HR MATTERS

Issue 11 | December 2015 | towerswatson.com

Employee Performance Annual and

Master trust Gender pay
engagement management lifetime allowance
2 towerswatson.co.uk
 HR MATTERS
Contents
04
Nestlé Strategy
08
Performance
12
The best
at work management of all worlds
Nestlé transforms their in EMEA Learn how to combine
employee survey into a tool How can companies enhance the best of a trust-based
that influences business the impact of their employee scheme with the efficiencies
decisions. performance management of outsourcing.
programmes?

14
Digital
17
Gender pay
engagement Five key ways to make
How can employers utilise gender pay regulations
digital engagement to robust and effective.
improve employees’
experience?

20
Tax allowances
Simplification of pension
tax regimes has changed
annual and lifetime
allowances. What should
employers be doing to
help members?
 Nestlé & I
Harnessing global employee insights to improve
competitive advantage

Nestlé, the world’s largest food and beverage company, set out
to transform its existing employee survey, known as Nestlé & I,
into a globally consistent tool that would influence business
decisions at every level. Its aim was not merely to make a
‘nice-to-have’ emotional connection with staff, but to empower
Nestlé to act on the insights in a way that enhanced the
company’s competitive advantage.
The company formed a long-term partnership to the survey jumped to 87%, up nine points from
with Towers Watson to deliver a survey initially the previous exercise. Through connecting the
of 260,000 employees, about four-fifths of its survey to Nestlé strategy and business priorities,
workforce, involving many innovative elements the company successfully created the foundations
and working together in every part of a highly of a employee-centric business decision tool,
complex organisation. being able to derive business-relevant insights
from the survey. The new Nestlé & I transformed
The results were impressive: more employees than
the ways in which the business uses survey data
ever before lined up behind the newly designed
to continuously improve its practices, approaches
Nestlé & I vision and the global participation rate
Richard Veal and, most importantly, leadership style.
Leader, Rewards,
Talent & Communication
Defining Nestlé & I ambitions for 2020 – Key performance indicators

20 5 %
Less time to
complete the survey
%
Increase in
engagement

90 100
% %
Krisztina Csedő
Director,
Organisational
Surveys and Insights
Global Reports
participation on time

4 towerswatson.co.uk

Survey background
Nestlé, founded in 1866, employs over 330,000
staff in more than 150 countries. The company’s
business objective is to be the recognised leader
in nutrition, health and wellness, and the industry
reference for financial performance, trusted by all
stakeholders. Given the size and complexity of
its businesses, Nestlé operates in an extremely
decentralised way to be close to consumers. At
the same time, many of the 2,000 Nestlé brands
are grouped within globally managed businesses.
The company began its global employee opinion
survey called Nestlé & I in 2009, but after two
cycles it became apparent that it lacked recognition
by staff and was seen as insufficiently connected
to company strategy and day-to-day decisions. Also,
only a small proportion of the questions produced
globally comparable answers.
Nestlé was looking for a partner that was able
to understand the company, could cope with
complexity and turn the survey into an effective
decision tool that addresses the diverse needs of
its numerous businesses and markets. It formed
a partnership with Towers Watson, covering three
surveys over six years, to design, implement and
manage the transformation of Nestlé & I.
The challenge was to devise a survey that would
harness the opinions and ideas of employees
across all sites and businesses, to increase the
Figure 01. Nestlé & I 2014: Size and scale
260,000
were invited to participate
Survey and communication
materials translated to
languages
43 30 reporting
languages
Nestlé & I
competitive advantage derived from the insights “In
“ my eyes, Nestlé &
collected and deliver a clear return on investment. I in 2014 was a great
A key part of Nestlé’s thinking in embarking on the success - and this
Nestlé & I journey was that its own employees could is what I also hear
offer insights as valuable as those of its customers,
from the Markets.”
which cost much money and effort to gather.
“We went out with a commitment that said: you
tell us what needs fixing, what we can do better,
where we can grow competitive advantage, and we
will allow you to do it,” says Guy Redshaw, Nestlé’s
Global Head of HR Strategy and Organisation
Development, who shared his experience recently
with members of Towers Watson’s Engagement
Network – a collection of senior HR and
benefits professionals.
He adds: “If we want to get employee insight, we
need to know why we are trying to do it and what
we can get out of it. It’s not just a ‘nice-to-have’
thing to show that we talk to our employees and
they talk to us – and then we do nothing about it.”
To highlight Nestlé’s commitment to Nestlé & I,
survey was conducted in several waves until
2014 and in only two waves in 2014. The
newly re-designed survey was also backed by
a wide-ranging communication campaign. The
exercise is to be repeated every two years, with
Nestlé going global with its Nestlé & I in 2016
in one global wave.
808,000
emails just to increase survey participation
32,000
reports produced for
11,000
managers
15 survey dimensions
HR Matters 5
 Nestlé & I

The partnership data had ever been collected from such a large
organisation, in all languages; it brought the
Nestlé wanted a partner that could be present in quantitative data to life and made employee
every market where it operates. Towers Watson feedback even more ‘real’ to leaders.
consultants in each country now work directly
with the local Nestlé HR director and Nestlé & I Once designed, the survey was translated into
co-ordinator. This means that a global project 43 languages and conducted online, on paper
can be implemented at the closest point to and via a smartphone app.
the consumer and by people who can make
fast decisions. These consultants are able Figure 02. Nestlé & I re-designed visual identity
to understand local priorities and present the
results of Nestlé & I to the leadership teams
in the language of each Nestlé market and
global business.
The strength of this network means that post-survey
action planning within teams can be supported by
Towers Watson consultants as well as the coaching
and development of Nestlé & I co-ordinators.
Towers Watson will provide further support in building
capability, assisting Nestlé in continually improving
and developing, and staying ahead of the competition
in matters related to survey implementation,
follow-up and linkage to company strategy. Branding and communication
To capture the imagination of employees, a new,
“I“ know of places Survey design
fresh, colourful brand identity was created for
in the organisation The big challenge was to design a survey that was Nestlé & I, building on the metaphor of dialogue
where they are using globally consistent but also relevant to the needs of between the company and the individual employee.
the insight in their each market, spurring engagement among staff and
The brand was part of a broad communication
managers. In the old survey, only about 12 questions
operational master campaign, using digital and other elements to
were globally comparable; the rest were set locally.
planning and change encourage employees to express views freely
In the new survey, 83 common questions were and challenge traditional ways of doing things.
programmes and
designed, covering everything from Nestlé’s Toolkits made available for markets included
trying to build a business strategy and culture to work processes, videos, infographics, posters, leaflets, tent cards,
culture where people rewards and the quality of leadership. On top of e-cards, screensavers, intranet page templates,
are starting to work that, up to 20 questions were set locally. PowerPoint templates, executive letter examples
For the first time, Nestlé’s staff were asked to and FAQ documents.
together more.”
rate their manager’s performance as a leader – Local teams got the message across in their own
“Culturally, that’s a big shift,” says Mr Redshaw. way. Mr Redshaw says:
This 180-degree feedback was incorporated into
reports to managers, identifying their strengths
and areas for development, the latter being
“We
“ had some managers, in
embedded into individual performance plans. some parts of the world with
Another innovation for Nestlé was that the survey a billboard on saying ‘please
included space for open-ended comments, with staff
asked to describe the one improvement they saw as do our survey’.”
necessary to make Nestlé an even better company.
This exercise helped to enhance the credibility of
Analysis for open-ended comments was done using
Nestlé’s brand as an employer in the eyes of its
Towers Watson’s Vera software, the world’s first
staff. “People got behind it like they hadn’t got
automated narrative text-processing tool designed
behind it before,” says Mr Redshaw. “You start
specifically for employee survey comments. Fifty
to get an implicit glue in the organisation.”
individual Vera sites were produced, one for each
Nestlé market – the first time ever qualitative

6 towerswatson.co.uk

Figure 03. Nestlé & I 2014: Posters inviting employees to participate in the survey
Outcome
The survey’s aim is to prompt people from the
chief executive to a factory operator to make
changes that improve the business, with benefits
to the bottom line in areas such as safety, factory
performance and sales force efficiency.
“We identified two or three areas where we thought
we would get tangible return on investment. Now
we are starting to see some additional areas that
we didn’t predict. People are telling us about it
because they are proud of it,” Mr Redshaw says.
Towers Watson, in partnership with Nestlé
co-ordinators, has produced about 32,000 reports
for 11,000 managers in 30 languages, collected
70,000 open-ended comments and conducted close
to 100 leadership team presentations on how to
capitalise on the feedback derived from Nestlé & I.
The results were presented first to local teams,
and then progressively upwards through the
organisation before reaching the Executive Board.
“We have to be able to make decisions at the lowest
level possible and we need to empower people to do
that,” Mr Redshaw says. “At the beginning of the year
I was at a coffee factory in the Philippines. We walked
round the corner and the whole wall was covered in
Nestlé & I. There was a group of 10 operators there
and they told us what they had done using their data.
They didn’t know I was the project manager. They just
sold it to us, because it was their survey and they
were proud of it.”
He adds: “I know of places in the organisation
where they are using the insight in their operational
master planning and change programmes and trying
to build a culture where people are starting to work
together more.”
Nestlé & I
“We
“ can’t stop.
The ball’s rolling
and it has to keep
going. So it’s
not just a one-hit
wonder project,
it’s become part
of what we do.”
A look at the future
Nestlé is using the Towers Watson action planning
platform, but is not making it absolutely mandatory
for line managers to use. It is not about HQ trying to
track everything that is going on around the world.
It is a tool to be used if appropriate and helpful, as
there are many other areas in Nestlé’s business
processes where the action planning fits better.
The return on investment will be evaluated as
part of the project process and big wins will be
communicated and celebrated globally. The next
survey in 2016 will be widened to the remaining
staff not covered by the last one. A big aim is to
do more of it digitally and reduce the number
of paper forms.
“We’ve got some big challenges now,” Mr Redshaw
says. “We started something, we are using it, and
it’s part of our daily work. The future for us is to gain
even more competitive advantage from within our
own organisation – and we are starting to see it. If
in the year-end results in 2019 we can mention that
through our employee insight, we have managed to
realise a tangible level of competitive advantage, it
will be great, and job done! We can’t stop. The ball’s
rolling and it has to keep going. So it’s not just a
one-hit wonder project, it’s become part of what
we do.”
Further information
Richard Veal
richard.veal@towerswatson.com
Krisztina Csedő
krisztina.csedo@towerswatson.com
HR Matters 7
 The real story on performance
management
A guide to rethinking performance management

A lot of employee performance management programmes

stand accused of not performing, but for reasons that may be
false or misleading. Recent media reports have placed company
performance management programmes firmly in the dock,
charged with, among other things, ineffectiveness, overly
burdensome processes and taking up excessive time.
New research from Towers Watson’s Performance employees are often demanding more frequent
Management Pulse Survey 2015 has confirmed that feedback and touchpoints, there is a clear
the concerns raised in these articles are shared disconnect emerging.
widely in many companies around the Europe,
Global employee engagement data confirm how
Middle East and Africa (EMEA) region. Almost
important spending time to set clear goals and
65% of organisations described their performance
objectives and discussing careers is to employees.
management processes as ineffective, while only
Indeed, these frequently appear as two of the
three out of 10 managers and employees reported
top three drivers of sustainable engagement
being satisfied with these same processes.
and retention.
Angel Hoover
But while there is broad agreement about the
EMEA Practice Lead, In this most recent survey, for example, employees
ineffectiveness of many current programmes, the
Talent Management said they want to spend more time setting relevant
reasons behind the dissatisfaction are surprisingly
goals (58%) and participating in performance
different from the picture painted by the headlines.
feedback and career discussions (72%). These
Rather than confirming that companies are
results further underscore the urgent need to address
spending too much time on developing employee
the risk of having a performance management
performance, the survey found that 83% of
programme that does not effectively support the
companies invest fewer than six hours per year
performance and career discussions that keep top
on each employee. Against a background where
performers not only engaged, but in an organisation.

3 in 10
*
Only 
of managers and employees are
‘generally satisfied’
with the performance management
process at their organisation
Source: Towers Watson Performance Management Survey 2015
* (31% and 29%)

8 towerswatson.co.uk
 Performance management

“...
“ 71% of those
Companies are looking to: surveyed that use
performance
 pend more time on the right activities
•S
ratings said they
(discussions, calibration)
have no intention
• Focus on improved manager capability of eliminating
and effectiveness
their use.”
• Shift the emphasis of performance
management from a once or twice
yearly event to an ongoing conversation
Source: Towers Watson Performance Management Survey 2015

Evolving techniques Just over half of organisations use a single

Many organisations, recognising these kinds
of issues, are considering changes to their
programmes to enhance their impact.
Not surprisingly, similar to many other business
processes, the most common change anticipated
relates to the broader use of technology. Others,
however, are rethinking the whole purpose or
focus of their process. In particular, one-third of
organisations say they are redesigning programmes
to focus on forward-looking potential. This suggests
that organisations are realising that the value of
what has already occurred is worth evaluating at a
point in time, but the true return on time invested
is likely to be gained through an employee’s future
achievements and development.
Another aspect of performance management that
has attracted a lot of recent media attention is the
movement for organisations to implement ratingless
systems. But, as of today, only 7% of organisations
have either moved to a system without ratings or
are considering the move. What is more, 71% of
those surveyed that use performance ratings said
they have no intention of eliminating their use.
Nonetheless, possibly as a result of the ratingless
discussion, organisations in EMEA appear to be
moving away from a numerical score to a more
descriptive set of normative scoring labels.
performance rating, 85% of which use a four- or
five-point rating scale. These descriptive labels
shift focus away from a discussion about a score,
instead to one about the opportunities that are
defined behind the rating and what it means in
terms of future development opportunities.
The right stuff
Are there organisations who report getting the
formula, and the design of their performance
management programme, right?
Companies in the Towers Watson study were
twice as likely to report an effective performance
management programme if they used a continuous
feedback process and had managers who spent
the ‘right amount of time’ on performance
management activities, such as goal-setting,
performance feedback and career discussions.
That specific ‘right’ amount of time is not illusory,
according to the study, and the law of diminishing
returns does seem to apply. A direct correlation
was identified between programme effectiveness
and up to eight hours of time being invested in
performance management per employee per
review period. After that, returns and perceptions
of programme effectiveness begin to diminish.

HR Matters 9
 Performance management
Words into action
The question, then, is how the time for performance
management activities should be spent.
Clearly, there is a need to understand and focus
on what drives employee engagement and retention
within individual organisations in the first place.
In addition, managers need to be well-equipped
to deliver on the requirement for ongoing
performance feedback and career discussions.
Here, organisations reported that managers
currently do not have the necessary skills (56%),
the time to execute effectively (72%) and, as a
result, don’t see the value of the processes (39%).
Enhancing manager effectiveness in managing
employee performance is a critical first step.
Without effective managers to drive the process,
the design of the performance management
programme itself will make little difference;
the equivalent of a novice violinist playing a
Stradivarius. Without the will and the skill to
effectively execute the process, the results will
invariably fall well short of the intended impact.
10 towerswatson.co.uk
Employees, too, must take responsibility to close
the current gap in expectations. But, as with
managers, organisations need to equip them
with the right tools and guides to help them more
accurately assess their performance and potential
for growth, leading to realistic and mutually
beneficial conversations about the future.
Change is undoubtedly on the agenda for many
performance management programmes. Depending
on the results companies have seen so far, this
might occur through incremental evolution or
revolutionary transformation. No matter the method,
the goal is to more effectively impact business
performance in a way that is:
•• Efficient to execute and supports company goals.
•• Effective in delivering on the commitments an
organisation has made to employees.
How far an organisation moves should be
underpinned by business priorities, culture, manager
effectiveness and employee drivers of engagement
and retention – in addition to a clear understanding
of any shortcomings in existing processes.
Further information
Angel Hoover
angel.hoover@towerswatson.com
To find out how LifeSight could be the answer for you
and your employees, contact

www.twlifesight.com

HR Matters 11
 The best of all worlds
How LifeSight combines the best of a trust-based scheme
with the efficiencies of outsourcing

LifeSight combines the best attributes of a trust-based pension

scheme with the efficiencies of an outsourced solution, including
high quality administration, effective member engagement, and
member-friendly investment choices. LifeSight harnesses the
best of Towers Watson’s established administration capabilities,
with a fresh engagement proposition for employers, trustees and
members to embrace.
Product offering Spending phase
LifeSight has been built using state-of-the-art When considering crystallising their fund, members
technology to provide a full service master trust have access to a considerable range of planning
offering, alongside a complementary drawdown tools and helplines. They can receive guidance
platform. Schemes can therefore be set up to over the telephone, or online, to help them plan
manage both the savings and spending phases their retirement income across all product choices
of pension planning. (e.g. drawdown/annuity).
Savings phase The platform is built allowing members to take
Stuart Reid income flexibly when it suits them, without
Business Development During the savings phase, a member will
incurring additional charges for accessing their
have access to intuitive risk assessment and
money. The movement from savings to spending
investment modelling tools. This will allow a
is all done on the same administration platform
member to tailor their investment strategy
and therefore provides members with continued
simply using two main variables:
exposure to their chosen investment choices.
1. Their attitude to risk.
2. W
 hether they intend to take an annuity,
Communication and engagement
opt for drawdown, or cash out. We often meet trustees who say that communication
within pension schemes is effective at events e.g.
The investment strategies are blends created
a change to legislation, but persistent engagement
by the award-winning Towers Watson Investment
is a different challenge all together. At its core,
Management team, taking advantage of their
LifeSight has built an individualised digital experience
smart beta thinking. These strategies are delivered
that allows a member to tailor the system to their
at low-cost to members owing to the scale of the
communication needs through any device they like.
Towers Watson offering and the use of passive
investment options. The experience is based around their LifeSight Age
– the point at which a member can retire, confident
Members can also access a range of self-selected
that they have sufficient savings to meet their
funds, and create their own lifestyles should they
income needs.
wish. The tools facilitating these choices have
been extensively consumer-tested to ensure
they are welcoming and user-friendly.

12 towerswatson.co.uk

LifeSight Age allows members to add in other
pension savings and assets (e.g. ISAs, cash,
property) they may use for funding retirement.
The modelling tools allow for creative plans to be
developed e.g. using DC savings to bridge until a
DB pension commences, and members can also
consider the tax-efficient order in which products
or holdings should be encashed to fund retirement.
Engagement is maintained despite the complexity
of planning, as the member always has the single
guiding feature of their LifeSight Age helping
them understand how close they are to a funded
retirement. Employers and governance committees
can see at a scheme level whether their employees
are on target for a comfortable retirement.
Governance
Employers and trustees considering master trust
solutions want confidence they are picking a
provider that will be successful, and that gives
them comfort as to how the scheme is run. One
of the ways LifeSight meets expectations is
through the appointment of an independent
Further information
Stuart Reid
stuart.reid@towerswatson.com
The best of all worlds
Trustee Board, chaired by Donald Brydon CBE. “LifeSight harnesses
Five individuals have been carefully selected to the best of
ensure a broad range of skills and experiences
Towers Watson’s
shape the governance of the scheme. Employers
have access to these independent individuals established
and the governance reports they produce. Of administration
course, scheme specific management information capabilities, with a
is also available at all times.
fresh engagement
Transition experience proposition.”
Appointing a new pension provider is often the
start of the hard work rather than the end of the
process. A client of LifeSight can be re-assured
that Towers Watson has experience of the biggest
pension fund transitions ever done in the UK. With
over 1.75 million members on the administration
platform, and some of the largest FTSE 100
companies as clients, the onboarding team are
highly experienced in implementing a range of
transition options for trustees and corporate
clients to ensure costs and risks are minimised
or removed.
HR Matters 13
 Next generation employee engagement
How employers should use social media, mobile, analytics
and the cloud to improve employees’ experience and boost
the bottom line

Keeping your employees engaged and committed is a challenge

of strategic importance for any business – and the digital
revolution is making it even more challenging. How can
employers connect with their staff in ways that improve the
individual’s experience of work and in doing so enhance the
company’s performance?
Digital engagement is becoming a crucial area for
human resources, particularly as organisations
undergo digital transformation and as cognitive
computing is expected to disrupt traditional modes
of employment.
Members of Towers Watson’s Engagement
Network – a collection of senior HR and benefits
professionals – recently attended a session entitled
“How To Get Your Employees To Genuinely Like And
George Zarkadakis
Follow You”. They heard from Dr George Zarkadakis,
Digital Lead
an expert in digital engagement and author of a
recently published book on Artificial Intelligence,
who joined Towers Watson as a senior consultant to
help clients make the most of the digital revolution.
What is employee engagement?
Employee engagement has been defined as
“the deep and broad connection that employees
have with a company, as well as their voluntary
and enthusiastic commitment to its success”
(Julie Gebauer, Tower Watson’s managing director,
talent and rewards).
When employees are engaged, they give more
than is required. They think not just of ‘what’s
in it for me?’, but also ‘what’s in it for us?’.
Companies that have engaged employees perform
better and have higher staff retention than those
that do not. Unlocking discretionary effort and
effectively turning employees into volunteers for
the success of their company has a direct impact
on profitability and company value. Yet according
to Towers Watson’s Global Workforce Survey
2014, which studied 32,000 workers in a range
of industries, only 40% of employees feel engaged.
Most feel disengaged to various degrees.
Why is employee engagement
so difficult?
Successful employee engagement depends on how
an employee connects with various touchpoints
within his or her organisation, for example with the
organisation’s culture, career prospects, training,
rewards, leadership and the social environment.
Dr Zarkadakis cites the example of a graduate
who arrives full of enthusiasm to work for her
new employer. She receives an email with a link
to the company’s ‘onboarding’ process, clicks on
the link and is directed to a badly designed and
cumbersome website. The experience of using this
site is very unlike what the young graduate is used
to in her life as a digital denizen. The gap between
her digital experience as a consumer and her
digital experience as an employee is considerable;
as a result, her enthusiasm ebbs and she ceases
to feel the same level of engagement that she did
when she was first offered the job.
“When you think about ‘connecting’, what you
really have to think about is employee experience
and emotions, that are the causes of behavioural
outcomes such as level of employee engagement,”
Dr Zarkadakis says.

14 towerswatson.co.uk

He suggests an employee’s experience should
be thought of as a phased journey that can be
broadly distinguished into four stages: from
awareness to understanding and involvement, and
eventually commitment. Having a comprehensive
digital engagement strategy is key to delivering the
level of employee productivity and commitment
that are critical for business success. What makes
digital strategies particularly effective are user
data. For example, by deploying a number of digital
assets (e.g. a personalised email campaign, a
portal, a mobile app) HR professionals can track
employees’ behaviour in real time, discover when
and how they become engaged or disengaged, and
monitor key performance indicators that will help
them to continuously improve employee experience.
Dr Zarkadakis says: “If the employee journey
is effected successfully thanks to good digital
strategies and design, one gets the added bonus
of employees discussing their company in
favourable terms on social media, thus contributing
to the company’s good reputation and brand
recognition.” And yet, according to recruiting
website Glassdoor, fewer than 50% of employees
would recommend their company to friends and
peers – a fact that illustrates that companies have
yet to realise the wider impact and opportunity of
having engaged employees.
The transparent organisation
Dr Zarkadakis identifies three mega-trends that
influence how the digital revolution is affecting
employee engagement. The first is that in the age of
social media, companies are transparent – people
are talking about them whether they like it or not.
Employee engagement
Companies need to listen in those conversation “If the employee
and become a part of it, and not just by joining journey is effected
conversations on social media and analysing what
successfully thanks
people are saying. They can also use the “wisdom
of crowds” for their own benefit. to good digital
strategies and design,
“For example, imagine all those people calling HR
one gets the added
about all kinds of questions,” Dr Zarkadakis says.
“What if they discussed what mattered to them bonus of employees
most in a community forum facilitated by you? discussing their
By directly accessing the content of conversations
company in favourable
you would be able to identify the most important or
terms on social media,
pertinent issues, and provide responses that could
be shared, thus leveraging resources, increasing thus contributing to
the quality of service and return of investment.” the company’s good
reputation and
Think like a marketer
brand recognition.”
The second mega-trend is that employees have
similar expectations from HR systems as if they
were a consumer. This suggests that HR must
begin to think like marketing – creating awareness
campaigns that ‘sell’ the benefits of working for
the company, especially in a market where the
best talent is in short supply. That could involve,
for example, an HR portal or a mobile app that
guides the employee through different stages of
their journey, such as from joining the company to
training and explanations of benefits.
Dr Zarkadakis says: “If you are successful in the
new digital playing field, you get people committed,
and that is usually shown by how much they share
their experience with their peers.”
HR Matters 15
 Employee engagement
Work, life, and leisure blur into one
In a third mega-trend, digital platforms are
breaking down barriers between work and leisure
by becoming ‘everything devices’. Nowadays, we
use our smartphones and tablets to check our
email, but also to shop, read the news, play a
game, or collaborate with colleagues on a project.
To do list...
#1 Set
 employee engagement
as your #1 priority
Rethink everything from
 directly. Towers Watson also included a ‘Contact
the employee’s point of view
Embrace
 social media
£
Make work meaningful through an
 Behavioural modelling – the use of techniques
integrated total rewards strategy
and a clear employment deal
Use
 digital to communicate,
engage and deliver significantly
improved employee experiences
Transform content to experiences,
 and social media.
delivered at the right moment
Analyse
 employee behaviour in
real-time and continuously improve
16 towerswatson.co.uk
This means that engaging with employees is more
competitive than ever: not only you need to know
who they are but also what would be the right
moment to connect and communicate with them.
“People check their smartphones when they want
to do something, or get a push notification that
is relevant to that moment”, says Dr Zarkadakis.
“So the challenge is how to use multiple
structured and unstructured employee data in
order to discover the right moment to deliver the
right message and the right experience.”
One Towers Watson client, for example, had a
problem that its wellness benefits were not being
valued by employees: they varied around the
world and were complex to communicate.
Towers Watson designed a simple Wellness App
that put a list of the five main benefits – medical,
life assurance, group income protection, disability,
employee assistance programme – in the palm
of the individual’s hand. They could click on a
link for further details or contact the provider
a Colleague’ forum where employees could seek
advice from their peers, reducing calls to HR and
helping to build a community spirit.
Integrated digital engagement model
Dr Zarkadakis outlined four dimensions that shape
Towers Watson’s services and products to improve
employee engagement in the digital era, in what he
called the ‘Integrated Digital Engagement Model’:
such as behavioural nudges, user segmentation,
and psychometrics to model and guide employee’s
emotions and desired behaviours on a given journey.
Data – the use of analytics and data mining to
analyse, and potentially predict employee behaviour.
Content – the information that passes between
an individual and a digital channel, including
conversations and user-generated content.
Channels – the means of communication
and engagement, such as HR portals, email
campaigns, mobile apps, microsites, wearables
“By integrating the four dimensions of the model
companies can build effective strategies and
systems for digital employee engagement,”
Dr Zarkadakis said.
Further information
George Zarkadakis
george.zarkadakis@towerswatson.com
 Closing the gender pay gap
Towers Watson’s Response to Government Consultation
The UK Government recently closed their consultation on
‘Closing the Gender Pay Gap’, which will inform new legislation
requiring organisations with over 250 employees to disclose the
difference between pay for male and female employees.
As experienced practitioners of equal pay audits,
our view is that increased disclosure should lead
to greater transparency of gender pay differences,
which can lead to changes in pay practices that
both close the pay gap and make reward systems
more effective. The regulations will need to
be robust and well thought through, but more
importantly support organisations to enable them
to resolve any issues highlighted and understand
Daniel Puckey the reasons behind them. Without careful
Senior Consultant, consideration, the regulations risk becoming
Rewards, Talent &
a ‘tick box’ exercise that organisations won’t
Communication
take seriously or value.
In our response to the Government we highlighted
five key ways to make the regulations robust
and effective:
How should pay by gender be
compared?
Fundamental to reporting gender pay differences
is defining the statistics that should be reported
and the most appropriate way to compare pay
levels for men and women. In an ideal world
organisations would be able to report both
at a high level (e.g. ‘one number’ across the
organisation) and also at a more detailed level
(e.g. by job grade and job type).
While an overall gender pay difference figure
should be relatively straightforward for any
organisation to calculate, a single figure compares
pay levels for men and women in different roles
(ignoring differences in market pay for example),
and working different hours (i.e. full time and
part time). As such, it will not show where and
why pay differs by gender, nor highlight areas for
attention. It would be relatively simple to report,
but may prove of little real value and we believe
is unlikely to support the goal of reducing gender
pay differences. The risk is that the headline
figure may indicate that there is an issue, or
indeed no issue, when in fact the reality is entirely
the opposite. In our view, any analysis must
be considered in the proper context to provide
meaningful insights.
Analysis by level or job type would be more useful,
comparing jobs on a like-for-like basis and allowing
both the organisation and interested parties
to see where potential gender pay differences
exist. This approach is more complex and relies
on organisations to have relatively evolved HR
processes and data – therefore smaller or newer
organisations may find this challenging.
We believe that consideration should also be
given to sample sizes within each level or job
type. Organisations could, for example, analyse
and publish the size of the male and female
workforce overall and, if more detailed analysis
is performed, the sample sizes of males and
females in each job group in order to add context.
However, for organisations with fewer than 1,000
employees, sample sizes may be too small to offer
a meaningful comparison between male and female
pay. It is important to remember an employee
can form an equal pay claim based on just one
comparable employee, therefore companies might
wish to make their own internal analysis more
detailed to monitor potential equal pay risks.
HR Matters 17
 Closing the gender pay gap
“Pay mix can vary Our view is that, where sampling size allows,
greatly between job organisations ideally review equal pay on a
job level basis and also on a job type basis.
types, organisations
This may exceed the requirements of the final
and industries and regulations, and therefore wouldn’t need to be
focusing on one published. However, this level of granular insight
pay element alone is fundamental in equipping organisations to review
– and then take action in response to – the areas
may risk missing
of potential equal pay risk identified.
potentially large
elements of pay Which organisations should be covered
difference, giving by the regulations?
a misleading We believe which organisations should have to
result on the level disclose under the legislation will depend on the
disclosure requirements themselves. If organisations
of difference.”
are only required to report the overall gender pay
difference figure, then the proposal for organisations
of at least 250 employees would seem to be
appropriate. If, however, organisations are required
to provide more detailed analysis (by job level or
job type for example), this may begin to present
problems for robust and meaningful analysis.
In our view, the best solution would be a tiered
approach, whereby organisations of a certain size
(e.g. 250 – 1,000 employees) report one single
full-time equivalent gender pay difference figure
across the organisation, while larger organisations
report by level and job type, as defined by the
organisation itself.
What should be counted as ‘pay’?
Equal pay legislation treats any pay element
(e.g. base salary, cash allowances, bonuses)
as separate, and a claim can in theory be made
based on any pay element – even if the total
compensation between employees is deemed
equal. Pay mix can vary greatly between job types,
organisations and industries and focusing on one
pay element alone may risk missing potentially
large elements of pay difference, giving a
misleading result on the level of difference.
Our view is that any analysis should include
base salary, cash allowances, and if relevant,
the target value (£) of any short-term incentives
(annual bonus/sales commission).
£ £ £ £ £ £ £ £ £ £
18 towerswatson.co.uk
Although it may be prudent to review actual
incentive awards (rather than targets) in situations
where awards are differentiated, consideration
would then need to be given to the fairness of
whatever process fed into award decisions which
could be overly-complicated.
Ideally, these elements should be analysed
independently but alternatively they could be
analysed in aggregate as a total cash compensation
figure. While a total cash compensation figure is
unlikely to be considered in the event of an equal
pay claim, analysing on this basis may provide a
more accurate picture of the true level of any gender
pay difference than analysis of base salary alone.
Where and how often should the
gender pay difference be reported?
While annual reporting would align with other
reporting processes, in terms of frequency, this
may be onerous considering organisations will
need time between gender pay audits to take any
remedial action. In our experience equal pay issues
are not just about the absolute levels of pay, but
often how pay (and performance or job evaluation)
is managed, and particularly how pay decisions
are made. An organisation, which has concluded
that they need to review their approach to reward
management, may need at least two pay cycles
(i.e. two years) to implement any changes: the first
year to make changes to systems, processes and
policies and the second year to manage their pay
under these new systems.
Our view, therefore, is that reporting every two
years would be optimal, allowing an organisation
reasonable time to plan and implement changes
between cycles. To aid stakeholders to measure
the success of such changes, we recommend
organisations should also report their previous
gender pay difference analysis, to allow easy
comparison between results and demonstrate
progress, or lack thereof. Even if reporting only
takes place every other year, we would encourage
organisations to monitor the gender pay difference
on an annual basis as a point of best practice,
integrating this as part of the annual pay review.

How can organisations be best
equipped for the disclosure?
Based on our experience of equal pay audits,
there are several factors that may impact the time
(and cost) to a company of reporting gender pay
differences. Organisation size and complexity will
of course have an impact, as larger populations with
more ways of organising their workforce (e.g. pay
data, number of job grades, functions, divisions etc.)
require larger and perhaps more complex analysis.
Larger organisations are also more likely to have
special cases, such as ex-patriates and international
assignees, which may require consideration as to
how they are treated for analysis.
Beyond company size, the main influences we see
on time and cost are the quality and accessibility
of data. Organisations with up-to-date, good quality
data, stored in a clean and efficient HRIS with easy
reporting, will find reporting less time consuming,
difficult or costly than others, as will those with
robust, well governed job evaluation schemes.
Given the issues that the gender pay difference
report may raise we expect that many organisations
will want to include additional narrative on the
gender pay report, for example to explain the
methodology used or to provide any specific context
(e.g. a merger or divestiture) which may have
impacted findings on gender pay difference. With
this in mind, we believe organisations should be
encouraged to provide additional narrative, based
on guidance from the Government.
While the regulations should follow in the first half
of 2016, the exact timeframe for implementation
is unknown. We would recommend organisations
take advantage of the time before the regulations
are put in place to review their broader reward
£ £
Closing the gender pay gap
management practices and how this will support “Remember that
the equal pay agenda. In particular, organisations equality is not
should consider their job hierarchy, as this may
necessarily about
form the basis of what are considered ‘comparable
roles’ for analysis. Remember that equality is not paying everyone
necessarily about paying everyone the same, but the same, but
having reasonable and fair reasons for paying aving reasonable
people differently, such as performance and
and fair reasons
market differences. This places a much greater
emphasis on organisations to ensure that they for paying people
have robust and well documented practices in differently, such as
terms of performance management, job evaluation, performance and
promotion criteria, job moves and pay. In our view
market differences.”
this is just good reward management.
For organisations which already feel well
equipped to carry out such analysis, we would
recommend performing an equal pay audit ahead
of the regulations, based on possible disclosure
scenarios, to build familiarity with the approach
and likely outcomes ahead of public reporting.
How we can help
Towers Watson can help employers prepare for the
new regulations using our tried and tested equal
pay audit methodology (which was developed with
the EHRC) to identify areas of potential risk and
underlying reasons for any gender pay differences.
This often uses our GGS job evaluation system
which has been independently audited and verified
as fit for determining roles of equal value without
gender bias. As we see the goals of good reward
management and minimising equal pay risk as
complementary we can also combine equal pay
audits with broader reviews of the effectiveness
of the reward management system in delivering
organisational strategy.
Further information
Daniel Puckey
daniel.puckey@towerswatson.com
HR Matters 19
 Pension allowances are changing
How can you help your people understand what it means?

Ten years after they were introduced in the great ‘simplification’

of pension tax regimes we are now seeing the most profound
change to the annual and lifetime pension allowances. The
changes will affect a much broader population of employees
so employers need to consider the immediate and longer-term
impact on those affected and what level of help can be expected
in the workplace. After all, where tax changes impact benefits,
most employees expect some support from their employer.
Helping your employees understand
the changes
It looks like we will never have it so good again
in terms of pension tax allowances. In recent
years both the annual allowance and the lifetime
allowance have been reduced therefore reducing the
amount that can be saved to pensions and insured
under registered death-in-service schemes. This
article looks at the potential impact of the changes
Ann Flynn
on employees and how they can be helped to
DC Consultant,
understand the opportunities and risks.
Retirement
Annual allowance (AA):
the limit on pension savings that are, tax free
Lifetime allowance (LTA):
the limit on the value of pensions pots held
within registered pension schemes without
triggering a tax charge.
Remember, the Lifetime allowance cap also
includes in any death-in-service benefits
insured within a registered scheme.
Those who will be affected by the annual allowance
change will have a ‘threshold income’ greater than
£110,000 will then need to assess their adjusted
income to find out if their annual allowance will be
less than £40,000 from April 2016. But remember
‘threshold income’ include more than salary and are
often components that as an employer you will be
unaware of e.g. interest on savings. See below:
•• Threshold income is taxable income from all
sources, not just employment income:
•• Salary
•• Bonus payments
•• Dividend payments
•• Other taxable benefits-in-kind (P11D)
•• Interest on savings
•• Taxable rental income…
•• Plus the value of contributions paid by a
new salary/bonus sacrifice after 8 July 2015.
•• Less certain reliefs such as charitable donations
through payroll giving.
•• For those with threshold income over £110,000
it is necessary to add on the value of employer
pension contributions to calculate adjusted income.
•• If adjusted income is greater than £150,000
then the annual allowance tapers to a minimum
of £10,000 for adjusted income of £210,000
and above.

20 towerswatson.co.uk

Figure 01. Tapered annual allowance
50,000
Annual Allowance (£)
40,000
30,000
20,000
10,000
0
130 140 150 160
As you might expect employees who are affected my
not wish to share this level of information with their
employer. However, we have developed an ‘Adjusted
Income’ app that guides and helps individual
employees to calculate their threshold and adjusted
income levels and can then engage with their
employer on the actions to be taken.
In our recent Plan Design Survey, over 90%
of respondents said that they are at the very
least communicating the changes to members
and employees.
What’s different about this year?
However, this tax year the government has offered
some arbitrage by ending pension input periods on
8 July 2015 and creating new pension input period
that will run to 5 April 2016. Some individuals will
be able to contribute as much as £80,000 from
pre-tax income in 2015/16 (though only those who
had contributed £40,000 by 8 July will benefit in
full). Individuals have a one-off opportunity to take
advantage of the annual allowance twice this tax year
and utilise carry-forward to maximise contributions.
As the end of the tax year fast approaches actions
must be considered. There is no doubt that this is
an individual’s tax issue, however as a sponsor of
a workplace benefits, how far should you go to help
members? Employer opinions vary on a spectrum
of ‘it is not my problem so I am not changing
anything’ to ‘let’s make sure no one breaches
the allowance by capping scheme contributions’.
In our recent employer survey, ‘Lifetime and
Annual Allowance – alternative benefits’, it became
apparent that 33% had not considered the impact
of the change in the annual allowance. Of those
participating, 67% did not have the LTA change on
their radar yet, possibly because they had completed
an in-depth analysis in 2013 and feel more
comfortable in knowing who may be at risk.
At £1m, the LTA is going to affect more and more
people. A DC member with a pot of £600k, no
Making pension tax allowances work
At £1m, the LTA
is going to affect more
and more people. A
DC member with
a pot of £600k, no
further contributions
and twenty years
170 180 190 200 210 220 230 to go until planned
Adjusted income (£000’s) retirement, with
investment growth
of say 3% per annum
further contributions and twenty years to go until above CPI may well
planned retirement, with investment growth of cross over the £1m
say 3% per annum above CPI may well cross over allowance and be liable
the Life Allowance and be liable to a tax charge
to a tax charge
at retirement. However it’s more than pensions
that are affected. If you have individuals at threat at retirement.
of exceeding the LTA, you may wish to rethink
the design of your death-in-service benefits too.
For some employers, the option to introduce
an excepted death-in-service scheme for lump
payments has become more appealing. Not only
does it mitigate the risk for LTA but it is premium
neutral too. Such a scheme needs to be written
under separate trust and will need to be managed
appropriately but this is not onerous.
What should you be doing?
Here’s a checklist of the types of actions you could
consider in light of the changes:
•• Issue generic communications, spelling out
who might be affected and the consequences.
•• Understand the demographic of your scheme
members; how many are above the threshold
income (that you know about).
•• Issuing targeted communications to those at
risk and explaining their options, including:
•• The opportunity to maximise pension
contributions in this tax year before the
reduction hits.
•• Managing pension contributions going forward
to make sure no additional tax charge applies
– this can be facilitated by providing access to
an earnings calculator.
•• Helping employees understand how they
register for LTA protection, fixed or individual.
•• Considering benefits policy to accommodate
those who will need to opt out of pension
saving due to the reduced LTA allowance or
those who will be restricted by the annual
allowance (AA) reduction.
•• Consider the way your death-in-service benefits
are provided to minimise LTA risk beyond pensions.
HR Matters 21
 Making pension tax allowances work

“To help you What are others doing? Figure 02. Alternatives to pension contributions
help members For those affected by the Annual Allowance
work out their reduction, 42% of employers have decided to
potential earnings offer alternatives to pension contributions with
39% not yet decided.  Yes
we have developed 39% 42%
 No
an ‘Adjusted In terms of the basis of the alternatives,
 Decision not
the following options are being offered:
income’ app.” made yet
The partial allowances consist of a maximum
pension contribution of £10k (i.e. minimum
19%
annual allowance) with an additional cash
payment to make up the difference.
Cash is king for members who choose to opt out
of the pension scheme too, whether on a LTA or Figure 03. Options being offered
AA basis. Of employers asked, 42% said they would
3%
offer an alternative and 90% said this would be cash.
As mentioned before this is an individual tax issue 7%
 Cash
and whilst members will appreciate support from  Employer
employers, they may not wish to divulge all sources Financed
of earnings. To help you help members work out Retirement
their potential earnings we have developed an Benefit
‘Adjusted income’ app. Scheme
(unfunded
90% arrangement)
LTA protection registration
 Other
In recent weeks we have also had confirmation
from HMRC on the transitional registration
process for LTA protection. Further clarity is
needed on these transitional arrangements but Figure 05. Partial allowances being offered
it seems both fixed and individual protection will
be available. There is no hard deadline but those
opting for fixed protection of £1.25m need to stop
contributions by 5 April and register for protection 25%
before crystallising benefits. Individual protection
allows contributions to continue, with the lifetime
 Yes
allowance set equal the value of the individual’s
 No
pension savings on 5 April 2016, up to a maximum
of £1.25m. Individuals applying for this will need 75%
to be able to demonstrate what this value was.
This reduction is more material than originally
thought with more employees being caught by
the changes but there are clear actions you can
take to help individuals manage these changes.
Figure 04. Level of cash allowance being offered
Further information
50%
Ann Flynn 46
ann.flynn@towerswatson.com 40%

30%

26
20%
18
10%
11

0%
Fixed rate Linked to Linked to Other
DC rate DC rate
(core employer (maximum matching
contribution rate) employer rate)

22 towerswatson.co.uk
 AA IncomeCalc
The new app from Towers Watson
Towers Watson’s AA IncomeCalc app provides your employees
and scheme members with an easy-to-use tool to assess whether
the changes to the Annual Allowance will impact on their plans
for making tax efficient pension contributions. There is no cost
to download the app.

Download now!

The IncomeCalc app should be supplemented by

wider employer sponsored support and communication
initiatives. The issues are complex and individual
employees should not take any action without first
reviewing the options offered by their employer and,
if necessary, taking specific financial advice.

The AA IncomeCalc app will let your members and employees estimate:
• Threshold income – if threshold income is £110,000 or more then adjusted income needs to be assessed.
• Adjusted income – the level of Annual Allowance will reduce if adjusted income is more than £150,000.
• Annual allowance – will reduce to £10,000 for adjusted incomes of £210,000 or more.
AA IncomeCalc app will let your employees and scheme members test different scenarios to explore their optimum contribution
rates whilst maximising tax relief.

For further information contact your

Towers Watson consultant, or email
AAIncomeCalc@towerswatson.com

towerswatson.com
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About Towers Watson
Towers Watson is a leading global professional services
company that helps organisations improve performance
through effective people, risk and financial management.
With 16,000 associates around the world, we offer
consulting, technology and solutions in the areas of
benefits, talent management, rewards, and risk and
capital management. Learn more at towerswatson.com

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