How Can an Employer Incentivize Social Responsibility?

How Can an Employer Incentivize Social Responsibility?

At an all-company meeting last week, Facebook CEO Mark Zuckerberg announced that the company was retooling its employee bonus system to reflect a new set of priorities, focused on addressing the controversies surrounding the social media giant concerning the proliferation of hate speech and misinformation on its platform. In addition to traditional metrics like user growth and product quality, Facebook will reward employees this year based on their success at promoting the social good including combating fake accounts, protecting users’ safety, and making progress on other social issues affected by Facebook and the internet in general.

The decision to reward employees for doing social good reflects a challenge that many companies, particularly large corporations with major public profiles, are facing today. Investors, politicians, the media, and consumers are paying more attention than ever before to the social, environmental, and ethical consequences of what businesses do. And Facebook is not alone in this desire, for example, Chevron recently announced that it would tie executive compensation to reductions in the energy corporation’s greenhouse gas emissions. This dynamic, in turn, puts more pressure on corporate leaders to deliver sustainability and social responsibility as well as growth.

For Facebook, awarding bonuses to employees for meeting social responsibility goals will inevitably test the company’s ability to live up to two truisms: “actions speak louder than words,” and “what gets measured gets done.” To the first point, companies can articulate all the values they want, but at the end of the quarter or fiscal year, what matters is whether the organization actually lived up to those values in its day-to-day business practices. We’ve seen companies attempt to project an image of social responsibility, only to get called out for not really reflecting that image in their work. The impact of Facebook’s new policy will take time to fully materialize, but when it pays out bonuses for 2019, investors and reporters will be curious to see whether they have really rewarded the kind of choices they say they intend to, and whether those rewards reflect a real change.

As to the second point, Facebook has set itself an ambitious goal of identifying quantifiable metrics by which to determine progress against its goals of social good. Facebook has acknowledged that there is no easy or obvious formula for doing this, but they are looking at targets like number of fake accounts shut down daily or improvements to safety and security as possible metrics. Being a data-driven company, Facebook will likely get more granular and detailed about how it defines success, especially with both the media and governments paying closer and closer attention.

Here are four things that any company considering a similar change should be ready to do to make it more likely that an incentive program like this will be successful:

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US Employees’ Bonuses and Benefits Growing Faster than Wages

US Employees’ Bonuses and Benefits Growing Faster than Wages

The latest compensation data from the US Labor Department’s Bureau of Labor Statistics show that total compensation for US employees has increased modestly over the past year, from $35.28 per hour worked in June 2017 to $36.22 per hour worked in June 2018. Wages and salaries averaged $24.72 per hour worked and accounted for 68.3 percent of these costs, while benefits averaged $11.50 and accounted for 31.7 percent. For private sector employees, compensation has increased from $33.26 per hour worked to $34.19. Wages made up $23.78 or 69.6 percent of that figure, while the remaining $10.41 (30.4 percent) consisted of benefit costs, in which the BLS includes supplemental pay.

While the percentage ratio of wages to benefits was unchanged from June 2017, benefit costs grew at a slightly higher rate than wages year-over-year, nearly 3 percent compared to 2.7 percent. This reflects a nearly 12 percent increase in bonuses and other forms of supplemental pay, from $1.18 per hour to $1.32; supplemental pay made up 3.8 percent of the total compensation mix in June 2018, compared to 3.5 percent a year earlier. Paid leave, including vacation time, also increased slightly.

Taking a longer-term view, over the past five years, benefit costs for private-sector employees have increased by over 20 percent, from $8.64 per hour worked in June 2013; whereas wages and salaries have increased 16 percent, from $20.47 that month. Supplemental pay, by comparison, has increased 65 percent from 80¢ per hour worked in June 2013. This trajectory reflects the increasing tendency we’ve observed among employers in recent years toward variable pay schemes that reward employees for high performance with one-time bonuses rather than standard annual raises.

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Salary Budget Surveys Project Only Modest Wage Growth for US Employees Next Year

Salary Budget Surveys Project Only Modest Wage Growth for US Employees Next Year

Despite historically low levels of unemployment and high demand for labor, salary budget surveys for 2018-2019 suggest that US wages will grow on average by just about 3 percent both this year and next year, continuing a trend of lackluster raises despite labor market conditions that theoretically should push earnings higher. The WorldatWork 2018-2019 Salary Budget Survey projects a mean average wage growth of 3.2 percent and a median 0f 3.0 percent next year, little changed from 3.1 percent (mean) and 3.0 percent (median) in 2018.

Employers are continuing to devote a significant share of their salary budgets to variable pay, WorldatWork found, but these budgets also aren’t growing, SHRM’s Stephen Miller observes:

Some 85 percent of U.S. employers gave out performance-based bonuses or other forms of variable incentive pay in 2018, the survey shows, and the amount of variable pay budgeted and paid out, for all employee categories, has been stable for several years. When total rewards professionals were asked about their variable pay budgets for 2019, their responses were virtually unchanged from the amounts budgeted for this year and … for 2017.

Alison Avalos, director of membership and total rewards strategy at WorldatWork, tells Miller that one reason why these budgets aren’t increasing is that employers are increasingly using benefits to attract and retain talent instead of cash rewards, including intangible benefits like professional development opportunities and purpose-driven organizational cultures that align with employees’ personal values.

Similarly, Willis Towers Watson’s 2018 General Industry Salary Budget Survey finds that US professionals can expect raises of 3.1 percent on average next year, compared to 3.0 percent this year. Wage growth has leveled off at around 3 percent per year over the past decade. Their survey also found that star performers would once again see higher increases next year, and registered a slight increase in budgets for discretionary bonuses:

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Nike’s Pay Equity Audit Leads to Raises for Thousands of Employees

Nike’s Pay Equity Audit Leads to Raises for Thousands of Employees

Following an internal review of its pay practices, Nike is raising wages for more than 7,000 of its employees worldwide, the New York Times reported on Monday, in order to equalize compensation among employees in the same roles:

Nike cast the pay changes as part of its effort to maintain a corporate culture “in which employees feel included and empowered,” according to an internal memo sent to staff on Monday. The New York Times reviewed a copy. The company, which is based in Beaverton, Ore., said the changes would affect about 10 percent of its 74,000 employees worldwide. … Nike also announced changes in how it will calculate employee bonuses, which were based on a combination of corporate, team and individual performance. They will now be determined mainly by the company’s results.

Nike reviews pay every year, the memo noted, but conducted what it called a “deeper analysis” this year as part of its investigation into alleged problems that were driving many women to quit. Addressing the discrepancies found in this audit will be expensive for Nike, but one thing most companies don’t realize about pay equity is that this cost of closing pay gaps increases each year, so it will never be cheaper for Nike (or any company) to correct this problem than it is today. Pay gaps don’t have a “one-and-done” solution, however, so it’s important for organizations to continue scrutinizing pay practices from year to year to spot the re-emergence of these gaps and take proactive steps to ensure that their pay practices remain equitable. (CEB Total Rewards Leadership Council members can read our entire landmark 2017 study on pay equity here.)

The change Nike is making to its bonus calculations is also notable, as it reflects the growing understanding of how variable compensation such as bonuses contributes to pay gaps. This “bonus gap” occurs when more men than women (or more white than non-white employees) are promoted to the high-level positions that make them eligible for bonuses, or when unconscious bias affects the performance judgments managers make in awarding them. The significance of the bonus gap was illustrated in the gender pay gap reports UK employers were required to publish earlier this year: Financial firms in particular found that their bonus gaps, in some cases amounting to over 60 percent, were bigger factors in their overall gender pay gaps than differences in base pay.

Qualtrics’ Experience Benefit Illustrates the Power of Innovative Rewards

Qualtrics’ Experience Benefit Illustrates the Power of Innovative Rewards

Qualtrics, a customer and employee experience management company based in Provo, Utah, introduced a new bonus scheme in January that focuses on its own employees’ experiences. The new perk, which replaced the company’s $1,000 Christmas bonus, offers employees $1,500 expressly to fund meaningful experiences for themselves and their families. SHRM’s Kathy Gurchiek takes an extensive look at this “experience bonus” and how Qualtrics employees are using it:

At Qualtrics, a full-time employee who has worked at least one year at any of its 14 offices—regardless of one’s job performance rating or review—may submit a form outlining the experience he or she has planned. Qualtrics deposits the money into the employee’s account for that purpose.

“We’re not going to judge and say ‘you should do this or that.’ … We want you to do what’s meaningful for you, and we want to empower you to do something [special],” said [Mike Maughan, head of global insights at Qualtrics], who used his bonus to visit his parents who had moved to Melbourne, Australia. Unused bonus money does not accumulate, as the company wants to encourage employees to savor life.

Qualtrics employees, 80 percent of whom are millennials, have used their bonuses in a variety of ways: diving with sharks, hiking the Great Wall of China, seeing Hamilton from the third row, or launching a charity to raise money for an orphanage in Kenya. The original idea behind the benefit, Maugham said, was to exemplify the company’s culture of wanting the best for its employees, but it has also paid off as a recruiting and retention tool.

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United’s Bonus Lottery Misstep Highlights Risks of Gamified Rewards

United’s Bonus Lottery Misstep Highlights Risks of Gamified Rewards

When United Airlines announced earlier this month that it was replacing its quarterly performance bonuses with a chance for eligible employees to win prizes in a quarterly drawing triggered by reaching certain performance goals, the blowback from employees was swift and fierce, forcing the airline to quickly backtrack on the plan. By swapping out the modest quarterly bonus for a chance of up to $100,000, United President Scott Kirby had hoped to make the bonus program more exciting for employees, but the Kirby and the rest of United’s leadership misjudged how employees would react to what many saw as a cost-cutting measure that would make it harder for most of them to earn bonuses.

What happened at United can serve as a learning opportunity for other CEOs and rewards leaders, underlining the risks the come with using gamification to motivate employees. Workplace games can sometimes be more effective motivators than cash, as “winning” offers a form of social recognition that financial rewards don’t. Employees can write off losing out on a cash bonus as the price of taking it easy at work, but recognition that is visible to one’s co-workers and serves a social function can motivate them in a different way.

Gamified motivation tactics can also be cheaper and more cost-effective than extra cash, the New York Times‘ Noam Scheiber points out, even if the only prize the game offers is a compliment from the boss. United’s mistake was not in introducing a gamified element to their rewards program, per se, but rather in what it took away to make room for it. In other words, the psychological rewards of winning a competition can be motivational when they come on top of regular compensation, but they can’t be a substitute for it:

“Shareholders and management get the monetary rewards, and ‘meaning’ and ‘excitement’ are consolation prizes that go to workers,” said Caitlin Petre, an assistant professor of media studies at Rutgers University who has examined similar practices at media companies. “This is very much in line with my understanding of how the gamification trend in workplaces operates.” …

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UK Banks’ Gender Pay Data Shows Impact of Leadership Gap

UK Banks’ Gender Pay Data Shows Impact of Leadership Gap

Several major financial institutions in the UK have submitted their gender pay gap figures to the government in recent weeks in compliance with the law requiring them to do so by April 4. The data illustrate just how far the sector has still to go if it intends to achieve gender parity in earnings and career progression. The most recent bank to release its pay information is HSBC, which on Thursday reported a median pay gap of 29 percent and a mean gap of 59 percent based on hourly pay in 2017, the BBC reports. The bank also a median gap of 61 percent for bonus payments.

HSBC says these discrepancies are due not to pay discrimination, but rather to the underrepresentation of women in its leadership:

HSBC said its pay gap was largely down to the fact it – like its rivals – has fewer women in senior roles, with just 23% of higher positions held by women. Across the whole organisation, however, 54% of its workforce is female. HSBC has a target to try to improve its gender balance and aims to have 30% of senior roles held by women by 2020.

Barclays, meanwhile, revealed a median hourly pay gap of 43.5 percent, the BBC reported last month, greater than all but 28 of the 1,154 companies that had published their data so far. Lloyds Banking Group and the Royal Bank of Scotland reported average gaps of 33 percent and 37 percent, respectively, Bloomberg reported, highlighting that these wide gaps also reflected a dearth of women in senior roles—an imbalance the banks said they were committed to addressing:

The gender pay gap “is not where we want to be,” RBS Chief Executive Officer Ross McEwan, said in a call to reporters Friday. “We need to have more females in senior roles and we set some ambitious targets in the next three years to improve it and that’s what affects the gender pay gap.” Men make up about 70 percent of the employees in RBS highest-paid quartile, mirroring the proportion of women in the bank’s lowest-paid quartile. … Lloyds said Friday that its bonus gender gap was around 65 percent.

That the financial sector suffers from significant gender gap is not new: It’s one of the reasons why London’s overall gender pay gap is higher than any other region of the UK. Common among these firms is the concentration of women in lower-ranking roles with less bonus potential than their mostly male superiors.

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