Michael Powner and Ellen Roberts write for People Management on the benefits and drawbacks of novel compensation packages

Michael Powner, Partner and Ellen Roberts, Trainee Solicitor, explore the new reward schemes being used by employers to attract and retain talent for People Management.

Read the full article below:

There has been a definite shift beyond traditional monetary rewards for employees, but careful thought needs to be given as to the appetite for risk to ensure as much certainty or guarantee as possible and instil employee confidence in any new scheme.

We have noticed three key areas where new employee attraction and retention ideas are coming to the fore: cryptocurrency, non-fungible tokens and ESG-linked bonuses.

Cryptocurrencies

Cryptocurrency/crypto is the now well-known offer of a decentralised digital currency. Here are some key considerations when incentivising using crypto:

Benefits

• Less red tape: as crypto is not regulated compared with national currencies, there is less expense involved in transfers.
• Speed of transfer: cryptocurrency transfers are far quicker than national currencies.
• Attracting millennials: cryptocurrencies are the now most popular investment among millennials.

Drawbacks

• Volatility: the value of cryptocurrency heavily fluctuates, and it has taken a steep decline in recent months, so appetite for risk is a key consideration.
• Cyber security: having a secure platform can be a real challenge with crypto wallets being targeted by scammers.
• Tax: taxation of crypto is complex and often lacks certainty.
• Environmental factors: the energy required for the hardware to validate crypto transactions is high, so companies looking to improve their carbon footprint may find this option unattractive.

Non-fungible tokens

Non-fungible tokens (NFTs) are digital assets that represent real-world objects like art, music and videos. Organisations can reward their employees with NFTs featuring their corporate branding in an imaginative way, reinforcing brand identity.

The main disadvantage of NFTs is that as they are a digital image – they do not generate an income in the same way as cryptocurrency and will not necessarily make any money if sold. Furthermore, cryptocurrencies are also often used to purchase and sell NFTs, so the relevant risks outlined above are another reason they are still in their infancy.

ESG-linked bonuses

ESG practices have a direct link to the successful financial performance of your business, according to recent research from Axioma, so shifting targets towards tackling ESG challenges is often seen as commercially sensible, with less risk and the potential for attracting a greater share of the talent pool.

PwC has recently analysed remuneration of FTSE 100 companies, finding that 60 per cent now include ESG measures as part of their executive pay plans. It states: “Executive pay and reward offer an important lever to align senior leaders with ESG challenges and is increasingly seen as a key tool to achieving change.”

Some goals we have seen include:

• Environmental goals: In 2021 Siemens outlined performance criteria to be achieved to receive variable compensation for managing board members, including reaching climate neutrality by 2030.
• Diversity goals: McDonalds is tying 15 per cent of executives’ bonuses to workplace diversity, with targets of boosting female and underrepresented minority representation in leadership roles.

These schemes have the potential to incentivise employees to achieve ESG targets and stimulate a more positive culture with greater ESG awareness.

The main challenge with ESG-related targets is directly assessing employee contributions to their goals. Employers must ensure that any such schemes are implemented with both measurable and achievable targets.

The full article was first published in People Management.