Dennis Paalman, seasoned executive compensation advisor and Global Head of Reward at Bayer, considers the challenges and barriers to change in the pay and benefit space.
Dennis Paalman has every reason to feel optimistic about his profession. Over his twenty-year career in reward so far, he has seen the role of Head of Reward transform from a “pay roll plus” role to “almost company magicians”. The reward function today can often be critical in helping the organisation attract and retain staff, motivate employees, boost performance and reward people in a way that is more efficient for all.
Yet resistance to necessary change continues. Too often Dennis sees organisations simply following trends rather than looking within and understanding the unique business they have and the unique challenges that come with it. “Many organisations would come to the Head of Reward with a solution to be implemented by the Reward function, without identifying the problem to be solved first,” he says.
An accidental career
Fortunately, problem-solving is Dennis’ passion, as is what he sees as working as a ‘generalist’ across a whole organisation. “I speak to everyone in the business, from reporting to the executives to chatting with workers running production lines in factories,” he explains. “I also speak to all corporate functions required for effective reward programmes, like tax, legal, treasury, finance, accounting, investor relations, (internal) communication, strategy – it’s vital to be engaged with all of them.”
It was something he inadvertently trained for, studying mechanical engineering and business administration after leaving school to give him multiple options. The education taught him to understand the whole, identify threads, challenges, and opportunities and then seek the expertise where needed.
“As a young man, if someone had described to me the role I do now, I would have jumped at it!” Dennis recalls, “But of course no one did.” He ended up in reward by accident after challenging a consultancy on the (ir)rationality of a recommended bonus scheme when working for IBM.
“It just didn’t make sense for anyone, except from a tax and legal point of view. When I reached out to several advisory firms to understand why these incentives were designed and communicated as they were, instead of what I would have expected, one of these firms suggested to come and work for them and make it better. And that’s how it all started.”
Changing trends in reward
It’s been a varied and influential career so far. Dennis has worked as an engineer, Executive Compensation advisor, for international firms and as the Global Head of Reward for blue chips like ING Bank and Royal Philips, and now Bayer. He is also Chairman of the Board of the Global Equity Organization and lectures to students.
Over the years, he observed the changes in the reward space, the organisational approach and the expectations of the workforce. For example, loyalty to a single company – which used to be absolute – has gradually dissolved, yet research suggests is returning, as young people increasingly expect a company to “take care of them. We’ve almost done a full 360.”
More organisations are also realising that “people are motivated by money only up to a certain point – it’s more powerful to recognise a person’s ambitions and aspirations and work with them to help them perform at their best.” Flexible models of pay have helped in this area, with more organisations investing in training and development alongside offering wellbeing benefits in addition to financial remuneration. However, too much of the pay and reward system continues to be archaic and immovable, Dennis believes.
He draws attention to organisational structures, which have often remained hierarchical and rigid, and the current, flawed appraisal systems many companies have. “Research has shown a surprising lack of correlation between performance management systems, appraisals and employee performance,” Dennis explains. “There seems to be a higher correlation between an appraisal score and gender, accent, hight, education, experience and the bias of the appraiser. It makes no sense, but still companies use the traditional appraisal system.”
Dennis challenges companies to stop and review their approaches. “If you had to start from scratch, would you do it like this?” He stresses that performance needs to be the measurement for reward and the driver for the way staff are treated. His formula is ‘performance = motivation x capability x opportunity’. “You need all of those in place to get the optimal performance out of people, no matter what they’re doing.”
Help people to help themselves
An additional challenge comes from the workforce itself, Dennis explains. While some of the changes are being driven by evolving social and cultural norms and expectations, “people don’t always know what is good for them.” He explains how organisations have explored incentivising staff to invest time in their 401k pension scheme, “because so many people opted out of that and now are working in supermarkets in their 60s and 70s because they can’t afford to retire.”
Positive changes include more financial counselling, to increase the employee’s financial savviness and help employees to better understand how to manage their own financial future.
Another means of helping staff to help themselves is by hiring good managers, but it’s another area that companies struggle with when following the tradition of rewarding longevity rather than promoting those with specific skills. “If these managers understand their team, they can work with them to bring out their best, so a big challenge is hiring good managers or identifying who could be a good manager and investing in them.”
Looking ahead – but not too far
His awareness of the issues – and frustration at a lack of action – propelled Dennis to join TR2050 as a Member. “It’s important to understand from others working in the reward space what is happening in other companies, both the problems and the solutions, so I can myself learn to focus on the right things when shaping how we reward people. I also feel I can make a contribution to the future models.”
He isn’t convinced by the focus on 2050, however. “When we talk about the future, 2050 is too far out! The future is five years away and we need to know what to do now to be ready to meet it. I think scenario development techniques are the best way to approach the future of reward; big companies are already adopting this.”
By asking ‘what if’, then building a scenario and analysing the potential problems, solutions can be found in advance and the path smoothed to achieve good results in terms of reward strategies. “And you review these each year, see how things have changed, adjust your scenario and your planning accordingly.”
Dennis see one of the biggest, initial challenges is ‘selling’ the idea of change to organisations. “Too often we see Anglo-Saxon companies with short term thinking, unlike organisations in places like China and India where the companies, like Toyota, are thinking generations ahead” he says.
He also feels developing the reward function starts with “looking at our own function and role and asking whether we are still doing things the same way and expecting things to change. What alternatives can we offer organisations that they can adopt today that are going to incentivise staff in the right way? We can’t alter the motivation of people, fundamentally – we need to work with them.”
It’s complex and delicate, with change needed but resisted. And yet amid the list of challenges and barriers, Dennis retains his enthusiasm and optimism for the future of reward. “I wouldn’t be doing this if I didn’t believe that we will find solutions and we will achieve change,” he says.
Find out more about Dennis Paalman’s consultancy firm Reward Works on the website. He will commence his position as Global Head of Reward at Bayer in December 2022.