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Cover story: Delivering the perfect reward package (Part 2)

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The rules of reward have been ripped up over the last few crisis-hit years. Dan Cave finds out how HR leaders can reap the ‘Covid dividend’ to power a progressive reward strategy.

This is part two of an article that appears in the November/December 2023 print issue. Click here for part one. 

Reward’s massive shock

It’s here that the interlinking crises of Brexit, financial wobbles, a cost of living crisis, skill shortages, and widespread backlashes against pay and conditions, and particularly the pandemic, came into play and changed reward. 

Brown says: “Two or three shocks which you might expect to face over a lifetime happened in two or three years.” 

The result was an almost overnight shift in what employers thought they should be delivering for staff, with Brown explaining that firms that had previously taken an arms-length approach to their workforce’s lives now became much more involved. 

“HR has responded well to these challenges and we deployed at speed,” says Brown, “Covid was really a game changer in terms of firms no longer saying it’s not up to us [to deliver a wide range of support to staff].”


Read more: Reimaging the future: life and lessons post pandemic


The CIPD’s 2022 Reward Management survey clearly indicates the widespread nature of this mindset and delivery shift, finding just 29% of employers didn’t change reward as a result of the pandemic. 

Indeed, after the initial labour market shock of the pandemic, the CIPD found 96% of employers said they had a role in delivering a fair and livable income to workers. 

Many have since taken action. ONS data from 2023 showed that, excluding bonuses, regular pay had risen by almost 8% in the three months to the end of June, while CIPD reward management data showed around two thirds of employers now offer a pension with a 6% minimum contribution.

 

Changing the offering

Whilst scrutiny of reward is driving increased interest in understanding pay gaps and how pay impacts business outcomes, it has also led to a noticeable increase in employee health, wellbeing and social benefits available to all staff. 

The percentage of employers delivering access to employee assistance programmes (EAPs) has jumped from 59% to 78%, with a growth in physical fitness offerings (now offered by 36%), virtual GPs (29%) and a jump in the death-in-service provision and care vouchers.

For Tony Deblauwe, vice president of HR at tech company Celigo, this tumultuous period has prompted a total reward strategy rewrite. 

He says: “The pandemic prompted us to make adjustments… We enhanced mental health support and extended our benefits offering.” 

And it’s not just glitzy tech firms that have changed their benefits offering. Traditionally lower-paid sectors are also getting a boost in reward and benefits. In fact, CIPD research found it was employers from traditional low-pay sectors that were planning to spend more on benefits, with over half boosting basic pay as they face ongoing recruitment struggles.


How to get reward right without being reactive


Testament to this, Tesco has begun offering private medical insurance to all its staff in the UK. Nearly half (47%) of firms in traditionally low paid sectors are also supplementing wages with training benefits to help them scale their career ladders and access higher pay rates, the CIPD found. 

Palmer says: “The knock-on effect of the pandemic had a huge impact on essential workers, retail and catering and hospitality – a sector that was neglected for far too long.”

When it comes to financial perks, five times the number of employers said they expected to keep spending here, despite economic challenges, compared with those who wouldn’t.

‘Golden hellos’, a payment made to new starters were once the preserve of executives. They have now been found in social care, education, medicine, retail and logistics over the last couple of years. 

Sandi Wassmer, CEO at the Employers Network for Equality & Inclusion (ENEI), adds that it’s a focus on cash, and delivering for those hardest hit by crises, that led the organisation to roll out life insurance, cost of living bonuses and wellbeing and mindfulness support. 

She says: “With the pandemic and cost of living crises disrupting established working practices, there was a need to strike a balance between people and profits.

“It also showed that when responding using reward, it is essential to ensure that those who are the hardest hit get as much benefit as possible.” 

With four in 10 employers now offering financial education or guidance, Wagestream’s Trant says there is a step change in employers wanting to better understand and value their staff – and using this to drive towards commercial goals in a renewed manner.

She argues organisations with a wide range of targeted benefits will be the most successful in the future. 

She says: “Employees don’t need fussball or a yoga class, they need good pay and income protection. Investing in a broad suite of benefits for your people is a sensible business thing to do.”

Strategic changes

But finance isn’t and shouldn’t be the only focus for reward. While some would argue flexibility isn’t a proper work benefit, especially with incoming legislation changes, CIPD stats show flexible working is now offered by 85% of employers, compared to 69% in 2018.

There has also been an increase in work-centred socials (companies offering Christmas parties jumped by 18%), extended paid and annual leave, more offers for learning materials and conference attendance and free food and drinks in offices, as well as days offer pet care.

With joint YouGov and CIPD research from early 2022 finding only 57% of employees knew about benefits from their employer, experts are also arguing for better reward strategising going forward. 

Andy Caldicott, CEO at employee engagement company Boostworks, argues a more holistic approach from business needs to be adopted to focus on both the benefits and the communication of them so staff don’t miss out.

“More businesses are bringing the whole spectrum into one single reward strategy and being able to communicate to the employee the value of that,” he says.

For Jeanette Wheeler, chief HR officer at MHR, employers also need to build on the focus on reward and think more strategically by using the right technology and data to flex, personalise and adapt reward strategies to changing market conditions.

She says: “Businesses need to be adaptable when it comes to reward schemes and pay because the very nature of the working world today means they need to be able to overcome a number of roadblocks at any given time.” 

Reward Gateway’s Kelly seconds this, adding that AI and automation of reward will play a bigger role as well as meeting additional demand for personalisation.

She encourages HR to keep up with changes to reward and demonstrate how this aligns with business needs, plus keep track of what different cohorts want and are using.

“Ultimately, investment in benefits comes at a cost to the business, and access to clear data and evidence of return on income, net promoter score or employee engagement is crucial for top-level buy-in,” she adds.


Road to recognition: how to make employees feel valued 


Changing expectations

Evolving reward offerings aren’t just driven by employers. There’s a global push forward on the pay transparency legislative agenda, and 2022 CIPD reward management data shows a third of employers have seen rising demand for better financial wellbeing support from employees.

The 2024 EU Corporate Sustainability Reporting Directive means that businesses with large EU operations will now have to better manage pay gaps and reward inequity, with calls for similar legislation in the UK.

Given the 3.9 million working days lost due to strikes in the UK over the past year, according to the Resolution Foundation, it’s clear some employees aren’t entirely satisfied.

Many employers are therefore looking to move past boosting reward as crisis mitigation and instead looking towards it to deliver for the long term.

One example is at Lloyds Banking Group where Sharon Doherty, chief people and places officer, worked with unions to create a new pay deal, deliver greater flexibility to employees, increase maternity leave and a whole host of other benefits.

The CIPD found employers were also increasingly wanting to offer cycle-to-work schemes, health benefits and apprenticeships in the future.

Doherty says: “We’re proud to have led the charge with additional payments as our people manage the rising cost of living and we’re proud to be a leader in flexible working which we believe will help us attract the best and retain the best.”

Brown predicts more employers will begin to take a long-term approach to rewards, not cutting back from crisis offerings, and a better understanding of the link between investing in people and productivity returns.

He adds: “HR has to use its Covid dividend [increased proximity to the boardroom; a term coined by Perry Timms] and say ‘Let’s not go back to cutting costs as we’re in a tight labour market and we’ve got to invest in skills’.” 

Nadin has also seen a step change in how employers conceive of reward and its role in building a culture staff want to stay in.

He says: “Reward, benefit and compensation messages have become ‘Come and work for me and I will look after you when life gets tough.’ 

“And as the shadow of the pandemic fades, employers are realising they need to conduct an entire re-write of their reward to suit the high new expectations.”

For others, it will be creating an understanding of how reward connects to other important HR agendas.

For example, the diversity, equity and inclusion (DEI) agenda, which, explains Wassmer, can be impacted by tailoring pay uprates and benefits to different pay grades.

She says: “From a DE&I perspective, this is what we call equity in action, providing different approaches to achieve equivalent results.”

And like the traditional low-pay employers, Wagestream’s Trant believes that with learning and development (L&D) offerings high up the agenda in reward delivery, there can be a genuine step forward in both delivering for the organisation and social mobility.

“Reward provision can be used to help employees accrue social capital and how we offer benefits can change that to allow moving up the ladder,” she says.

 

Moving past challenges 

Despite positive movement, there are still places that employers are tripping up on. This can have negative HR outcomes, CIPD’s Cotton advises. There remain accusations of ‘perkswashing’, with benefits used to supplement poor pay. 

There can also be friction caused by the difference in pay rises given out to senior and junior staff. Cotton says: “Some reward communication can also go wrong, such as flagging up how employees can access foodbanks or set up a side hustle to help cope with the jump in the cost of living.”

Niamh Hogg, employment lawyer at Freeths, says that it can be easy for employers to get caught out when it comes to scrambling to change pay and benefits to meet staff expectations — and they need to keep alert to any changes which might exacerbate ethnic or gender pay and benefits gaps.

“Also ensure salary sacrifice schemes don’t allow pay to dip below national minimum wage requirements and seek input from tax specialists for new reward schemes,” she adds.

For employers considering the shinier end of reward, such as allowing remote work from different countries, they must consider firstly whether employees want this, plus how to get around local regulations, adds James Grundy, vice president at Houlihan Lokey’s Technology Group.

“A one-size-fits-all approach is no longer appropriate and compensation and benefits packages can’t be looked at in isolation, they range from global mobility to career progression,” he says.

And this is especially true with Gen Z making up a larger part of the workforce.

Kelly adds: “Millenials and Gen Z expect more, and Gen Z workers are quitting jobs that don’t give them benefits.”

 

An egalitarian future

To move past a model of individualised reward, a balance of personalisation and collectivism can be used to drive a new, adaptable model. 

“We can evolve from a crisis response to a different philosophy of reward management… to a fast, more egalitarian model,” Brown says, adding that employers should focus on looking for easy-to-implement, high-impact, strategic changes such as profit sharing. 

Keeping ahead with reward vogues is also crucial, adds Trant, as employees will increasingly turn to employers to deliver wellbeing and financial support, as well as delivering purpose and security.

This is despite more legislation around transparency and ESG responsibilities, as she describes, in an ongoing environment of political drift more employers will be looked at to solve social issues.

“It’s on employers to be thinking about the broader financial wellbeing of people as the government isn’t doing it at the moment,” she adds.

To do this, there are simple fixes. 

Cotton recommends HR to put itself in the shoes of its workforce. “This will influence what you do, why you do it, and how you do it,” he adds.

And if HR does use its ‘Covid dividend’ to improve pay, benefits and reward, then fairer, more productive, personalised and collective organisations can start to be built, adds Trant.

Positively, she’s already seeing businesses doing this, too; being more deliberate with reward so employees adopt and use benefits and the organisation sees the benefits in productivity returns.

“Why on earth would you not build everything you’re doing around rewards, inclusion, benefits, and your people; it makes sense to build around the most fundamental things,” she adds.

 

This is part two of an article that appears in the November/December 2023 print issue. Click here for part one. 

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