The Human-Centric Enterprise ebook is the result of a partnership between Thinkers50 and Mercer. The subject is close to our hearts at Thinkers50: understanding how to manage and lead organisations in the most humane way — in a way which truly maximizes the amazing variety of human potential.

With contributions from Mercer experts, The Human-Centric Enterprise portrays a working world in which best practice is being realigned to accord with the needs and aspirations of people rather than balance sheets or restrictive notions of efficiency. It acknowledges the powerful evolution of amazing technologies, but places them in the human context, as enablers of human achievement rather than replacements for people.

How do we reward employees in the future? Shanthi Naresh explores the “how,” “what,” “why” and “for whom” in her chapter. 

Shanthi is a partner with Mercer’s Career business in India and Bangladesh. She also leads the Transformation Community of Interest for Mercer’s Asia, IMEA and Pacific regions.

Shanthi has more than 30 years of experience, having held leadership roles across consulting as well as industry spanning multiple geographies, including India, Singapore and the United States. During her 15 years at Mercer, Shanthi served as the India Business Leader for the Career business for seven years. She has also led numerous complex multi-country HR transformation initiatives. 

Before joining Mercer, Shanthi worked at Sun Microsystems, Inc., in California as a member of the HR Strategy organisation, a think tank for identifying futuristic HR practices in response to global business and macroeconomic changes.

Shanthi earned her Master of Science by Research in organisation behavior from the National University of Singapore and a master’s degree in personnel management and industrial relations from the Tata Institute of Social Sciences. She is also a certified Hogan coach and Six Sigma Green Belt.

Watch our interview with Shanthi Naresh here:

Chapter 5: The next generation of rewards are human centered

The nature of how we work is changing, as we saw in Chapter 2, and fundamental shifts in the workforce and workplace post-pandemic have changed the calculus of how, where and when we work. We are also seeing radical shifts in how employees expect to be compensated for that work. If you want to keep and motivate talent in our new human-centric work environment, the first thing to do is rethink how you pay and make way for the next generation of rewards.

The evolution of pay and rewards hasn’t exactly caught us by surprise. In pre-pandemic times, we were already dealing with talent shortages and increased employee requirements for flexibility. In response, some companies had been moving toward a more deconstructed work model. By breaking jobs into logical parts requiring specific skill sets, organizations were able to gain more flexibility in redesigning jobs — whether for full-time work or projects.

As with most workplace trends, the pandemic put the deconstruction of work into hyperdrive, and we are now seeing a significant trend around those sorts of projects that require a narrower set of skills and run for smaller durations.

As the shape of work shifts to include project-structured jobs, it makes sense that we need a different rewards framework to support it. In the post-pandemic era, work-life balance and flexibility have become key asks from employees, and the stage is set for transformation. Organizations are dealing with multiple constructs around the workplace and embracing more employment models, including “gigs,” part-time jobs, job-sharing, etc.

All these changes are having a significant impact on how organizations are thinking and acting on the “how,” “what,” “why” and “for whom” of rewards.

The ‘how’ of rewards

In the first chapter, we described how progressive organizations are adopting and living up to the WEF’s new “Good Work Standards” announced at Davos in 2023. At the heart of that framework is a set of principles that encourage organizations to make rewards more equitable, fair, flexible, inclusive and focused on delivering total well-being to the entire workforce. That means any company committing to those standards will also be looking closely at the financial welfare of their employees and ensuring fair pay practices. These organizations are embracing values-based rewards practices because they believe being a responsible employer is core to their reputation and crucial in attracting talent.

A growing number of companies are likewise undertaking pay equity studies to proactively identify and correct pay gaps between diverse groups — and showing a willingness to stand the test of scrutiny by their employees and answer questions around fair pay and transparency. For example, the technology company Verve publishes all employees’ salaries, along with the rationale behind them. At Whole Foods, employees can ask about any employee’s salary and get a straight answer.

These human-centric approaches are having a significant impact on how performance is managed and how they link performance to rewards. With multiple employment models and diverse workplace definitions,

the focus of performance management is shifting to include both individual-centric measurement and team outcomes. Sometimes, those team outcomes carry much more weight. For example, the global engineering company Bosch has introduced a remuneration system that focuses on common and long-term targets, where variable pay is determined based on company and business-unit targets.

In addition to a team performance orientation, today’s performance management systems focus more on employee development, continuous feedback, and conversations between employees and managers. Individual growth and long-term business success are becoming fundamental design principles of performance management and are having a follow-on impact on promotion and rewards.

The ‘why’ of rewards

The “why” here is intuitive and simply stated. It’s so that companies can grow — equitably, profitably and sustainably — in a way that strengthens our communities and ensures a better future for all.

The ‘what’ of rewards

In the old world, pay was fixed, regular and transactional. You had a job or role, and your reward was payment for doing it — whether that check came weekly, monthly or on some other schedule. That kind of fixed pay linked to a job or role is probably not going to be enough, even though it’s likely to remain a key pillar for determining pay wherever employees continue to be in fixed roles.

But an increasing number of companies are adding new pillars into the mix. To address employee aspirations and grapple with talent shortages, many companies are deploying employees in the flex and flow work models described earlier in this book.

These models deploy employees for parts of jobs or even limited-duration projects, delivering work by applying specific skills. To adapt pay accordingly, companies are adopting a complementary skills-based pay model as their model of choice. An individual’s pay is computed as the sum of the market price for each of the skills deployed on the job.

Traditional pay structures comprise fixed pay and short- and long-term performance-based variable pay. Skills- based pay has emerged as a dominant third component — replacing fixed pay, variable pay or both.

Technology companies dealing with rapidly changing skill requirements have been early adopters of these skills-based pay models as they view paying premiums for in-demand skills as the only way to hire talent from the outside and encourage continuous upskilling of talent within the organization. Because they have a strong technology backbone with which to inventory skills, they are more easily able to track market trends and assess the going rate for top skills.

For example, two years ago, IBM asked its managers to make a rigorous effort to identify skills throughout the whole organization. This resulted in a new segmentation of skills. Today, rewards are strongly linked to those with in-demand skills, while those with skills that aren’t needed don’t see those incremental rewards. Identifying and rewarding the right technical skills allows IBM and other companies to continuously innovate as employees with obsolete skills are encouraged to either learn new hot skills for which there are extensive training budgets or to move on.

The rapid rise of the gig worker across many industries is also fueling these skills-based pay practices, especially where those gigs involve in-demand or niche skills. In such cases, the pay rate for a job has been replaced by the market pay rate for that skill.

The ‘for whom’ of rewards

So when it comes to the adoption and deployment of new rewards models, who is at the center? Human- centered rewards are designed with a flexibility that puts more power into the hands of individuals in the organization — to determine how, when and how much they will be compensated.

The skills crunch and changing demand from workers has led many companies to adopt much more agile team structures to meet the needs of their workers and their work. Agile team-based work was already very common in the technology industry but is now being seen across other industries. This means an individual may flow in and out of several projects or workgroups during the year, which can complicate the assessment of individual performance and contribution across projects.

With team-based performance outcomes becoming important, individual variable pay programs are being complemented and sometimes even replaced with team-based pay programs.

Team rewards are also being introduced to promote collaboration and innovation. For example, the software product company Intuit has team-based innovation awards for new products and also processes and rewards for learning from failure.

Traditionally, how much we have been paid has depended on which hierarchical level our job or role belonged to, with pay practices often dictated by a job tier, grade or level. However, over the past few years, employee research has shown that rewards must recognize the varying needs of individuals to be meaningful.

Indeed, the word “personas” has emerged as a powerful way to understand individuals and cohorts of individuals who are characterized by similar needs — and not always similar job titles. Instead, these personas tend to be defined by age, gender, location, work arrangement and even choice of workplace — cutting across hierarchical levels.

Like consumers, employees expect to have choice, flexibility and personalization. Recognizing this, Unilever has introduced a flexible rewards program called My Reward that allows employees to choose benefits that are most meaningful and relevant to them. Similarly, Netflix has offered employees the choice between cash and stock options. Employees can choose the amount of salary they want to receive as options. They also have the flexibility to choose the mix of pay and benefits to provide a rewards experience that best suits their individual needs.

As described earlier, the adoption of Good Work Standards has also prompted leading organizations to develop rewards programs that extend to diverse employee pools, including gig and part-time workers.

While fixed pay is common for gig workers — based on either their role or skills — what is emerging as a leading practice is the extension of medical, insurance and other benefits that used to be reserved for full-time employees. Some organizations are even providing such benefits to partners in their ecosystems. For example, Swiggy, an Indian online food ordering and delivery platform, has rolled out ambulance services for delivery partners and their dependents in addition to the medical insurance coverage the company provides.

Beyond pay

In the wake of the pandemic, companies have come to significant realizations regarding employee well-being. Both employees and organizations now recognize that meaningful and holistic total rewards must also deliver physical, mental, financial and social well-being, in both the near and long terms.

This means the definition of rewards now encompasses not just fixed and variable compensation but also things like insured and noninsured benefits, access to skills and learning opportunities, and programs that help employees become aware of and enhance their financial and mental well-being. To meet this new standard, many organizations have introduced incentives for skill acquisition, rewarding employees monetarily in the short term and enhancing their long-term employability.

Recognition programs that provide instant gratification are also growing in prevalence and are viewed by employers as a relatively simple way to enhance emotional connections and well-being in the organization. Interestingly, these recognition programs are now often focused more on peer-to-peer recognition, which provides an additional sense of empowerment to employees.

These recognition and rewards programs are seen as objective and are not necessarily based on the year-end performance assessment. For instance, a peer-to-peer bonus program at Google encourages coworkers to send a $100 reward to a peer for good work done. KPMG’s peer recognition program SHINE provides point rewards that can be redeemed for material rewards like an Expedia getaway, Apple iPad, gift cards and more.

Besides delivering a positive employee experience, this sort of total rewards approach is helping organizations deliver differentiation, innovation and inclusivity in their programs.

Enablers of new-age rewards practices

Responding to these rapid changes in the nature of rewards means organizations must be agile and adaptive. It also requires putting the right technology in place. In fact, the adoption of technology has become a key factor in driving many new-age rewards practices. Some organizations use a technology platform to aid employees in choosing their rewards and personalizing their rewards packages. Technology also enables organizations to deliver on transparency and pay equity goals. Finally, in the complex and dynamic world of skills, technology is helping companies identify and create their skills taxonomies — helping them to gather real-time market data on price points for each skill and create a dynamic and competitive skills-based pay program.

More than this, the success of most human-centered transformation initiatives rests on the people who mediate, implement and deliver them to employees. The manager’s role is vital in making the changed rewards practices work. Whether gathering data from the agile project teams the employee has been part of or including feedback from peers and other stakeholders, there is a much greater emphasis today on being fair and equitable.

Furthermore, with employees often having the choice and flexibility to work from different workplaces, the manager has become responsible for ensuring fair and unbiased evaluation of an employee’s performance. The role of the manager has changed from making decisions independently to collecting data from a network of sources, reflecting on it, synthesizing it, making a decision and communicating it to the employee transparently and empathetically.

The changing role of the rewards team

Changes in rewards are also transforming the way the rewards function operates in the organization — forcing those teams to repurpose and strengthen themselves.

Never before has the rewards function had to balance so many priorities — offering transparency while ensuring data protection and privacy, empathy, and inclusion; managing tight budgets; providing rewards differentiation without being inequitable; and managing innovation and agility at scale.

From redefining policies, processes and practices to becoming the organization’s guardian of fairness, inclusion and empathy, the remit for this function is rapidly evolving. Rewards practitioners themselves are rapidly acquiring new skills and participating in newer types of decisions. For instance, employee listening has become even more crucial for ensuring that the organization understands and incorporates what matters to the employees into the design of rewards programs.

Innovation, awareness, choice of appropriate technologies, superior communication and coaching are emerging as a few of the other core competencies for the rewards function.

Implementing next-generation rewards

Changing organizational culture is ultimately at the heart of this human-centered transformation, and rewards derive from and contribute to that culture. A human-centered approach to rewards is a very powerful lever for communicating culture and reinforcing desired behaviors.

Companies still beginning their journeys toward adopting next-generation rewards must first identify the founding principles or core values on which they will base their organizations’ rewards programs. The Good Work Standards framework is a good place for organizations to start as they think through their rewards philosophies.

The organization’s rewards philosophy and practices should be grounded in the reality of the nature of work. Consider the new workforce and employment models that are prevalent and emerging and what they will require to work well for your employees and industry:

• Hybrid and fluid types of work may require implementing a skills-based agile pay model or a mix of position- and skills-based pay.
• Permanent workers in fixed roles may need a combination of position-based, skills-based and performance-based pay.
• Team-based performance pay must be considered alongside individual-based performance pay.
• Performance measurement and alignment with rewards outcomes must be equitable, regardless of the employee’s place of work. They should also be differentiated based on the nature of work and skills.
• Manager capability and technology will be key to implementing rewards policies and practice changes.

When we harness the power of human-centered rewards, we position our organizations to be more responsive and competitive in the marketplace. That means continuously innovating and redefining our total rewards packages to be more comprehensive and extending them to both traditional and newer types of workers.

How will your organization prioritize agile, transparent, fair, inclusive, affordable pay practices and support a human-centric rewards transformation? Answering that question will ultimately position any company to compete more effectively in the war for talent and succeed in the future of work.