How relevant is total reward for the current employee benefits landscape?
If you read nothing else, read this…
- The relevance of total reward is in doubt because of continued downward pressure on pay.
- Employers need to focus on better use of data and evidence.
- Organisations should engage with staff of all generations to find out which benefits they actually want and value.
Total reward, both as a concept and a framework for delivering benefits, is dead, according to Duncan Brown, head of the UK performance, reward and talent consulting practice at Aon Hewitt and his colleague Martha How, reward and benefits partner, speaking at Employee Benefits Live.
But are they right? As we move into a post-recessionary economic cycle, but one wherepay growth remains anaemic , is total reward still relevant and, if not, what are the alternatives?
Brown’s argument, as articulated in a six-page analysis in the journal Compensation and Benefits Review, is complex.
In essence, he argues that the downward pressure on pay seen since 2007/2008, the erosion of core benefits such as pensions and the fracturing of traditional employment securities (as seen in the rise of zero-hours contracts) has meant the idea of being able to engage and motivate employees through a notionally employee-driven, flexible package of ‘chocolate box’ benefits bundled together under the brand ‘total reward’ has become increasingly meaningless.
Brown argues: “For the majority of the workforce, they have had declining real pay for more than five years now. Employees feel unrewarded at the moment; they have no more money, jobs are still being cut, working hours and contracts are under pressure.
“Against that backdrop, the language of total reward that has been in place since 2007 is outdated . If an employer asks an employee whether they feel totally rewarded, they will say no because their take-home pay is less while they are being asked to do more.”
Also, the fact that total reward has become so commonplace means that its value as a strategic differentiator, something with which employers can drive their employee value proposition, is much weaker, if it is there at all.
Employees disconnected from total reward
But while the problem of employee disconnect from total reward is relatively easy to diagnose, the alternatives are rather harder to identify.
Brown makes the case for what he calls ‘smart rewards’ based on four key components: a simpler, clearer and more flexible focus on a few core values so that employers can demonstrate a clear ‘pathway’ between their business goals, people needs and reward strategy and policies; a more evidence-based approach, with much better and more proactive evaluation of reward, better use of assessment metrics and more systematic cost/benefit/risk analysis; a stronger emphasis on engaging all employees, rather than a top-down boardroom-led approach, with much more emphasis on transparency, simplicity, communications and delivery; and much better use of engagement data, more focus on what employees think of rewards and of the need for benefits to reflect, and be aligned with, generational and motivational groupings, with this needing to be a key performance metric.
“Most flex plans have either no choice or employees are overwhelmed with choice,” he says. “This is about having a much simpler, clearer, more open, realistic and, crucially, evidence-based approach, where communication is tailored to the employee and where there is more shared responsibility.”
Greater recognition required among employers
Mark Carman, director of communication services at consultancy Edenred, says there needs to be more recognition among employers that the reward conversation has changed .
He says employers should start by considering how they can improve employees’ working environments to compensate for low pay. “For example, in the convenience food sector, names such as McDonald’s, Pret A Manger and KFC have recognised that pay is low, but they can still try to have creative working environments and offer opportunities,” he adds.
Benefits by themselves can never be a substitute for decent take-home pay.
“The variables that make up total reward are certainly not dead,” says Carman. “What is needed is innovative ways to help organisations tick all the elements that make up a total reward strategy.”
Tristram Hawthorn, employee benefits consultant at KPMG, suggests there is life yet in the principle of total reward, even though its presentation and communication need to change.
“The world of total reward is continuing to evolve, particularly as the complexity of communicating with baby boomers, generation Y and generation X increasingly requires a more varied and flexible approach to reward and engagement ,” he says.
Case study: British Sugar
The language and emphasis of total reward need to change to better reflect the priorities of modern employees , but it still has value as a concept, says Henk Verhoek, head of reward at British Sugar.
“When I look at the discussions going on, I do think there is one thing the industry often misses,” he says. “When thinking about total reward, it must not just be about pay or benefits, but also about things such as learning and development, the working environment, leadership and the wider opportunities employers offer within the business. Employers have to take these into consideration when they are thinking about total reward.”
In November 2013, British Sugar unveiled a new online benefits portal, My Staff Shop, for its 1,250 employees, offering access to benefits such as a bikes-for-work scheme, childcare vouchers and a healthcare cash plan.
“We are very focused on increasing awareness and sharing success stories,” says Verhoek.
“The philosophy we have is to be mindful of the different generations within an organisation. Employers have to have a suite of benefits that appeals to different age groups and need to be brave and regularly renew them.
“When you are speaking about total reward and just talk about benefits, there can be a disconnect, so you have to bring the different elements together. Total reward needs to be a much broader concept than just pay and benefits, the monetary side of things. It needs to be looked at as a whole.”
But Verhoek says employers need to consider how their pay scales compare with those of their competitors because employees are always concerned about whether they are fairly paid.