1. Effective Reward Strategies
Reward Strategy in practice – the
Lloyds TSB experience
London Councils – September 2007
Tim Fevyer, Compensation & Benefits, Lloyds TSB

3. Historic approach to reward strategy
Historic approach to reward strategy

4. Historic way of working…
•• Start with a grand plan
Start with a grand plan
– Adopted a ‘classical’ approach to strategy development
– Adopted a ‘classical’ approach to strategy development
– Top down, heavily planned and very rational
– Top down, heavily planned and very rational
– Ordered and rigid
– Ordered and rigid
•• The centre has all the answers
The centre has all the answers
– What the offer should comprise
– What the offer should comprise
– Who should get what
– Who should get what
– What individuals’ pay adjustments should be
– What individuals’ pay adjustments should be
•• Focus on pay
Focus on pay
– Pay to get people in
– Pay to get people in
– Pay to keep people
– Pay to keep people
– Pay to increase performance
– Pay to increase performance

5. Historic way of working…
•• Outcomes
Outcomes
– Sheep-dip approach to package design
– Sheep-dip approach to package design
– Reward is done to you (missing ownership)
– Reward is done to you (missing ownership)
– Broad-brush decision making (un-equal pay)
– Broad-brush decision making (un-equal pay)
– Value of reward spend is wasted
– Value of reward spend is wasted
– Over reliance on a pay ‘panacea’
– Over reliance on a pay ‘panacea’

6. Base pay context: pre-1980s
• Low competition
• Few products
• Privilege to be a customer!
• Homogeneous workforce
• Jobs for life
• Strong hierarchy

7. Base pay choices: pre-1980s
Time based progression line
– People get a service based increase
– Increase mainly determined by cost of living
Everyone progresses to top of scale over time
Everyone progresses to top of scale over time
Ignores performance, ignores worth & value
Ignores performance, ignores worth & value
Generates significant, unjustifiable, pay disparity
Generates significant, unjustifiable, pay disparity

8. Base pay context: the 80s and 90s
• Deregulation
• Greater competition
• More products – sales emerge
• Greater customer choice and expectation
• Increasing diversity of the workforce
• Jobs less secure

9. Base pay choices: the 80s and 90s (stage 1)
Performance Rating 2 4.5%
Performance Rating 3 3.0%
The ‘fixed matrix’
– People rated according to their performance
– Rating then determines their pay adjustment
People rewarded every year for something they did in one year
People rewarded every year for something they did in one year
Risks ignoring true worth or value
Risks ignoring true worth or value
Unjustifiable pay disparity remains
Unjustifiable pay disparity remains

10. Base pay choices: the 80s and 90s (stage 2)
92% to 98% to
Position in scale:
97% 102%
Performance Rating 2 5.25% 4.50%
Performance Rating 3 3.75% 3.00%
The ‘variable matrix’
– People rated according to their performance
– Rating determines the adjustment range
Enables market position to be factored in
Enables market position to be factored in
Still risks unjustifiable pay disparity
Still risks unjustifiable pay disparity
Still reward people every year for something they did in one year
Still reward people every year for something they did in one year

11. Today’s approach
Today’s approach

12. In reality…
• Outcomes much more fluid, emergent, responsive
• Create overall framework, within which responses are flexible
• Consider: internal politics, cultural norms, what actually works
• Start with a few simple questions for the business:
What are we in business for?
What are our core objectives?
What are our people goals?
How does our reward strategy support the above?
What changes could be made to make it even better?

13. Where do we find the answers?…
• Design
– Spend much more time talking to people
– Plan for initiatives adapt to their implementation
– Incorporate inherent flexibility
– Aim for locally owned change
• Decision making
– Pay decisions made where the information is
– No centrally dictated pay adjustments or matrices
– Local decisions Central framework
– Shifting emphasis of Line, HR and the centre

14. Determining what really matters…
Determining what really matters…

15. Is money the answer…?
• Traditionally pay was the answer to everything
• Found its impact limited…unless you get it wrong!
• How long do pay increases last?
• Are people ever happy with pay?
• Focus on what really drives engagement

16. What drives performance?
Source: Corporate Leadership Council Study, 2002

17. Implications…
• Get the basics right but then focus on what really
does make a difference
Market
Positioning
Flexibility
Total Reward
Customer Focus
Marketing
Individual Rewarding
Contribution Performance

18. Determining the basics…
Determining the basics…

19. Where should we pitch base pay?
Proportion of employees actively considering leaving their current job
in the next 12 months categorised by perceived market positioning
Above market
About market
Below market
0% 20% 40% 60% 80% 100%
Percentage of employees
Planning to leave Not planning to leave
Source: Watson Wyatt Total Reward survey 2004

20. What high performing organisations do…
•• Base pay typically managed around 50th percentile
Base pay typically managed around 50th percentile
•• Then highly differentiated according to contribution
Then highly differentiated according to contribution
•• Business success shared with those who make a difference
Business success shared with those who make a difference
•• Consider and use total reward…not just pay
Consider and use total reward…not just pay
•• Clearly communicated and marketed coherent total offer
Clearly communicated and marketed coherent total offer
•• Clear vertical line of sight to business goals
Clear vertical line of sight to business goals
Source: Bespoke Hewitt research 2004
Source: Bespoke Hewitt research 2004
Towers Perrin HPO research 2003
Towers Perrin HPO research 2003

21. Managing individual contribution
– Three simple questions
•Paid less than contribution?...increase pay
•Paid equal to contribution?...move pay with market
•Paid more that contribution?...don’t adjust pay
£ 120%
100% market
median
90%
Local decision making within aaframework
Local decision making within framework
of the relevant market and pay pot
of the relevant market and pay pot

22. Getting pay right - markets
National market for all
National market for all
National market for most
National market for most
Functional market for some
Functional market for some
Functional markets for many
Functional markets for many
National market for some
National market for some
Geographical markets for some
Geographical markets for some

23. The cultural shift…
I’ve performed well
I’ve performed well
this year so I Ishould
this year so should
get a salary increase
get a salary increase
I’m paid to perform and ififI Iget an
I’m paid to perform and get an
increase ititwill be because the market
increase will be because the market
has moved, or I Ibring extra value
has moved, or bring extra value
beyond normal expectations.
beyond normal expectations.

24. Variable Pay – rewarding performance
• Base pay reflects individual contribution
• Variable pay reflects annual performance
• Business performance determines the pot
• Individual performance determines the allocation
• Overall opportunities linked to relevant market

25. What really makes a difference?
What really makes a difference?

26. What really makes a difference?
Market
Positioning
Flexibility
Total Reward
Customer Focus
Marketing
Individual Rewarding
Contribution Performance

27. Flexibility: managing to needs
• The best companies need talent with a diverse
range of backgrounds, skills, mindsets…
• Meeting diverse needs through flexible reward can:
– increase value to individual and company
– encourage people to join
– encourage people to stay
– help people feel better about the company
• Overwhelming call for flexibility
• Held together within a consistent framework

28. Total Reward: managing the whole
Stage 1 Stage 2 Stage 3 Stage 4
Focus on all
Focus on Focus on Focus on main
main package
Base Pay Base and Bonus ‘tangible’ elements
elements
Offer defined Total Reward defined by
Towersdefined by Total Reward Model
Offer Perrin Offer
Offer defined by
by Salary Total Cash Total Comp’
Pay Benefits what it’s like to
Base salary Health care be here
Variable pay Retirement
Recognition Savings
Stock Time off
Career development
Leadership
Learning experiences
Culture
Performance
management Involvement
Succession planning Diversity
Training Work/life balance
Learning and Development Work Environment

29. Customer Focus: employee treatment
Take Up by Grade
• 70,000 employees: not one 80%
Percentage Take Up
homogeneous group 60%
40%
• Identifiable groupings with low 20%
participation levels 0%
1 2 3 4 5 6 7 8
Grade
• Framework for further research
• Springboard to segmentation Take Up by Age
80%
Percentage Take Up
60%
40%
20%
Take Up by Length of Service
0%
80% 16 - 24 25 - 29 30 - 39 40 - 49 50+
Age
Percentage Take Up
60%
40%
20%
5 key segments with clear differences in:
0%
<1 year 1 - 2 years 3 - 5 years 6 - 10 years 11+ years
- what they value;
Length of Service - where they spend money;
- what they like doing.

30. Customer Focus: segmenting employees
More computer literate
Live for now
Age under 29
(young free and single!) Not financially astute, little debt, few
financial products
Interested in things that will improve quality of their life:
- spending money;
- looking good;
- enjoying themselves.
Entry Bands
Implications:
Implications:
May be setting Bullet-point type tone
Bullet-point type tone
up a home Most information posted online
Most information posted online
Short, simple, to the point
Short, simple, to the point
Don’t cover detail or how things work
Don’t cover detail or how things work
Show how it benefits them
Show how it benefits them

31. Marketing: managing the messages
• Do people value it? How do you know?
• Do people know about it?
• How is it communicated and positioned?

32. The lessons for us…
The lessons for us…

33. • Base it on business needs
• Focus on what really makes a difference
• Find out what really makes a difference
• Talk to people about design
• Involve people in bringing it to life
• Create the framework but build inherent flexibility
• Push decision making closer to the answers
• Market and brand it - don’t just communicate
• Keep reviewing and refreshing it