Time for pay professionals to escape the back office

The data carried by reward and payroll departments needs to extend well beyond the back office. It can support organisations to identify opportunities and improve employees’ financial wellbeing, says John Petter.

At the start of this year, a study from the High Pay Centre revealed that FTSE chief executives earn the average employee annual salary in just three working days. Naturally, this had a lot of people from the world of business and HR talking about the nature of pay and reward.

In truth this is just one part of a much wider discourse which has emerged over the past few years around the importance of pay and reward. It’s one of few major issues that impacts every employee within an organisation.

Until recently, outside the highest levels of the organisation, pay, payroll and HR administration has been miscast as either a branch of industrial relations or a back-office backwater.

However, the combination of an increasingly complex legislative landscape, the growing trend towards the strategic use of “people data”, and concerns over financial wellbeing means that this is simply no longer an adequate response to the challenges facing companies.

Navigating the legislative landscape

Executive pay ratio reporting is just one of many legislative changes in the field of pay and reward that have come into force in recent months and years.

Whether you agree with it or not, this is a trend – we should expect similar reporting obligations in future years in the fields of ethnicity and disability.

These regulations are numerous and complex to the point where businesses can’t afford not to take them seriously.

And it’s clear that there’s still plenty of work to be done: in the same week as the study from the High Pay Centre was released, it was also revealed by the Resolution Foundation that a quarter of National Minimum Wage employees under the age of 25 have been underpaid. In 2018-19, HMRC identified £24.4m in minimum wage underpayment for more than 220,000 workers.

Similarly, it was found by Paygaps.com that a third of gender pay gap reports from 2018 contained errors and inaccuracies. If the same now happens with executive pay gap reports – especially in light of the recent news stories – businesses will face major reputation damage.

I don’t believe that firms that make mistakes in their pay reporting actions set out to mislead. Rather, it’s more likely the case that businesses don’t have strong enough compliance measures in place or good enough systems to facilitate a “right first time” approach.

It’s time for employers to see the increased scrutiny of pay and reward practices as an opportunity to upgrade their current systems and processes to ensure they’re fit to meet the rigours of today’s legislative landscape.

Harnessing the power of data

The push towards stronger reporting processes also highlights the growing strategic importance of payroll and HR data. These days every aspect of a company’s operations generates data and a source of potential insight.

Production, distribution, finance – these have always been data rich environments. But now even marketing and advertising (traditionally the last bastion of inspired guesswork) generate a vast amount of digital data and insight from search results and click-throughs. These digital feedback loops help companies refine and improve their approach to managing their operations.

Traditionally payroll and HR data has sat in a back-office stove-pipe, stranded in some legacy system. In too many companies the mindset of “if it ain’t broke don’t fix it” prevails, as investment is diverted elsewhere, often the to “shinier” parts of HR like talent and learning.

There is frequently a long time lag between a change in an employee’s situation and this being recognised by the system – which creates a doom-loop of rekeying, over-payment and poor experiences. In some companies, processes might even be paper-based – which generates universal bafflement and frustration, particularly among younger employees who live on their phones.

However, progressive companies are thinking about this differently. In most companies the biggest overall cost is the wage bill – so the combination of data in the HR and payroll systems represents an incredible opportunity for insight into how the company is both spending its money and treating its people.

The key is to make this accessible in a secure and compliant way to HR professionals, without depending on specialist analysts or IT people to generate complex reports or run mind-bending scripts.

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The expectation should be that HR professionals should be able to create powerful, boardroom-ready reports on people-related topics in a few clicks with absolutely no training at all. Moreover, to really maximise the potential value, companies can integrate HR and payroll data with other key data in the organisation, to show how people choices drive business outcomes.

Supporting wellbeing

However, professionalising the management of HR and payroll isn’t a narrowly commercial exercise. Companies can also create long-term business value by using it to promote the wellbeing of employees.

Having managed very large teams of people in big operations in the UK and Ireland over the last decade, one consistent pattern I have seen is the correlation between attrition and absence with mental health issues.

Mental health is a big topic – but financial stress is a consistent theme in any analysis I have seen since the financial crisis 10 years ago.

Companies need to think about their HR and payroll processes as being an opportunity to improve financial wellbeing – and hence tackle the causes of stress that drive absence and attrition. But what does this look like?

There is a bright line to be drawn between providing “financial advice” (something that is professionalised and regulated and employers should steer clear of), and using education to help improve knowledge and awareness.

Our research at Zellis points to a big gap among businesses – less than half (44%) of UK employers currently offer financial literacy programmes. This is despite the fact that 58% of employees don’t fully understand their payslips, 40% don’t know the total value of their pay and benefits, and 25% don’t feel they are given enough information about their pension options.

We found that employer-sponsored financial education initiatives would have a notably positive impact on engagement and wellbeing, as 63% said they would feel more looked after, 33% said they would be more loyal, and 31% said they would feel less stressed about money issues. For employers already struggling with productivity and retention, it’s clear that these initiatives would be mutually beneficial.

Back office to boardroom?

These topics are all linked. There is no doubt that the climate of opinion on executive pay is bound to be affected when the news reports regularly feature companies breaching minimum wage obligations and where wage-earners are feeling under financial pressure.

The key is to have modern processes, data-based insights easily accessible to the HR team, and forward-thinking financial wellbeing initiatives.

Companies that currently see pay and reward processes as “back office” issues may want to consider whether they are actually best placed at the top of the boardroom agenda.

John Petter

About John Petter

John Petter is CEO of HR and payroll software company Zellis
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