Need to know:
- Benefits such as financial education, salary sacrifice, health cash plans and discount platforms can help to support employees during the cost of living squeeze.
- Higher inflation may help address existing pay inequalities but organisations must also guard against creating new ones with jobseekers demanding higher starting salaries.
- Paying attention to the broader employee experience with benefits such as flexible working, career development and a well-communicated value proposition can help to attract and retain employees.
Employees’ expectations have changed dramatically over the last couple of years, with factors such as the pandemic, higher inflation rates and climate change fuelling a rethink of the purpose of work. With low unemployment rates now making it a job seekers’ market, the reward strategy has a critical role to play in attracting and retaining talent.
“It’s a pivotal time for employers,” says Sarah Jefferys, head of reward consulting at Gallagher. “The debate around the future of work is intensifying and those organisations that are able to use reward as a real differentiator will do well.”
Healthy reward
Employee health and wellbeing is a key focus in reward propositions, with organisations looking to enhance sick pay and extend benefits in this area.
“Employees are more aware of their health as a result of the pandemic and they want products such as life insurance and income protection,” says Rob Hall, senior business development manager at Towergate Health and Protection. “Concerns about NHS waiting lists are also driving demand for medical insurance. Being able to access treatment quickly is beneficial to employees and employers.”
Alongside growth in demand, the number of products has increased over the last couple of years. Mental health support and virtual GPs are commonplace but organisations are also implementing benefits for issues such as infertility, women’s health and carers.
As well as prompting organisations to review what they offer, this growth is driving a shift towards health and wellbeing allowances. By allowing employees to choose their wellbeing benefits, it can drive value and engagement.
But an effective health and wellbeing strategy requires more than products. Justine Woolf, director of consulting at Innecto Reward Consulting, says the culture of the organisation must underpin it. “Just offering an employee assistance programme (EAP) to support mental health isn’t enough,” she says. “Educating managers will help to ensure there’s an open culture around mental health.”
Financial squeeze
High inflation rates and the rising cost of living mean many employees also face financial pressures, with the Bank of England warning that households face the worst squeeze on disposable income for 30 years.
“Employers need to consider how they can help employees weather this cost of living squeeze,” says David Dodd, partner at Mercer Marsh Benefits. “Financial worries affect wellbeing, reducing productivity and increasing absence.”
Aside from increasing pay, there are plenty of ways employers can offer support. Benefits such as health cash plans and discount platforms help employees make their money go further. Organisations are also reviewing their loan schemes, with some replacing the virtually-defunct season ticket loan with financial assistance towards items such as rental deposits or child and elder care.
Salary sacrifice, where employees redirect some gross income into benefits such as the pension, electric vehicle scheme or childcare is another valuable tool when finances are tight. “Salary [sacrifice] saves on both employee and employer national insurance,” explains Jefferys. “Some employers give back the savings to the employee or use it to fund additional benefits for all.”
Financial education is also important. Charles Cotton, senior adviser for performance and reward at the Chartered Institute of Personnel and Development (CIPD), says it can help employees manage their finances. “Financial education is beneficial in all circumstances but especially where the organisation offers employees choice over their benefits,” he adds.
Pay pressures
Pay inevitably comes under the spotlight in the current jobseekers’ market, with ramifications that go far beyond an organisation’s wage bill. “Employers are seeing demand for unrealistic salaries when they’re recruiting,” says Dodd. “This can create an issue where an organisation has longstanding employees who are on a much lower base salary, potentially magnifying any existing inequalities.”
There are ways to address this. Offering a golden handshake rather than bowing to demands for higher starting salaries will help to avoid pay gaps widening, which could potentially alienate existing employees. Dodd also says it may shift the focus to developing existing talent.
It’s also possible that the higher inflation environment may offer some respite for employers trying to balance pay gaps. “Organisations have had such small budgets for pay reviews in the past that it’s been virtually impossible to deal with any anomalies,” says Jefferys. “Higher inflation will increase these budgets, giving employers an opportunity to rectify some of the inequalities.”
More than money
The financial elements of reward are only part of the equation, especially since the pandemic forced many to reassess why and how they work. “Organisations need to look at reward as part of the broader employee experience,” says Jefferys. “People come to work for a rich range of reasons: very few are coin operated.”
A variety of influences feed into the employee experience including access to learning opportunities and career development. However, the events of the last couple of years have put flexibility around where and how people work at the top of many organisations’ agendas. Jefferys says that as flexible and hybrid working is the main reason why people leave or join a company, nailing this is critical to the success of the reward strategy.
Many would like to see this flexibility taken a step further, with compressed hours, flexitime and four-day weeks all being considered. However, while the majority of employees appreciate more flexibility around where they work, Woolf says it brings challenges too. “It’s much more difficult to retain the company culture if everyone’s working remotely. Employers need to consider how they ensure employees feel part of the organisation.”
Creating culture
It may be a bigger challenge when people are working remotely but, with employees increasingly looking for organisations that share their values, creating the right culture has become a key objective for reward professionals. Gallagher’s State of the Sector 2021/22 report, which was published in February 2022, found that 53% of employers are prioritising engaging their team around purpose, strategy and values.
Whatever these values are, the reward programme can help to demonstrate the organisation’s commitment to them. “An organisation might want to highlight its ESG values through its reward programme by offering green investment options on its pension or promoting an electric car scheme,” says Cotton. “This can be really effective but they do need to be aware of competing values. Providing car parking facilities might support family friendly policies, allowing employees to drop kids at school before work, but it might not align with the organisation’s environmental values.”
As well as avoiding mixed messages, authenticity is essential. Stating the organisation is committed to diversity, equity and inclusion means nothing if its policies don’t live up to it. “Employers must make sure their benefits are truly inclusive,” says Dodd. “If an employer offers fertility support, it should also have other benefits in place such as childcare and eldercare propositions.”
Taking all of these factors into consideration requires a much more strategic approach from reward professionals than the competitor benchmarking exercise that would have been the norm in the past. But, by ensuring every element of reward is a fundamental part of its employee proposition, it will help the organisation stand out in the battle for talent.