The Future of Reward

As organisations adapt to virtual working and agile business models, we think the landscape is ripe for disruption.

The approach to reward for most organisations still follows a traditional approach, consisting of a salary, an annual bonus for some, a pension and an element of flexibility within a core set of benefits.

As organisations shift to virtual working and agile business models, the way we approach reward also needs to adapt.

The reward function will need to learn from gig working, start-ups and from customer experience to adapt to the changing needs of the workforce.

Through research and conversations with our clients, we’ve examined how reward is already changing and what developments we will see in the future.

The key questions for the reward function

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Benefits

How can we go beyond flex to reflect the trade offs and new priorities?

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Bonus

Do we need a new approach to detoxify performance management?

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Job architecture

Are we too wedded to the changing needs?

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Shares

What can we learn from start-ups or private equity firms on equity?

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Salary

Can we create new salary frameworks for the agile world?

Five areas where we will see change


1. Performance and recognition

Organisations still want a mechanism to distribute bonuses and make pay decisions, and have historically used performance ratings, but this is getting harder and more complex in a virtual environment. A one-size all approach that doesn’t take into account the dynamic pace of change and agile ways of working is no longer sufficient. We predict a suite of incentives that no longer stick to the annual cycle – and a number of more personalised responses for high performers. We are starting to see:

  • Greater use of profit-share, team and project bonuses
  • Peer to peer recognition (linked to technology)
  • Intrapreneurship models for innovation
  • More frequent check-ins, with a focus on wellbeing and development
  • Better capability in line managers to talk about progression, development and outcomes

“2020 has shone a light on failings in our performance management approach and the need to improve capability”

Head of Reward from a UK financial services organisation
  • 85%

    of organisations operate recognition programmes outside of the annual reward structure

  • 38%

    are redefining ratings

  • 59%

    made changes in 2020 including reducing number of ratings & increasing frequency of check ins

    Source: PwC survey of over 50 Heads of Reward

2. The virtual workforce

The office will never be the same. Many organisations are considering a ‘hybrid’ return of their employees, with individuals working 2-3 days in the office and the remainder at home. This creates new challenges across the whole employee experience but especially for reward - areas like supporting working at home, travel and commuting costs, working overseas and regional pay come into focus. Organisations are starting to consider:

  • Shifting towards national pay ranges, with flexible approaches to allowances and expenses such as office set up and travel
  • Increased options for employees to work overseas, in approved locations for limited periods. This would include more global pay arrangements, reflecting broader talent pools working agnostically.
  • In a recent survey of 170 companies on their future plans:
    • 50% said they would have a high level of adoption for virtual working, meaning the majority of their workforce would work virtually
    • 46% said they would have a medium level of adoption for virtual working, meaning their workforce would be split between a physical location and virtual working
    • 4% no adoption

“We are developing different work styles from fully workplace based to never in the office - but a lot of people will sit between these points - and we need a reward solution for these, It can't be one size fits all anymore”

HRD of a major UK bank

3. Customisation of the Reward Deal

Many organisations are already prioritising a review of their total approach to reward and alignment with the employee value proposition.

This is shifting towards a focus on greater choice around terms and conditions, days or hours worked and benefits. We’ll start to see reward connecting into other areas of HR - learning, resourcing, wellbeing and even sustainability. Individuals could be able to transfer their bonus into a learning budget for example, or trade benefits on a real-time basis.

We like the idea of the Reward Passport - which gives individuals a draw-down account for areas like wellbeing spend, training and travel to the office for remote workers.

This offers a responsive and agile advancement to the rewards system which encourages thinking beyond just benefits and pay.


“The holy grail for reward is a tech platform allowing individuals to see reward choices on a real time basis - making it happen is a lot harder”

HRD at a FTSE 350 Energy company

4. Fairness

Fairness in pay is an evolving and increasingly high-profile topic. Reward and Remuneration Committees are playing an ever greater role reacting to investor and regulatory pressure to better address pay fairness and the wider D&I agenda.

Reporting of pay gaps will no doubt continue, and organisations will start to look further at addressing imbalances in both representation and pay differentials. We will likely see more targeted pay reviews and measures to ensure the lived experience of employees reflects commitments to inclusion and fairness.

We’ve heard clients asking “How can we meet the legal requirements of equal pay while allowing for greater flexibility and customisation?”

The focus on the future will be on how reward links with wider initiatives and processes as part of the whole employee value proposition.

In a PwC survey of over 100 companies in August 2020, we found that:

  • 66% of companies are collecting ethnicity data
  • 10% have reported their ethnicity pay gap
  • Almost 50% of companies are planning to disclose in the next three years

5. Job architecture and agile reward

Innovation, agility and flexibility are now more important than ever for businesses to stay competitive. Reward can have a significant role to play in this, with a new focus on value and outputs. Grading structures and frameworks will likely continue but with more flexibility reflecting a more complex ecosystem of workers including gig workers. For companies looking to encourage entrepreneurial behaviours and mindsets, we could see:

  • Greater use of output based pay linked to innovation
  • Continuing to flatten the grading structure and pay bands
  • Labour exchange type models where individuals move within an ecosystem of employers
  • Ability to decide how many days a year are worked during the year
  • Potential move towards flexible pay models that recognise valuable skills

We asked Heads of Reward for international organisations what is stopping them from introducing more flexible structures to the traditional job hierarchy and pay band model?

Actions to take now

There is a clear opportunity for the reward function to challenge tradition and reset for an evolving landscape. We’ve identified the top five actions for Heads of Reward to focus on:

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Assemble the data you have

From employee engagement to benefits take-up, build a clear picture by demographics and location of where things are not delivering value.

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Listen to employees and the business

Use insight from your people to ask how the employee experience can be reimagined. How does this align with post-pandemic planning and future strategy?

Build a broad team of HR and beyond

This isn’t just an issue for the reward team and will take a concerted effort across the business. This will also help embed the changes across the business when it comes to implementation.

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Identify groups of employees where you can pilot different reward approaches

Running pilots for ideas such as team bonuses or flexible pay adjustments can help you transform at speed and give you valuable insight to shape future strategy.

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Bring the new story to life

Engage employees with these changes by making it clear how this links to the whole employee value proposition and end-to-end experience.

Contact us

Alastair Woods

Alastair Woods

Partner, Reward, PwC United Kingdom

Tel: +44 (0)7834 250359

Phillippa O’Connor

Phillippa O’Connor

Reward & Employment Leader, PwC United Kingdom

Tel: +44 (0)7740 968597

Dean Farthing

Dean Farthing

Partner, PwC United Kingdom

Tel: +44 (0) 20 721 25323

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