Blockchain is in the news again, as cryptocurrencies, the technology’s most well-known application, have gained momentum as a mainstream asset class. Companies with a bullish view on cryptocurrencies — such as Microstrategy, Square, and Tesla — have announced the acquisition of Bitcoin for their balance sheets. Traditional financial institutions such as Bank of New York Mellon are beginning to hold, transfer, and issue Bitcoin on behalf of asset management clients. The European Central Bank has announced proposals to launch a digital euro.
Cryptocurrencies tend to draw the most attention, but it is important to acknowledge the utility of broader blockchain applications, such as secure data-sharing, smart contracts, and cybersecurity. New and emerging blockchain-enabled technology solutions will enable more progressive ways of designing employee rewards and more effective ways of managing employees and contractors. As companies seek to gain a competitive edge emerging from the global pandemic, blockchain technology can be a tool for employers to differentiate themselves and win the war for talent.
Paying employees in Bitcoin has gone from an urban legend to a bleeding-edge practice. Several athletes are looking to be paid in Bitcoin, and the City of Miami passed a resolution to pay workers in the cryptocurrency. Some companies, in addition, are using Bitcoin and other established cryptocurrencies as an additional instrument to reward employees.
The advantages of blockchain-based applications are well understood — a borderless network, ease and speed of transfer, and a lower risk of devaluation (some cryptocurrencies, such as Bitcoin, have a hard cap on total supply). However, regulations and tax and accounting rules may take time to adapt. In the United States, for instance, specific federal and state regulations require employee compensation to be provided in fiat money.
Other countries, though, have recognized that swift legislative actions may deliver a competitive advantage. New Zealand became the first country to legalize paying salaries in cryptocurrency. Several countries, such as the Netherlands, the United Kingdom, and Estonia, have amended their accounting and tax codes to permit compensating employees. As an indication of the growing interest, some payroll management companies now offer to serve as intermediaries so that their clients do not have to hold cryptocurrencies on their balance sheets.
High volatility in the value of established cryptocurrencies remains a fair concern. It creates risk for employers and employees in the context of compensation (the equivalent of foreign exchange risk). Stablecoins (cryptocurrencies pegged to more “stable” assets or a basket of assets such as fiat money), however, may present an attractive alternative.
Blockchain applications for human capital management, such as token-based ecosystems, offer more exciting prospects. Broadly defined, digital tokens represent a claim on redeemable assets. Some companies have found creative uses for them.
For instance, the Spain-based bank BBVA introduced a token-based employee learning platform. Employees can earn tokens by training their colleagues in their area of expertise and, in turn, using earned tokens to take courses. Similar token-backed marketplace concepts could be applied in many different contexts of human capital management.
Blockchain can enable intercompany, token-based reward systems to incentivize collective achievements such as climate change-related goals. It can also enable more effective intercompany optimization of work and talent. Talent or work platforms can become an even more mainstream means of employment with smart contracts. Based on predefined conditions set and verified by the involved parties, smart contracts can automatically be executed without requiring an intermediary (e.g., employee reference checks) to govern the conditions. Conditions can be set with as many parties as needed without the administrative burden of tracking.
As work is completed, blockchain technology can allow real-time skills validation and performance review. When multiple organizations become part of a distributed network, validated skills, experience, and performance data on workers and candidates can be shared securely, making recruiting more efficient for both employers and employees.
Recruiter.com and HireMatch.io, for example, partnered on a decentralized blockchain global recruitment token and platform. The partners say the platform will help “eliminate the friction and costs of third-party intermediaries in the search for talent.” Employers will use a cryptocurrency called HIRE to post jobs on the marketplace, and job seekers will be able to refer friends or business associates to jobs and earn a reward in return.
Blockchain technology may also make real-time market benchmarking of compensation data possible. Anonymized salary data of participating organizations can be securely hosted on a distributed network that maximizes data security. Combined with a universal benchmarking methodology that accurately equates jobs across different organizations of job families, profiles, levels, and grades, the data could help provide real-time market insights.
Additionally, blockchain is changing mindsets around health and wealth benefit access and administration. By their nature, contracts, underwriting, and payments between health care intermediaries can be transformed by open, distributed digital ledgers, as will confidential employee data exchange between authorized parties. In limited applications, blockchain already allows individual users to unlock and share health and demographic data with providers or insurers through a shareable private key.
These few examples provide ample evidence of how blockchain technology can revolutionize the employee experience and make hiring more efficient.
While regulation has been a roadblock, it may be short-term. Despite their initial skepticism on the decentralized nature of blockchains, governments around the world have publicly announced cryptocurrency-friendly proposals to attract tech employers in the hopes of revitalizing or expanding local economies. Chances are more regulators will follow suit.
It is time for finance and HR executives to explore how these technologies may play a role in improving the effectiveness of human capital management and ultimately driving long-term value creation.
Kenneth Kuk is senior director, talent & rewards, at Willis Towers Watson. His co-authors from Willis Towers Watson are Dominic Okus, senior executive compensation analyst; Shai Ganu, managing director, executive compensation and global practice leader; and John Bremen, managing director, human capital and benefits and global head of thought leadership and innovation.