As consultants, we approach pay, reward, and benefit reviews by evaluating the existing pay system’s suitability for the new emerging reality. We address essential questions, such as the fairness of the pay approach, whether it encourages desired behaviors and performance, and its financial sustainability for both the organization and its employees. Additionally, we explore the relevance of linking pay to work location and the balance between financial and non-financial rewards.
Finding the Right Balance: Financial vs. Non-Financial Rewards
Studies have proven that financial rewards retain employees for 2-3 years. However, without offering adequate career development opportunities, employees may eventually seek new opportunities elsewhere. On the other hand, non-financial rewards can retain employees for 4-5 years, creating a sense of support and fostering a creative culture. Nonetheless, relying solely on non-financial rewards may not be sufficient, as financial needs and circumstances change.
To strike the right balance, organizations should blend financial and non-financial rewards. This approach involves providing competitive pay and benefits while also offering other non-monetary incentives to support employee well-being and engagement.
Impact on Employee Retention
Employers have responded to recruitment challenges by raising pay (44%), upskilling existing staff (39%) and advertising more jobs as flexible (38%). However, employers may have reached a limit to how much further they can go on pay: only 27% anticipate raising pay to address recruitment challenges in the next six months.
Employers’ top response to retention difficulties was the same as their top response to recruitment difficulties: to raise pay (52%). Again, there is a difference between what employers have done in the past and what they plan to do in the future, with just 36% saying they will raise pay in response to retention difficulties in the future. Forty per cent of employers with retention difficulties have put a greater focus on employee wellbeing, and 39% have improved flexible working arrangements.
Of those employers planning a pay review, an increase in pay is the most popular option at 44%. However, around three in ten (28%) think it is hard to tell, and around a fifth (18%) do not know. Eight per cent expect a pay freeze, and only 2% expect a decrease.
‘Without a doubt, reward needs to be aligned to business performance, objectives and values. However, ensure you’re not just the best place to work but the best high-performance place to work.
If you would like assistance with aligning your pay and business strategy, please get in touch.
Changes in pay and benefits planned for the next 12 months in response to recruitment and retention challenges:
Transparency
42% of employers don’t believe their organisation is consistently transparent about how pay levels and pay rises are set, higher than the UK average of 35%. Clear pay transparency (valued by 69% of professionals), will be key to improving both talent attraction and retention in the year ahead.
The 2019 CIPD Reward Management survey found that most employers did not have a definition of what they consider to be fair. If a definition did exist, it wasn’t widely shared. Having this definition in place is essential if employees, investors and customers are to view the organisation as a fair employer.
Benefit and Balance Expectations
The most important benefits to professionals seeking a new job include having over 28 days of paid annual leave (45%), a pension provision above the legal minimum (41%) and health insurance (40%). COVID-19 has created scope for additional benefits and factors to look for in a new role, with 42% of professionals saying they would like additional days off work for wellbeing, and a quarter (28%) citing additional payments to cover housing costs as a useful benefit (Hays Pay Survey).
Work-life balance is considered the most important factor for nearly a quarter (24%) of professionals when considering a new role, with remote working (36%) the most sought-after flexible working option (Hays Pay Survey).
During the pandemic, businesses have become more people-centric, rethinking employee experience that respect individual needs. Managing transitioning workforces is commonplace, with many restricting reward in response. This includes a broader reward offering with more options around wellbeing benefits to suit individual circumstance. Now is the time to rethink the employee experience in ways that respect individual differences and potential hybrid working models (HR Management Magazine, January 2021).
Embracing the ‘New Normal’
In the current landscape, customers and investors show heightened interest in how organisations treat their employees, particularly in terms of rewards and benefits. Employers must thoughtfully respond to this pressure and seize the opportunity to enhance their benefits package.
To ensure a fair and effective pay and reward approach, it is crucial to define what constitutes fairness, increase transparency, and seek employee input on reward preferences. By blending financial and non-financial rewards and aligning them with business values and performance, organisations can become high-performance workplaces that attract and retain top talent.
If you need assistance in reviewing your pay and benefit offerings, get in touch with us at michelle.johnson@ingeniumtalent.co.uk. We can help you develop a well-balanced and competitive rewards strategy that aligns with your organisation’s objectives and values.
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