• Tim Payne, Partner |
  • Eloise Knapton, Partner |

From ESG reporting demands to crypto-payments and some major tech moves, there will be no shortage of things keeping HR leaders on their toes in the year ahead. KPMG in the UK’s Tim Payne, Partner, FS People Consulting, and Eloise Knapton, Partner, Employer Reward Services, make some predictions about what is to come – which they will return to and see what they get right as the year unfolds.

Diversity and Inclusion (D&I) reporting will be in demand

Tim: Eloise, shall we dive right in? I think the topic at the top of the CHRO’s inbox in 2022 will be D&I. I can see regulators such as the FCA and investors across many sectors turning up the heat on the ‘S’ in ESG. This means we’ll see increased expectations on HR functions in D&I. A small number of UK-listed businesses have already set targets for Black Heritage leaders, although there is no consistent basis for these targets through which they can be compared. Pressure will increase to report on Inclusion Culture, wage rates throughout the supply chain, and overall employee spend. How businesses choose to interpret and operationalise Inclusion Culture will be a lively boardroom topic.

Eloise: I agree. I think we will see a suite of reporting measures appear, getting at ‘Are you a responsible employer?’, particularly to do with fair pay. The question to ask will be, ‘How comfortable are you that you’re paying your workforce appropriately?’ Many organisations are reporting on various metrics such as wage rates across their employee populations, enhanced gender pay reporting, ethnicity pay gaps and, for the first time, social class pay gaps. I predict that this year, unfortunately, ethnicity pay gap reporting still won’t get the attention that it should, with no draft regulations becoming available.

Climate measures will hit the C-Suite

Tim: Moving onto our next prediction, I think that one thing is for sure – after COP 26, the pressure on businesses to play a role in the journey to Net Zero is huge. A key way to change organisational behaviour to be more climate focused is to incentivise your CEO. This means climate-related incentives are something that we will start to see even more of in 2022.

In fact, I predict that there will be at least one significant vote (at least 20 percent against) on CEO pay because the carbon reduction incentive criteria proposed are not sufficiently robust.

Eloise: Yes, climate is heading in a similar direction to D&I in terms of growing expectations from investors, regulators, auditors and other stakeholders when it comes to activity and reporting. KPMG research around the FTSE 100 and FTSE 250 shows an increased number of firms incorporating very specific ESG measures into bonus plans and LTIPS.

Beyond the C-Suite, HR leaders will increasingly need to support the company’s move towards Net Zero, in particular, making the workplace more attractive to employees interested in climate issues. They can look at the benefits that they offer, considering factors such as green company car fleets, or incentivising cycling to work, as well as broader cultural, communication and engagement programme opportunities. 

Supply chain governance will be scrutinised

Eloise: A third part of the ESG agenda is the ‘G’, governance, and HR will have more responsibility to understand the conditions of people in the organisation, but also throughout their supply chain.

In 2022, HR will need a closer understanding of how outsourcing arrangements work in practice and have appropriate governance frameworks over those, especially if you're working with multiple complex labour supply chains.

HR will need to know what is happening at each step of that supply chain, and not only that it meets compliance regulations, but also that it aligns with the company’s corporate principles. A tricky ask, especially if outsourcing arrangements have typically been managed outside of the HR function. 

Scrutiny on this will continue to grow, increased by the government call for evidence on the role of umbrella companies in the labour market, high profile press coverage of working conditions throughout supply chains, and increased employee whistle blowing. 

I predict an increase in HR’s remit over individuals working further down the labour supply chain and an expansion of ‘obligations’ to this workforce.

Cryptocurrency will be paid as an alternative to equity

Tim: The world seemed to go crazy for crypto in 2021, and I’m wondering how this will affect compensation strategies. There are already some limited examples of compensating workers in cryptocurrency, although mostly in areas such as sport.

In 2022, I’m sticking my neck out and predicting that we will see a major organisation in the UK offer cryptocurrency as an alternative to equity for long-term incentivisation.

Eloise: Well, we’ll see about that – I’m not so sure. It’s obviously a hugely complicated area, with both upside and downside risks. Are you ready to be paid in Bitcoin this year?

The job vacancy rate will keep rising

Tim: Coming back down to earth, let’s look at the UK workforce. In Q4 2021, the overall UK job vacancy rate was 3.9 percent, and I predict this will break the 5 percent barrier before 2022 is out. It will vary by sector, with hospitality, health and technology suffering the highest rates.

This labour availability problem is very complex and it’s not just about availability of hot skills. It’s partly Brexit related, partly it's early retirements during COVID-19, and partly it's large numbers of students choosing to stay as students and delay work. It’s also linked to the ‘Great Resignation’, with the rate of job-to-job moves in the UK up in Q3 2021 to its highest level on record, as reported in our UK Economic Outlook December 2021. People are re-evaluating what they want from work, and how they want to live their lives, and I don’t see this trend reversing in 2022.

Eloise: Yes, agreed, and this is likely to put further upward pressure on pay growth, as job switchers tend to expect higher rates of pay. This will mean HR will need to support greater efforts to retain staff and really consider their full Employee Value Proposition, not just focus on monetary remuneration. We will also see businesses struggling to find people with certain skill sets, so HR will need to be very ‘skills focused’. In the UK, the vacancy rate is unusually high compared to the current unemployment rate, suggesting the efficiency with which workers and jobs match-up has deteriorated.

Microsoft will make moves in resourcing and onboarding

Tim: I think the biggest operational challenge HR functions will have in 2022 is the smooth management of large volumes of hiring and onboarding. This challenge is largely driven by the recent ‘great resignation’ in jobs and the high volume of work that recruiters are going through. Many of my clients are struggling with recruitment at the moment.

One path to improve the candidate experience and accelerate recruitment runs through technology, and the big HR tech providers already provide recruitment and onboarding solutions.

However, Microsoft made a big impact in workforce technology in 2021 with Teams, Viva and Office 365, and I expect to see Microsoft make a much bolder move into this space in 2022. Microsoft’s ownership of LinkedIn makes recruitment and onboarding its next obvious play. I think key to this will be helping HR teams to solve the problem we discussed earlier, to find specific skills.

Eloise: The other piece on technology development in 2022 will be in payroll data analytics. HR functions have a wealth of information within HR and payroll systems about the diversity of the workforce and pay and roles. With advances in HR data analytics, I expect to see HR functions drive more insights to support a broader conversation – particularly around D&I and pay equity.

The gig economy will continue to grow

Eloise: Having a ‘portfolio of engagements’ across traditional and gig contracts will become even more commonplace in 2022.

However, the benefits and challenges of the gig economy will continue to divide opinion. A question that will continue to be asked is, does the gig economy give individuals more flexibility and control over who they work for, when they work, how they work, and what they do? Or does it create a subsection of workers who’ve got limited rights or recourse against powerful employers?

Frustration will continue over a lack of progress on the work cried out for in the Taylor Review on reforms around laws for workers in the gig economy to be on a sturdier footing.

Tim: I don’t disagree; but I think that the pure ‘gig economy’ will be very important for some types of businesses, and not for others. For many, contingent labour is going to be the bigger challenge as workforces switch to a much higher proportion of contingent workers.

For organisations that are looking for flexibility of cost, skill and availability, they are more likely to reach for a contingent workforce. I predict a significant upswing in more traditional contracting perhaps than pure gig work, creating new challenges for HR professionals to manage.

Eloise: It looks like the prediction is that the workforce will become more fluid in 2022, and may be made up of a core employee base which can be flexed-up should demand require it, but also flexed back down. The flipside being the lack of certainty for individuals.

The hybrid work debate will divide

Eloise: There are two schools of thought emerging around getting people back into the office versus continuing with hybrid working (a mix of in-office and remote working), and the split will get even stronger in 2022.

On one hand, there’s a focus on getting people on-site in order to drive innovation, productivity, make team connections, and enhance learning across the team. On the other, there’s a push to keep the flexibility of allowing people to work from home as an attraction mechanism, which also has significant cost reduction benefits.

This year, the two camps will become more polar. This will create differences in working environments and for employees as to which suits their lifestyle and way of working. Omicron and future COVID-19 variants may further delay a true consensus as leaders continually react to new conditions, and office workers shuttle between varying levels of restriction. 

Tim: Yes, and the discussion on where you work will extend to working from different countries too. There could be a move towards businesses allowing people to work from overseas more. There are already some high-profile examples of this and I predict we’ll see more as it becomes a more important retention mechanism, particularly for workers with strong overseas connections.

Eloise: Indeed. We’ve seen a huge range of policy responses to ‘work-from-anywhere’ already during the pandemic, with some organisations taking a more liberal stance on this and finding ways to use technology to manage the immigration, tax and social security risks associated with it. Other organisations have been much less accommodating. We don’t see this latter position as being defensible long-term, and ‘work-from-anywhere’ will become a key differentiator in attraction and retention of top talent.

Tim: I also expect we will see a lot more discussion in 2022 around how much you're going to work. The four-day-week movement hasn't gone away, with Atom Bank probably the most high-profile UK adopter of a radical shift in working hours. I think HR leaders will need to think about hybrid working more broadly – not just about workplace, but work patterns.

The London weighting will become an endangered species

Eloise: The story we’ve all read in the news about US banks saying ‘If you're paid in New York wages, you should work in New York offices’, will increasingly apply in London. Organisations will start to say, ‘If you need to be in London, then be in London and be paid London wages. If you don't need to be in London, why is the London weighting being paid?’

Tim: I agree. Many organisations are grappling with the fact that staff have moved out of London during the pandemic, and are now working from home in cheaper parts of the country. However, they are still being paid a London premium. To date, most organisations have shied away from tackling this issue because of the pressures on retention and hiring. But this isn’t a sustainable position. I predict that a major UK employer is likely to lead the way and take a more aggressive approach to this issue at some point during the year.

Furlough fraud and error

Eloise: The wage replacement schemes running during the pandemic are another test of fair pay. At its peak, around £8-9 billion per month was paid out under the Coronavirus Job Retention Scheme (CJRS).   CJRS was introduced at speed, updates and changes to guidance were quick-moving, and businesses had to apply them so employees received their wages on time. Unsurprisingly, claims are now being reviewed not only by the HMRC taskforce, but by auditors and investors.

Having to act at speed, or not understanding the regulations, will not be seen as a sufficient excuse for erroneously claiming tax payer money. In 2022, HMRC will be likely to impose criminal sanctions.

‘Furlough Fraud’ is a catchy title, and I predict that public perception and the media coverage are going to blur the boundaries between fraud and error. Businesses who claimed under the scheme will find themselves perceived the same regardless of their intentions.

In summary

Eloise & Tim: It sounds like it’s going to be another exciting, but challenging year for HR professionals.  We’d love to hear your views on our predictions. Please email us directly, or comment on the LinkedIn post. And we’ll revisit these predictions at the end of 2022!

Summary of specific predictions :

  1. Despite a huge focus on D&I reporting in the UK in 2022, ethnicity pay gap reporting still won’t get the attention that it should, with no draft regulations forthcoming.
  2. Momentum from COP26 will drive investors to pressure Boards to incentivise their CEOs to work towards Net Zero. There will be at least one significant vote (at least 20 percent against) on CEO pay in the FTSE 100 because the carbon reduction incentive criteria proposed are not sufficiently robust.
  3. HR functions will see their remit extend to cover individuals working further down the labour supply chain, and an increase in ‘obligations’ to this workforce.
  4. Cryptocurrency is becoming increasingly mainstream. In 2022 we will see a major organisation in the UK offer cryptocurrency as an alternative to equity for long-term incentivisation.
  5. As the ‘Great Resignation’ trend continues, and the various forces acting on labour availability in the UK continue to bite, the overall UK job vacancy rate will break the 5 percent barrier before 2022 is out.
  6. Building on their momentum in 2021, Microsoft will move decisively into the recruitment technology space in 2022.
  7. The workforce will become more fluid in 2022 and may be made up of a core employee base which can be flexed-up should demand require it but also flexed back down. Uptake of the four-day week will increase, as will the provision of generous work-from-anywhere policies.
  8. The division between companies preferring staff to be physically in the office, and those being more comfortable with remote working will continue, with no clear winner in 2022.
  9. Companies will begin to address the inconsistency in pay created by those moving out of London, yet still paid London weighting. The London weighting will begin to unwind.
  10. Action on ‘Furlough Fraud’ will intensify and companies will be forced to defend their actions through the first and subsequent lockdowns.