on sales incentive design and sales effectiveness capabilities to develop more successful salesforces, working with Sales Leaders and Heads of Reward across all sectors, both nationally and internationally.

Organisational Change – Where are the real opportunities for your organisation?

Wed, 19 May 2021 09:17:00 GMT

Vedika Shastri interviews Fay Thompson and Simon Brown of MCR Consulting

An article in Forbes states, “change management is key to guiding your business toward a new normal in 2021 [1] ” . Do you agree with this statement?

Simon: “Absolutely, a spot-on statement. Covid has brought change into every paradigm; every individual and organisation must respond and adapt. There has been a realisation that we can work in different ways; there is no single way to work. It is not about how many hours you are physically present, rather about outputs or outcomes, dialogue and engagement. Organisations want to be proactive and are looking for consultancy support from people like us who know the psychology of change, to learn how to engage with change, and facilitate it. In the new normal, it makes sense to embrace and sustain some of the new ways of working. To take the good and return some elements of the old normal too, as a more blended solution.”

Fay: “Yes, I fully agree with the Forbes statement. It reflects the reality of what’s happening in the business world today. Many organisations are currently going through some form of change, most of which has been an outcome from the pandemic. For some organisations the changes have been positive, as experienced by online and digital platforms like Amazon. However, the retail, hospitality, and tourism industries continue to struggle. There is a significant amount of evidence which shows organisations which ensure that the people and cultural aspects of change are at the centre of the change effort are more likely to be successful at achieving sustainable change. Organisations need to utilise behaviours that drive employee engagement and inclusivity into the new normal.”

The COVID-19 crisis has caused organisations to rethink and restructure policies, practices, and principles. Elaborate on a few innovative trends you have recently observed.

Simon: “Organisations have begun to move away from traditional work patterns for office workers of 9-5, Monday to Friday, to a more flexible approach. In turn, flexibility helps to enable a culture built on trusting individuals more and with less emphasis on management control. So, Adult to Adult dialogue and ways of working instead of traditional Parent to Child. We have seen and worked with some proactive organisations to completely rewrite their employee handbook and policies and procedures to reflect the new tone, the new language of the working relationship between employees/partners/associates and management.

In our video conference world, many good team building exercises have been taking place with the aim of creating more engagement and informality. However, the actual face to face time is lacking, and sometimes the day gets stretched with constant screen time. Often Zoom or similar e-meetings can mask the reality of the other person. The nuances of body language and non-verbal behaviour are missed across a wide gathering of people. Face to face contact is a human need. There are pros and cons; we need to recognise them and think about how we can be more innovative and agile while respecting the diversity of individual preferences and needs around extroversion and reflective introversion.

Proactive organisations will respond to the issues of a skewed work-life balance, where there is increased blurring around the edges. Some trends showcase how this has impacted people’s mental health, where people move from being energised to stressed. A proactive organisation will be looking at how to sustain energy and recognise the signs of people moving from stretch zone to stress zone to panic zone and burnout .”

Fay: “Apart from the trends in more companies offering flexible working, which is quite widespread, I have also observed organisations placing greater emphasis on Wellbeing by providing access to Employee Assistance Programmes (EAP), whereby employees can get in touch with an independent, confidential service and talk to a variety of professionals about occurrences in their personal life that affect their wellbeing, finances and so on. Other encouraging examples include organisations adding the topic of Wellbeing as a standing agenda item in team meetings. This is a real shift as Wellbeing was not previously openly discussed, however, now the stigma associated with it is being broken down, and more people are becoming more open and transparent about sharing their thoughts and feelings. This is to be encouraged.

Where work-life balance is not favourable, organisations and employees need to work together to enable a better balance between the two. Each individual has to take responsibility to ensure they take regular breaks. Managers need to check in to make sure team members are okay and are not overdoing it.

An additional growing trend is the redesigning of the office space to reflect a new type of working arrangement. Prior to the pandemic a typical office represented a static environment with individual, personalised desks. Now offices are being redesigned to introduce workspaces that are fluid, transient and adaptable.”

Where do the gaps lie for organisations to successfully carry out change management?

Simon: “ The first step is to analyse where the organisation is now. What is their current situation, and often, this is best facilitated by a consultant who can do an independent and objective audit, where there are no hierarchical influences to skew or filter what employees really think, feel, and genuinely believe will enable them to give of their best in the workplace.

The resulting gap analysis is a powerful place to begin planning change management. The aim is to get to the most productive, efficient and engaging state to optimise both the employee experience and positively influence the enhancement of customer service experiences. The next step is to agree the change priorities with the leaders of the organisation. It is they who will set the cultural lead and role model the behaviours desired in the organisation as a whole. However, the more you can involve and engage the wider employee population in the design and delivery of new ways of working, the more real and rapid will be their transition to becoming active and enthusiastic participants. This is a humanistic and organic approach which includes:

Some organisations consciously think about change and they recognise that change is part of evolution. However, for others, change is a response mechanism to a symptom, e.g. labour turnover has increased. Slowness to react and the late adoption of new ways of working are what we describe as “mindset gaps” and the gap is ever widening between these businesses and the forward thinking, proactive early change adopters and disrupters. As we begin to see the new green shoots of growth and bounce-backs from national Covid lockdowns, it will be those nimble, creative, culture and value driven, customer centric organisations that will outflank their competitors and grow market share.

Fay: “ There are many gaps based on my experience of working with organisations on change and transformation. These can be narrowed down into four key areas:

Digital adoption has taken a quantum leap at both the organisational and industry
levels. [2] How has this transformed organisational change strategies?

Simon: “ Some of these trends were emerging before. However, the last year and the need for more virtual working has accelerated these changes. There has been a phenomenal e-commerce boom during the pandemic, just as there has in the opposite sense been a massive drop in High Street commerce. In the hospitality sector, the more agile pubs and restaurants have set up interactive websites, introduced online booking, moved outside, and offered take away and home delivery services. Supermarkets and online food delivery organisations have offered standing order online booking services as demand has grown for this door to door service. Even the doorstep “milk and more” delivery service, once in serious decline to become a thing of the past, is experiencing a resurgence with customers now able to order and pay online.

Across most functions and sectors there has been a trend toward introducing more technology into how we work to process transactions, payments, promotions and even job interviews. Companies are embracing systems where people can do self-service transactions. This is visible through online services, technology services and direct access to information – our “let me Google it “ culture! 85% of adults have a smart phone and mobile apps are becoming an essential user-friendly collectors’ item. Now we take responsibility, fully embrace self-service as a positive, and we make our own choices in our own time.”

Fay: “ For change associated with digital adoption, good change management strategies will focus on how you enable employees to adapt to using digital tools and automation, for example to carry out work tasks and transactions. In addition, there should be clarity around the digital-related behaviours that are now required, because in the digital world the behaviours will be different. For example, organisations should require employees to have a learning mindset which will enable them to learn and grow from digital adoption . Organisations should also highlight the new ways of working and the benefits that will come as a result of digital adoption, such as information at your fingertips, two clicks and you are there, automation of notifications and a general ease of doing business in the system. That will encourage employees to transition from old ways of working to the new ways of working, and provide them with the support and training they will need to help them make a successful transition.”

At MCR, how can you support organisations on this front?

Simon: “ At MCR we have extensive capabilities and multi-sector experience. Particularly in the pivotal areas of:

From both a structural and humanistic perspective, we have a wide array of skills. We provide a personable service and do not follow a single off-the-shelf methodology. We first listen, and we then collaborate and partner in the best way for the particular situation and client. Most of our consultants have 20 to 30 years of experience working across a range of sectors and we bring that into the conversation and the enabling dialogue for change. MCR offers strong consultants in people skills (psychology, learning and development, change management, executive coaching, mentoring and psychometric assessment for teams and individuals, mental health awareness raising) and we are also skilled in HR systems and practices, and reward and recognition – which are key levers for talent attraction, retention, and motivation. We can flex and combine our multi-disciplinary resources to meet the project needs. We fully respect our clients’ trust in us, we are fundamentally customer centric in all that we do and we personally follow through from ideation to design to delivery and measuring adoption aligned to the individual needs of our clients.”

Fay: “ Yes, the great thing about MCR is that we are perfectly positioned to help organisations with change management. We are fortunate to have a large team of consultants from diverse sectors, with broad skill sets and experiences across all areas of organisational change. Many of our team have a mix of consultancy and in-house practitioner experience. So, not only can we provide expert consultancy on how to do things – and what to do – but we can also implement the solutions. MCR’s depth and breadth of consultancy and practitioner experience is a rare mix which distinguishes us from other HR advisory providers.”

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[1] Change Management Is Key To Guiding Your Business Toward A New Normal in 2021. Forbes. 2021. https://www.forbes.com/sites/johnnywarstrom/2021/02/08/change-management-is-key-to-guiding-your-business-towards-a-new-normal-in-2021/?sh=2f149ad464fd
[2] How COVID-19 Has Pushed Companies Over the Technology Tipping Point and Transformed Businesses Forever. McKinsey & Company. 2020.
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever#

_______________________________________________________________________

Fay has over 25 years’ experience in senior international HR roles, many with a Change Leadership focus. Her work as a Director, Senior Interim and Coach has spanned multiple sectors, including as:

Simon has over 25 years senior HR Management experience in operational, corporate and interim roles, including:

Vedika supports our client assignments in a stakeholder interviewing, data analysis and options drafting capacity.

To discuss your organisation and your change management needs, and how we may help you, contact us:
Simon Brown M +44(0)7740 731474 E simon.brown@mcr.consulting
Fay Thompson M +44(0)7747 065874 E fay.thompson@mcr.consulting

Business Model Metrics & Other Success Factors Webinar Highlights

Thu, 22 Apr 2021 01:00:00 GMT

The post Business Model Metrics & Other Success Factors Webinar Highlights appeared first on MCR .

An Interdisciplinary Approach to Maximising Employee Value

Wed, 03 Mar 2021 11:32:00 GMT

HR Tech Outlook interviews Mike Curtis and identifies MCR as one of the “10 companies…at the forefront of providing Workforce Management consulting/services and impacting businesses in 2020”

Is your sales incentive plan hindering or harnessing business performance?

Mon, 08 Feb 2021 15:43:00 GMT

MCR’s sales incentive assessment methodology identifies and resolves design issues. A free initial diagnostic workshop with our sales incentive experts can kick-start your review.

Sales performance is one of several critical determinants of business performance and growth. Sales team effectiveness is itself subject to multiple drivers, one of which is the motivation of the sales team through its pay and incentives. If the sales incentive plan design is broken, this can hinder growth and put the business at a competitive disadvantage.

Our sales incentive experts have developed a tried and tested methodology of reviewing sales incentive schemes, diagnosing issues and designing a corrective roadmap. In our experience, if any of the following are relevant to your organisation, the greater the need to review your sales incentive design:

Our methodology is centred on a deep dive into the following 9 areas:

The outputs of our review are a clear and evidence-based assessment of the issues associated with your sales incentive plan design, generating ideas for improvement, as well as a roadmap for how to resolve these issues.

In order to demonstrate how a sales incentive effectiveness review could benefit your organisation, we are offering a free workshop with your team targeted at helping you to understand the issues with your current design. This workshop will be run by Jon Clark and Vicki Badham , our sales reward experts, and will involve a discussion with key stakeholders from Sales Leadership, HR, Reward and Finance on their perspectives of how well the sales incentive plan is working/not working. Using this information, we will share our insights to identify where the likely issues exist and potential options to address them.

Ahead of the workshop we will ask you to share your current plan designs and following the workshop we will generate a high-level report summarising our findings.

C lick here to request further information about the workshops, or for more general information about our approach to sales incentive review and redesign.

Stabilise, Strengthen and Extend – The multiple dimensions of Strategic Workforce Planning in Higher Education – A ‘memo from HR to the Vice-Chancellor’

Mon, 18 Jan 2021 11:01:00 GMT

Coronavirus and its fallout. The one thing preoccupying all our minds right now. After being forced to adapt overnight to deal with the crisis, many universities across the country are facing immense pressure to survive in the current climate, say MCR’s Dean Morley and Daniel Hibbert . However, while staying afloat in these uncertain times is obviously vital, Vice Chancellors (VCs) cannot afford to have their vision and planning curtailed by the immediate priorities. There is no getting away from the longer-term challenges of competition and viability in the delivery of 21st Century higher education. This may feel particularly challenging to address in an environment with so many moving parts. In this article, we recommend deploying a simple model which we call “ Stabilise, Strengthen and Extend ”, and doing so in a way which preserves your bandwidth as a VC to think and plan beyond COVID-19.

Stabilise

Stabilising the institution is about the ‘here and now’ and about looking forward for just twelve to eighteen months. This is where you, as a VC, need to draw on the skills of your Executive Team to help the institution get through the current crisis, with individual Executives who are clearly accountable in their areas for institutional survival over the next year. With the help of your team, you need to identify the priorities on which you should focus in order for the institution to survive over the next year.

Stabilising financially will be one of the priorities due to dwindling 2020/21 admissions from international students in particular. The Institute for Fiscal Studies has predicted total long-run losses for the UK higher education sector of “anywhere between £3 billion and £19 billion, or between 7.5% and nearly half of the sector’s overall income in one year”. [1] So, as a team, we obviously need to focus on how we can mitigate or replace lost revenue, as well as improve efficiencies.

Stabilising from the human capital perspective is just as critical. There will be individuals on both the academic and ‘corporate’ sides of the institution who are highly valuable for future success. Have you identified who they are and what will motivate them, not just to stay with you but to remain focused, and firing on all cylinders? What about the critical role gaps – vacancies or capability gaps – that need to be filled? Have we got the right balance between employed academics and associate lecturers?

There is also the need to stabilise by adapting, and helping others to adapt, so that the institution can continue to carry out its function of educating in the wake of the crisis. The numerous changes COVID-19 has brought, from online lectures to feeling unsafe around others, have been an unprecedented shock to staff and students. Helping people adapt to the ‘new normal’ so that they feel comfortable in returning to their studies and working life is business critical.

Strengthen

Although COVID-19 has moved ‘stabilising’ to the top of the agenda in 2020, your overriding objective as the VC must still be to define and navigate towards the future strategy and shape that the institution will need for continuing, long-term success. So, while you harness the expertise and energy of your Executive Team to get across these choppy waters, it will be no less important that you provide the vision and facilitate the planning to succeed in the medium and long term.

Therefore, while you are stabilising the institution, you should also begin the process of strengthening it. Enabling more distributed leadership should not stop with the Executive Team, and should not be limited to steadying the ship during the current crisis. What needs to happen to build the ongoing change leadership and management capability that we need? What are the implications for this of distance learning and more remote working in the future? How can we strengthen what the institution is able to offer in teaching, research and knowledge exchange in a new world ‘without boundaries’?

Contributions to research and vaccination testing have significantly increased the public profile of universities during the pandemic. Where are the opportunities for the institution to grow its presence in public and industry discourse, and what organisational capabilities do we need to strengthen in order to achieve this?

Extend

And most importantly, as the VC, you need to extend the institution’s most vital, valuable, and marketable capabilities into the future. This means defining, and planning how to implement, the workforce capability to operationalise your Target Operating Model and deliver your future strategy. How can we adapt the features that the institution already has to its advantage, and what skills do we need to build, buy or ‘borrow’? This is of course firmly in the realm of strategic workforce planning , and the models below have been successfully deployed in the UK HE sector.

So, while the most pressing and immediate challenge you face might be about survival and to stabilise in the aftermath of COVID-19, we should also strengthen and extend to build the workforce capabilities which will enable the institution to survive and flourish in the long term. There is no substitute for ‘visioning the future’ and setting out a clear roadmap of what needs to happen and how that will be implemented. As a VC, you will do well to engage closely with your HR leadership over the coming months on the future Target Operating Model and Workforce Plan.

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[1] Dreyton, E. & Waltmann, B. (2020). Will Universities need a bailout to survive the COVID-19 crisis? Institute for Fiscal Studies: https://www.ifs.org.uk/publications/14919

This article was originally published as part of UHR’s SummerWise programme of learning resources: https://lnkd.in/dCQtRtQ

For further information: dean.morley@mcr.consulting or daniel.hibbert@mcr.consulting

The Three Things Every RemCo Chair Needs To Understand

Tue, 15 Dec 2020 11:33:00 GMT

As we head into the year-end bonus determination period, it is worth reflecting on the fundamental issues Non-Executives and Senior Managers need to consider when setting year-end incentive remuneration payments. Since the financial crisis of ’08, layer upon layer of regulation has been heaped on firms to prevent excessive risk taking or payouts at levels that misalign with customer, stakeholder and employee interests.

Thankfully, after almost annual changes to the regulatory environment, we have entered a period of relative stability in which we can catch our breath and reconsider the fundamental structure and alignment of our remuneration programmes. Now, rather than simply asking “Do we comply?”, we can focus on “Does it work?”. Recognising that we have adjusted plans to deliver remuneration in compliance with regulations, we must now reconsider if we still determine remuneration in a way that best suits the business, its stage of development and the competitive environment.

Understanding if we have the appropriate variable pay structures in place can be addressed through three basic questions: How do we Fund, Allocate and Distribute remuneration in our organisation?

Funding of Remuneration

Funding of remuneration considers how income from business results is shared with employees. Starting with Revenue, total remuneration costs should be expressed as a percentage of pre-remuneration EBITDA – at budget or plan. Next, the proportion of this amount that will vary based on performance should be set, and how it will vary, established. Generally, the greater the proportion remuneration is of total expense, the greater the proportion that should vary based on results. The more “human capital intensive” the business, the more it relies on the collective performance of individuals and the more that the remuneration of these individuals should vary in line with these collective results. In businesses where capital investments, working capital and intellectual property are the value drivers of performance, the variable portion of pay should be lower as individuals below the C-suite have less influence on these factors.

Ideally, the incentive fund is the target overall remuneration payable less the fixed remuneration expenses (i.e. salary, allowances and benefits). This is the starting point for the year-end review. If budget is achieved, the target incentive fund will be available. It is also, however, important to establish up front how this fund will vary with variations in performance. Rarely is straight line funding appropriate at the enterprise level. Paying out a higher or lower bonus pool for higher or lower results only works up to a point. Practically, a “cap” may be required to limit payments for exceptional years where results are not entirely due to employee efforts. Similarly, a “floor” or minimum bonus pool can ensure funds are available to reward those who individually performed well, even if overall results were poor. In any case, funding should always be tied to the core economic performance of the business and not be based on non-economic measures such as market share, budget milestones or ‘discretion.’ These types of measures have a place in incentive design, but not in the determination of the actual funds available to pay to employees.

Allocation of the Fund

Allocation of the Fund is the process by which the economically generated fund is divided between various groups within the organisation. Senior management, different business lines, staff and back office roles, etc., should all have a predetermined share of the overall pot and an understanding of how this will vary based on their results. This stage is more judgmental and often does not always follow the strict economic guidelines appropriate to determination of the overall fund. How the fund is divided will depend on the stage of business (start-up, core franchise, run down, etc.) and how the funds will be earned is the basis for the business-specific objectives.

As a result, allocation can reward those responsible for the economic results that generated the fund, as well as achievement of Key Performance Indicators (KPIs) that demonstrate strategic progress. As such, allocation should consider the outcomes that lead to increased funding, but can also look to more qualitative measures that will lead to future economic success. New customers, product launches, market share and other KPIs can be used to direct funding to those achieving the organisation’s strategic objectives, thereby ensuring its long-term economic health.

While not necessarily directly tied to economic outcomes, allocation must respect the economic realities of the business. We have seen several examples – often in Banking – where ‘sales credits’ are counted several times. In one extreme example, each dollar of revenue was ‘allocated’ five times to different business sectors. While this ‘solved’ the problem of recognising that several teams were involved in every transaction, it created an economic fallacy. As this firm traditionally paid out 40% of revenues, by counting each dollar five times, it created expectations that funds equal to 200% of actual revenues would be paid out. Sometimes this sort of double counting can make sense, but it must always be ‘reality checked’ to assure real economic alignment.

Distribution

Distribution of the allocated funds takes the incentive consideration down to the individual level. Two primary concerns are addressed here: how to slice the fixed sum fund to the individuals to whom it has been allocated – essentially a comparative process; and how to deliver the payment to recipients – cash, shares, deferral/holding periods, etc. This second point, delivery, has been the focus of much regulation with implementation of deferral minimums, extended holding periods, claw-back and forfeiture conditions and other constraints on when incentives may actually be considered ‘free and clear.’ These factors are intended to continue to tie recipients to the ongoing success of the enterprise and ensure short term payouts do not undermine longer-term success.

The ‘slice’ of the allocation that each individual is awarded should be based on objective measures of how much was contributed to the results, a comparison to the contributions made by others and the overall allocation made to the group – this needs to be a zero-sum exercise. Unfortunately, this relative comparison stage is where many organisations fail to align individual results to the reality of business outcomes. In one large Wealth Management client, 87% of staff met or exceeded their performance objectives, yet the division lost money for the first time in 20 years. The business head actually argued that “given these individual efforts, extra incentive funding should be made available.”

Delivery of incentives should follow the economic horizon of the outcomes rewarded. Trading a share has a short horizon once the equity is off the books; mortgages, insurance underwriting and other longer-tail relationships can make the economics of a deal change dramatically following the actual transaction with the customer. Rewarding individuals for these events without structuring the delivery to recognise this on-going exposure can be devastating as the financial crisis showed. Unfortunately, as companies failed to address this issue preventatively, regulators in the UK and EU have imposed a one-size-fits-all approach to delivery. While these have generally erred on the side of caution by being more restrictive than a business situation-specific approach would require, its generic approach has actually restricted companies’ ability to truly match incentives delivery to economic timescales and results.

The good news is that we have now seem to have reached a point of relative stability in the UK/EU regulatory expansion process. So as stated at the outset, it is a good time to look back at the fundamental Funding, Allocation, and Distribution processes in your organisation and see if they are aligned with and reinforce the best economic interests of stakeholders. Good decision-making processes in these areas will ensure that year-end remuneration discussions are results and outcome focused rather than post-hoc negotiations.

So what would a ‘fundamental’ review look like from a practical perspective? As RemCo member responsibilities are non-executive and not intended to inhibit the actions of senior executives, this review should focus on the processes and structures in place to make remuneration decisions in the areas of funding, allocation and distribution. In our experience, these processes are often vaguely articulated, detached from other organisational processes and unclear in terms of accountability and operational metrics.

To make this process practical, our view is that an important role of the RemCo is to carry out a regular ‘health check’ of how well these three issues are addressed. This process would include the following steps:

Document the standards
While there may be differing answers for each company, these answers should be built into the planning process and be approved by the Finance Committee. Questions to include: Are standards/targets clearly articulated for compensation funding? How does funding vary based on results? If funding represents a start-up or investment stage of a business, when should this value be reviewed? Do business heads understand the allocation process and is it set in advance of the performance year? What factors may impact these figures and how are they adjusted? These, and other areas described above should be clearly spelled out and the circumstances allowing them to be reconsidered articulated. All too often well designed plans are overridden post-hoc to deliver bonus payments not consistent with results.

Check for Alignment
Having answers to these key issues is only the first step in assuring effective delivery of remuneration. Does the allocation process reflect the funding approach? The example of double counting revenue is one example, but many others exist. Allocations based on market share or margin may reduce overall enterprise profitability. Rewarding cost reduction at the expense of top line growth can limit performance in future years and poorly conceived caps on allocation can reduce performance below that otherwise attainable. Aligning the elements of remuneration requires a careful consideration of how the business levers that drive pay will impact the ongoing capability of the organisation to perform.

Line of Sight
If well documented and aligned, remuneration programs should provide a clear line of sight – how business results will impact pay – to leaders and staff. This can be undermined, however, when senior management is not transparent in a hope to retain flexibility or a fear that disclosing various funding levels or allocation approaches will raise uncomfortable questions from staff. Staff who believe they will be rewarded through a secret process are less motivated and likely to operate in a risk averse style that may not be appropriate to the business objectives.

The RemCo and Executive Managers should assess how well and how appropriately these issues are addressed. Importantly, thought needs to be given to the impact of substantial regulatory impositions on the determination and delivery of pay. Well articulated performance and payouts developed in alignment with the economic goals of the organisation should be well communicated to provide a clear line of sight to all bonus recipients.

In summary, as we go into the year-end bonus process, remember that remuneration decisions should be based on a set of pre-agreed outcomes for a given level of results. If management believes it is better to “wait and see” before committing to remuneration levels, they are setting themselves up for a negotiation with staff in an environment rife with conflicts of interest.

For more information contact: randal.tajer@mcr.consulting

MCR’s Executive Remuneration Consultancy

Wed, 29 Jul 2020 08:46:00 GMT

MCR is increasingly the destination of choice for businesses seeking greater objectivity, flexibility and value from their executive remuneration advisors.

Employee Sustainability and the Healthy Workforce

Wed, 13 May 2020 13:22:00 GMT

An interview with Aino Health about how HealthManager, their digital platform, can be used to manage employee absence.

MCR

The 2026 Employee Benefits Landscape

What to look out for and how to stay ahead

Long-Term Incentive Plans In Financial Services

Exploring the ways LTIPs can enhance your business

Sales Incentive Plan Design – Gearing for Growth

Sign up for a FREE 1 hour review of your Sales Incentive Plans with one of our expert advisors

MCR Summer Drinks at Piano Bar Soho

Colleagues, clients and Friends of MCR Enjoying a night out at Piano Bar Soho!

Free 30 minute Wellbeing Benefits Check

Are you making the most of your Wellbeing Benefits? Sign up for a free Free 30 minute Wellbeing Benefits Check

Sales Compensation Trends Survey Executive Summary

Managing Pay in Uncertainty – Addressing reward in uncertain economic times

Human Capital Insights – Raising the Reward Game

Human Capital Insights – The Year-End RemCo Agenda in Financial Services

Keeping Your Salesforce Motivated through the ‘New Normal’

A discussion with with Vicki Badham and Jon Clark, MCR’s Sales Reward Practice Leads

How have organisations adjusted/revised sales incentive plans in light of the pandemic?

What exciting and innovative practices are being undertaken by organisations to overcome the challenges above?

As organisations recognise the need to relook at their business models going ahead, how does sales transformation enhance an organisations’ chances of success?

In setting effective and motivating sales incentive plans, where do the gaps lie?

How can MCR support organisations to build appropriate sales strategies for their business?

Please contact vicki.badham@mcr.consulting or jon.clark@mcr.consulting for more information.

Organisational Change – Where are the real opportunities for your organisation?

Vedika Shastri interviews Fay Thompson and Simon Brown of MCR Consulting

Business Model Metrics & Other Success Factors Webinar Highlights

An Interdisciplinary Approach to Maximising Employee Value

Is your sales incentive plan hindering or harnessing business performance?

Stabilise, Strengthen and Extend – The multiple dimensions of Strategic Workforce Planning in Higher Education – A ‘memo from HR to the Vice-Chancellor’

Stabilise

Strengthen

Extend

The Three Things Every RemCo Chair Needs To Understand

Funding of Remuneration

Allocation of the Fund

Distribution

MCR’s Executive Remuneration Consultancy

Employee Sustainability and the Healthy Workforce

Are you making the most of your Wellbeing Benefits?

Sign up for a free Free 30 minute Wellbeing Benefits Check