Building the business case for a reward initiative

Karen shares some thoughts on good practice when building your business case for investment

Start from the business, not the action

The most common weakness in a reward business case is that it starts in the wrong place. It begins with the intervention such as  a new incentive, a reframed framework, a change to the LTI, and then works backwards to justify it. A strong business case runs in the opposite direction. It starts from what the business is trying to achieve, identifies where current reward arrangements help or hinder that, and only then proposes a change or addition.

The test we'd apply is simple: can you draw a clear line from the initiative being discussed back to something the business genuinely needs to do? If you can't draw that line then the case isn't ready,  however excited you are about the new initiative.

Before you can evidence the benefits, you need to be able to answer three questions:

• What is the business trying to achieve both strategically and operationally?  (don’t use HR focused language in your answer)
• Where does reward currently sit in relation to that: as an enabler, a constraint, or no relevance at all?
• What changes if we “act”  and what happens if we don't?

The problem statement: ensure this is a problem, and not a solution in disguise

A good problem statement describes a problem or opportunity. It does not cram the answer in with it. "We need a new long-term incentive" is not a problem statement,  it's a solution without an identified problem. "We are losing the people we most need to retain at two to three years of service, and our reward arrangements give them no reason to stay beyond this time frame",  is a problem statement.

There are three disciplines to adhere to here:

• Separate the problem from the proposed intervention. State the problem so plainly that someone could disagree with your proposed solution while still accepting the problem is real.
• Evidence it. What tells you this is genuinely a problem, and how big it is? Is there turnover data, engagement signals, missed hires?   What is your available evidence and present it honestly and clearly.
• Express it in business terms. Your board will care about the consequence for the business, not the reward mechanics you plan to deploy.

Presenting the benefits

A reward business case most often loses credibility by claiming too much rather than too little.

You should sort the benefits into tiers, and be honest about which is which.

1. Financial and quantifiable; the organisational benefits you can put a defensible number against (e.g. reduced regretted attrition and its replacement hiring cost).
2. Measurable but not financial:  things you can track but not sensibly or objectively monetise (e.g. a shift in a specific engagement or capability measure).
3. Strategic and qualitative: benefits that rest on judgement and narrative (e.g. better alignment between what's being rewarded and what the business strategy needs to be achieved).

Credibility comes from not dressing a tier-three benefit as tier one benefit.

You should also:

Resist false one number predictions. A single confident number i.e. "this will deliver £X million”, attached to a reward change usually can't bear scrutiny, and a good CFO or RemCo members knows it. A defensible range with its assumptions is better. Show your working and not just your answer.

State the mechanism. For every benefit, be explicit about why the change would produce it. What has to be true about how people respond for this to work? If a benefit quietly assumes that people will simply work harder or better because the money is structured differently, say so clearly  because that is exactly the assumption the evidence on pay and performance treats with most caution. A benefits case that leans on an unexamined pay-for-performance link is built on a soft foundation. Be clear about the assumptions you are making so that it doesn’t become a liability for your business case.

Be honest about what other factors are involved. Reward rarely acts alone. If the benefit also depends on management, capability, the operating model or market conditions moving in the right direction, say so and name them. Claiming that reward on its own caused an outcome is overclaiming. A caution would be that you are both modest and robust.

Identify leading indicators, not just the endpoint or destination. What would you expect to see early if the intervention or reward mechanism is working; prior to the final outcome? These are the indicators you need to be aware of to allow for course-correct, and they signal that you've thought about how the benefit will transpire rather than just saying it will.

The counter or do-nothing option

Every credible case has a "do nothing" column. What is the cost of leaving things as they are, and how confident are you in it? This does two things: it contextualises the benefits (they're now benefits relative to a baseline), and it pre-empts the first question any sceptical decision-maker asks – “what if we just do nothing?”.

Costs and disbenefits  the credibility test

Name the full costs, not just the visible ones: design and implementation, communication, ongoing administration and governance, and the opportunity cost of doing this rather than something else. Then name the disbenefits and risks i.e. the things that could go wrong, the groups who might react badly, the potential unintended consequences. A business case that lists only upside reads as advocacy rather than analysis. Naming the downside can support you getting some benefit of the doubt on the upside.

Build in how you'll know it worked

Decide, before you launch the initiative, how you will evaluate if its worked as intended. What are you measuring against and over what time period?  Who will own that. Reward initiatives are notorious for lack of evaluation, which may be  reason why the next one is harder to justify!  Building evaluation in from the start turns this case into a better supporting case for future initiatives.

Know who you're persuading

A business case is an argument aimed at specific people. Who actually is signing this off?  ExCo, the CFO, the RemCo, the Board? What do they each need to believe, and what evidence and language will land with them? The same case may need to be framed differently for a CFO weighing cost and return and a RemCo weighing governance, fairness and external optics. Work out what each audience is really deciding.

Some questions to consider

• What is the business trying to achieve that this initiative connects to,   in the business's own words?
• Can you state the problem you want to solve without mentioning your proposed solution?
• Who signs this off, and what does each of them need to believe to say yes?
• Which of your claimed benefits are genuinely hard to evidence, and which rest on human judgement?
• What's the process to the outcome you are proposing you can achieve? Put another way, why exactly  would this change produce the outcome you're claiming?
• How and when would you know whether it worked?
• What is the cost of doing nothing?

If we can support your business case thinking, please get in touch with Karen [email protected].