Impact of technology on the workplace

I wrote the article below a few weeks ago about how the workplace is changing with the impact of technology. CSC has today published the results of its own internal survey (over 6,500 CSC employees responded so a good sample size) as to the "Future of Collaboration within CSC". The survey looked to get feedback on how powerful the internal social media site (called C3) has become in facilitating employees with their daily work. The summary highlights are as follows:

1. 60% of those responding use C3 daily to do their job and an additional 25% access C3 at least weekly.

2. C3 is used principally across all demographics to:

obtain information and answers

locate tools and applications

collaborate in business-based groups and communities

search for CSC strategy updates, global messages, and regional news.

3. The overall user satisfaction with C3 is quite positive, with an average score of 7.7 out of 10.

4. 63% of respondents are likely to recommend C3 to others and about 30% are extremely likely to do so.

5. The C3 contribution rate is currently three times the industry norm with those taking advantage of C3 training and members of key communities having the highest contribution rates.

How is the workplace changing with the impact of technology?

The impact of technology is having significant impacts on resourcing in the workplace. The use of social media and professional networks such as Linkedin are now being used to attract previously difficult to reach talent and often Linkedin is the single biggest direct hiring channel compared to agency recruiters, say, 5 years ago. Social media is also being used to engage early with potential employees and develop the employer brand and then keeping employees in touch once they have left with alumni who may rejoin the company again or recommend friends.

As an example of mobile technology being used for recruitment, Intercontinental Hotels Group use the tweetmyjobs app and a mobile location app which allows potential employees to receive information about jobs available as they are passing a hotel. This Group are also developing gaming technology to give potential recruits a sense of their culture and brands and delivering via social media channels such as facebook.

As a new generation of employees have grown up with computer games and virtual worlds, the coporate world is beginning to explore the possibilities of gaming and simulation technology for training and assessment.

How do companies meet the challenge of finding ways to foster employee engagement when the workforce is becoming more disconnected from a physical environment?

One of the most significant workplace trends is the rise in flexible working, covering working hours, locations, hot-desks, flexible shift structures and job shares. The availability of technology facilitates remote working and organisations now generally acknowledge that employees do not need to be physically present to be effective.

There are many cases of flexible working perhaps the most interesting are Unilever's agile working programme, which has the objective of cutting office space and making 30% of roles "location free" by 2015. The following principles underpin their programme:

• All employees may work anytime and anywhere as long as business needs are met
• Leaders must lead by example, working in an agile way themselves
• Performance is driven by results and not time and attendance
• Travel has to be avoided wherever possible
• Managers are assessed and rewarded annually on how well they support agile working.

Plus BT's Work Smart strategy which has introduced 'homeshoring' where call center jobs are staffed by employees working from their own homes. This reduces the need for physical premises and avoids moving jobs to lower cost countries such as India. It has been established that BT's home workers are up to 30% more productive as they can respond to fluctuations in call volumes.

A study from McKinsey in July 2012 shows the following social media numbers:

• There are now more than 1.5 billion social networking users globally
• 80% of online users interact regularly with social networks
• 70% of companies use social technology
• 90% of companies that use social technology report some business benefit

With a workforce becoming more disconnected physically it is important that employers engage more actively via new technologies: actively soliciting views to allow people to have a voice, and ensuring leaders are communicating regularly (using videos or blogs), in order to maintain employee buy-in to the strategy and achievements of the company.
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Defined Ambition will it be DB-lite or DC-plus

 

As reported in Professional Pensions today Steve Webb has set out proposals for the design of defined ambition pension schemes in a DWP paper Reinvigorating Pensions. This paper sets out the government's desire to move workplace pensions to risk-sharing structures, proposals for reforming pension scheme charges and suggestions as to how public trust in pensions can be rebuilt.

Whilst this debate is healthy, will it really persuade employers (without legislative change) who have already made the move to pass both longevity and investment risks to its employees through the use of DC pension vehicles to want to start sharing some of this risk again?

Those employers who feel sharing of risk is important have already moved to career average or cash balance schemes which would meet the governments definition of Defined Ambition. But there are also examples of companies that have still found the unpredictability of these career average/cash balance schemes not sustainable and having moved from Final Salary to a type of schemes the paper describes as DB-lite have subsequently moved to full DC arrangements.

Perhaps the solution that employers will find more palatable are therefore the DC-plus options rather than DB-lite.

The DC-plus options set out in the paper (and I am sure there are more) are summarised below:

DC-plus options

• A money back guarantee funded by a levy on members' funds. This would share the investment risk between the individual member and the mutualised fund.
• A guarantee to cover retirement income in later years, funded by a levy on members' funds.
• A guaranteed fixed-period return purchased on a member's behalf, incorporating risk sharing and guarantees.
• Standardised income guarantee insurance.
• Employer-funded ‘smoothing fund', where the employer would pay a percentage of ‘core' contributions into a central fund that is used to manage a targeted outcome at retirement, possibly via annual bonuses or final terminal bonus.

These ideas will require a fundamental change to the providers traditional models of pension products - I look forward to some inovation from the DC providers on this topic!

Is the future flexible?

A summary of my session at the NAPF conference in Liverpool - October 2012 - is attached in the slides below. I was also interviewed after the session by the Editor of Employee Benefits magazine on why CSC is using its flex provider Benefex to deliver our auto-enrolment solution. The link to the video clip is below.

http://www.employeebenefits.co.uk/benefits/flexible-benefits/video-jenny-davidson-using-flex-to-deliver-auto-enrolment/100435.article

In conclusion, many employers appear to be expecting to rely on their pension provider to full-fill the employer duties of the auto-enrolment regulations. However having worked through the detailed timing consequences of the opt-out period and when contributions need to be returned to the employee or paid to the scheme, I feel that it will be the payroll and flex providers who are better placed to do this.

The session started by asking the question who was helping employers fullfil their duties under auto-enrolment legislation. No-one in the audience selected their flex or payroll provider. The overwhelming view was that it would be the Pension Providers.

 

Making auto-enrolment work

  


Fast food giant McDonalds announced today that they will use the National Employment Savings Trust (NEST) for 35,000 hourly-paid workers as part of a two-tier auto-enrolment solution.

Any eligible hourly-paid workers at the burger chain will be auto-enrolled into the National Employment Savings Trust, but salaried workers (around 2,000 employees) will be placed in its existing Friends Life stakeholder scheme.

There seems to be a trend emerging amongst those employers with different workforce segments (such as large groups of low-paid or part-time employees) adopting two tier auto-enrolment solutions – using NEST for the lower paid and alternative arrangements for higher salaried employees. Consultants such as First Actuarial are creating models to advise which groups of employees should be offered NEST, so as to get best value annual management charges from the provider of the second tier of the solution.

McDonalds will begin auto-enrolment for salaried staff on 1 January 2013 and will use postponement to delay auto-enrolling hourly-paid staff until 13 January to fit in with the pay period.

McDonalds will not be alone in delaying auto-enrolment for a number of days or a couple of months and a few days (companies are able to postpone for up to 3 months) for payroll reasons. It is not until we went through a detailed timetable of payroll dates, contribution payment dates and what is required in the auto-enrolment regulations that we at CSC came to a similar decision.

The key high level requirements are:

• If an employee opts out then a refund needs to be paid to the employee within 1 month of receiving the opt out notice.
• If the employee does not opt out then the contributions need to be paid over to the pension provider by the last day of the second month following the month in which auto-enrolment falls.

To avoid the payment of contributions to a provider where an employee decides to opt out we will hold any contributions deducted from payroll until the end of the opt-out period and then either refund these within 1 month of receiving the opt out notice or pay to the provider in the following pension payment processing period.

Taking an example of an employee joining the Company on 15^th August 2013 and, because the Company is operating a postponement period of 3 months, their auto-enrolment date is 15^th November 2013 - they have a month in which to opt out. If the employee does not opt out the contributions need to be paid over to the pension provider by end of January 2014 (the last day of the second month following the month in which auto-enrolment falls). However due to payroll processing dates we would not pay the with-held contributions to the Provider until 9^th February 2014 – too late!

To resolve this if we only postpone to the 1^st day of the 3^rd month (so by 2 months and a number of days) then we will be able to process within the timescales set out in the legislation.

All employers need to review the detail of their payroll and pension payment processes before making a decision in relation to any postponement period they may apply.

Does the Government actually want people to save for their retirement?

I do not often get emotive about a particular issue – I leave that up to those whom I follow on Twitter. However I am planning on handing a letter to Steve Webb at the NAPF conference in Liverpool this week which I crafted jointly today with the Unite union on the topic of retrospective tax legislation (namely the Finance Act 2004 as amended by the Finance Act 2011).

One would assume that it was not the intention of Government to penalise individuals who have made prudent and proper provision for their future retirement and now find themselves subject to retrospective and punitive tax.

I know of examples from pension schemes in the private sector who have taken on generous redundancy liabilities from the public sector and whose employees are now finding themselves adversely impacted by two areas of tax legislation. These employees are earning in the region of £30,000 to £45,000 – not exactly high-earners trying to avoid income tax.

To increase awareness I summarise the main facts in the rest of this article.

It is not uncommon for there to be collective agreements in place ensuring that employees who are outsourced retain their contractual entitlements to enhanced pension benefits in redundancy situations, often including additional service enhancements. In many instances these public sector outsourcing contracts have been in place for a number of years before the introduction of the relevant tax legislation.

From 6^th April 2011, the annual allowance was reduced by the Government from £225,00 to £50,000 per annum, although any unused tax allowance from the previous three years can be used to offset any liability in the current tax year.  This is a change to the employee's personal tax position and is administered via self-assessment.

The increase in the value of defined benefit pensions on redundancy means that some employees will be subject to an annual allowance tax charge of 40% on any amount above the £50,000. This additional tax is calculated by HMRC based on a notional value of the increase in benefits over the last 12 months even if the employer has not made any additional contributions and requires the tax to be paid up front.

I have seen circumstances where this tax bill is greater than the tax free cash sum the member is receiving on retirement and about the same level as a year’s Salary. The tax man wants more than the employee has actually received!

Sometimes due to differences between a pension scheme’s pension input period and the tax year, this tax liability is not calculated nor due for some time – in one example an employee leaving at the end of July 2012 is not due to pay the tax until January 2015. The tax charge and the timing of its payment could therefore act as a disincentive for an individual to look for further employment due to being subject to a higher personal rate of tax in the following year.

Plus has anyone thought about the impact of auto-enrolment for an individual who has already exceeded the annual allowance, not in the year of being auto-enrolled, but in a subsequent tax year, due to the impact of being made redundant?

As a result of the likely increase in annual allowance charges the government has introduced legislation to allow individuals to ask their scheme to pay the tax on their behalf with their benefits being reduced correspondingly (“the Scheme pays” facility). However it is not completely clear how the Trustees can implement such a facility when the amount of tax falling due will not be known by the scheme member at the time they need to make such an election (ie before the benefits become payable). This in itself could be problematic if the Trustees reduce the pension at some future date once the tax charge is known as this becomes an unauthorised payment.

The Finance Act 2004 categorises pension payments that are permitted as “authorised payments” and any payments that fall outside the requirements are “unauthorised payments” which carry penal tax charges for both the member and the pension scheme. One of HMRC’s requirements for a pension payment to be authorised is that the amount of pension paid should not reduce year on year unless the reduction is expressly permitted under the Act (in very limited circumstances).

I know of several final salary pension schemes in the private sector where a temporary pension is paid on redundancy until such time as the individual can claim their pension from the previous scheme, again based on collective agreements originating from public sector outsourcing.

 If the employer chooses to pay this temporary pension from cash flow and via payroll then fine, but if it is a pension scheme that makes these payments then a tax charge arises at the time the temporary pension ceases and the pension in payment is reduced. This tax charge is made up of the following: a retrospective tax charge of either 40% or 55% (see the HMRC manual to work out which – if you can) on any tax free lump sum which has already been taken at retirement, plus the future pension payments have an ongoing tax liability (for-ever) of 40% (which again could be increased up to 55% on the first 12 months pension payments) as opposed to perhaps a marginal income tax rate of 20%. 

In my example mentioned earlier of the guy who had to pay more income tax as an annual allowance charge than he had received from the scheme as a cash lump sum – he then had to pay tax at 55% on the same cash lump sum when his temporary pension ceased to be paid 5 years later!

This was originally recognised by HMRC as being an issue and transitional arrangements were passed in legislation in 2009 but the exemptions given only applied to employees who left service before July 2007, so it is still an issue for anyone in that situation today.

You may say that we can no longer afford these generous public sector redundancy terms – and I agree - but where does it leave those employees who have been moved to the private sector and are now seeing their valued redundancy rights more than eaten away by retrospective taxation.

What can we learn from Private Equity?

Historically, there has been the misperception that Private Equity makes its money by cost-cutting and asset stripping, not investing in the business and having a short-term focus. However the recent downturn in the economy has made it apparent that to survive private equity firms need to do more than concentrate on transactions but they need to focus on the running of the businesses in which they have invested to ensure good returns, especially as they are likely to hold these companies for a longer period of time.

So what are the more successful private equity firms doing and how can businesses learn from these successes. The following key practices were discussed at a recent meeting of the PARC (Performance and Reward Centre) led by Lisa Stone of HgCapital.

·         Focus on growth

·         Medium to long-term focus

·         Plans and priorities

·         Focus on people

·         Effective Boards

·         Alignment of incentives

In this blog I am going to highlight how reward strategies can support Private Equity businesses with their turnaround agenda.

HgCapital data has shown how for every pound invested twice as much value comes from revenue growth than from margin (ie reducing costs). With Private Equity the time horizon to drive more growth is likely to be around the five-year mark. Where growth is required revenue would normally be the highest weighting in the short term incentive plans (50% based on Revenue, 25% on profit and 25% on other targets would be quite common).

Strategic metrics which align to the business plan and are cascaded and owned by the management team are also important to ensure that the strategy is clear, accountable and measurable. Therefore key indicators such as Net Promoter Score (Customer Satisfaction) or sales conversion rates could also be included in the incentive plans.

In times of change the incentive measures are often changed annually to react more tactically to the new strategy and business plan.

Private Equity firms normally appoint non-executive directors but they are entirely dependent upon the management team and continued engagement of the staff. This requires a particular focus on people and in particular employee engagement. If your business has implemented metrics to monitor employee engagement then consider included these metrics in the management incentive plans.

As with most companies the remuneration packages of the Private Equity boards will comprise of base salary at the market rate for the industry and bonuses of around 100% for the CEO and 60-70% for the CFO. As mentioned above the bonus plans are likely to be tactical and linked to the critical criteria of the business plan for that particular year.

Equity plans will most likely be two-fold; plans which receive the executives own investment (usually at about 1 x salary) and those which are provided by the Company. For a CEO the equity provided by the Company is likely to vest over the planned investment period and pay out only where there is a successful exit from Private Equity status. The value of the equity provided to the CEO at the end of the investment period will vary considerably but is generally distributed to the top 20 executives with the CEO perhaps receiving 5% of the value of the business and the CFO receiving 2%. Of course Private Equity deals are generally highly leveraged and therefore there is the risk of the Executives losing their own investments as well as the potential upside.

The two biggest contrasts between Private Equity and PLCs are with the short-term and long-term incentive plans and using these to support delivery against the business plan.

The focus on the bonus plan being tactically used with a few measures which change each year – rather than the desire within PLC for a balance of financial measures and continuity in their bonus design.

With the equity plans it would be very difficult to persuade the Rem Co and the shareholders that a single event should be the criteria for vesting rather than market related performance criteria such as EPS.

So although there is much to learn from the success stories within the Private Equity arena there must also be a recognition that Corporate PLC needs to align to shareholder interests which are much different to those of the senior executive team.

Interview with Mike Lawrie, new CEO of CSC

Week 2 at CSC and is the interview below with a reporter on the Wahington Post a snapshot into Mike Lawrie's 100 day plan? I await with interest to see what unfolds in relation to the changes he will make in the organisation sturcture and how he will align the Board and the senior leadership team. I will play my part in what I can do to align the compensation strategy and systems to enable the business strategy to be executed and to role model the values which will be expected of the senior executive team.


What leadership skills does it require to do a major turnaround?
The starting point is trying to determine with your team what do you want to be the best at and how you want to differentiate yourself in the marketplace. The second step is to get a strategy together that allows you to achieve that vision. The next step is to get an organizational structure in place that allows you to organize your most important assets — your people, your human resources, intellectual capital — so you can execute the strategy. Once you decide on the organization, you need to recruit the right leaders to actually run that organization. Then you need to get your compensation systems, measurement system and management system to monitor the progress that you make and then make adjustments as you go along. I have used that basic formula for 15 years. To a large extent, that’s the process I am beginning here at CSC.
Your first stint as chief executive was at Siebel Systems. What would you have done differently?
I would have tried to get more conviction and buy-in from the board as to what needed to be accomplished and the threats to the existing business model. I don’t think I did a good job in clearly articulating that. I also think I was slower than I should’ve been in bringing a team in that could execute against that changing business model.
You are known for improving client satisfaction at Misys. How did you do it?
The first thing we did was ask our customers how we were doing. Up until that point we had never done that. I hired a third-party firm to do that. It turned out we were not doing very well. It wasn’t hard to see the four or five things that we needed to improve on. So we put a game plan in place. We listened and acted.
Do businesses do that enough?
I think it’s spotty. Even at CSC, we don’t have a uniform approach to customer satisfaction. That’s one of the things I’ve uncovered in the first few days I was here. We do not have a consistent approach to how we go about soliciting feedback from our clients. As a result we don’t have a laser-focused action plan to address some of their needs.
In a turnaround situation, you mentioned the importance of hiring the right leadership. What is the best way to do that?
The more difficult part is identifying someone’s values. That’s where I spend most of my time is getting a handle on the values that make them who they are. I’m very strong on values. If you don’t get the right values in senior executives, you won’t be able to get the right values in the corporation and that will impede your ability to be a highly successful enterprise.
—Interview with Vanessa Small - Washington Post