Why companies must rethink their rewards policies in the new normal
The pandemic has not only revolutionised the way we think about working but also redefined our approach to rewards to suit the needs of the emerging new normal. So if you think that you know what the employees in your organisation want, it’s time to rethink. As we start to get to grips with the post-pandemic world, rewards and recognition programmes will continue to become more important for employee engagement, retention, and productivity. This article examines the changing approach to rewards and what organisations are doing to use it as an effective tool to engage and retain talent.
Many companies were on total reward transformation journeys long before the pandemic emerged. The pandemic has simply accelerated the pace of these transformations. Further, it has also shifted the power that employees wield within the employer-employee dynamic. These two forces are combining to have a monumental influence on the definition of the future of total rewards frameworks.
In the last two years, we have witnessed the Great Resignation, hybrid working, Gen Z joining the workforce, inflation, and other political conditions in the world, which have changed the expectations of the employees, who desire ‘something more’ from their current employers. According to SHRM survey (2021), the top reasons why employees are quitting jobs are better compensation (53%), better work-life balance (42%) better benefits (36%), and better career opportunities ( 43%). These results and findings from other credible sources imply that the immediate concerns for the workforce were around job security, pay, perks, upskilling, and career development. Great Resignation had driven lots of people to search for new jobs to fit their criteria of good compensation and benefits. More recently, Quiet Quitting and Moonlighting issues are strong evidence that compensation alone would not retain talent. There needs to be the right mix of rewards, salaries, and benefits along with an enriching employee experience across the employee lifecycle. These incidents are a reminder of the importance of having a total rewards strategy. For an organisation to maintain its competitive advantage, it needs to have a comprehensive and creative total rewards strategy – one that focuses on more than compensation alone.
According to Mercer’s 2022 Inside Employees Mind Study, the last 12 months have brought significant changes in the top needs of the employees. After two years of continual existential crisis, employees are more focussed on securing their financial, physical, and emotional health and well-being than on achievement and climbing the ladder. What does it mean for the organisations? They certainly can’t return to the pre-pandemic mindset.
Employees are re-evaluating what they want professionally and what to expect from their employers. The challenge for employers would be how they optimise their employee’s needs with the right rewards strategy. Today organisations appear to be very conscious of their employees’ wants and aspirations – both personal and professional and need to keep them at the centre while designing the reward and recognition strategy, consequently reconstructing the normative approach. The needs are changing rapidly and they cannot rely on historical data to prioritise solutions. Employers have an opportunity to differentiate by aligning their offerings to employee needs and values. According to Korn Ferry ( 2022), some of the top trends in rewards strategy used by organisations post-pandemic are :
- Tie rewards strategy and your programs to your purpose and mission
- Increased focus on workplace flexibility
- Elevate Health and Wellbeing
- Differentiate Reward solutions
In a post-pandemic world, employees are tired and burnout is evident. For employees to thrive, organisations must ensure that employees’ needs are met. By meeting their needs, the organisation gets its best performance and retains its workforce. The pandemic has driven organisations to rethink total rewards and the employees are no longer accepting the status quo. There has been a big shift in the rewards and recognition landscape with an increased focus on both the intrinsic and extrinsic needs of the employees. Experts like Josh Bersin believe that pay practices are among the most legacy and old-fashioned practices of HR. It needs to be re-examined and revamped. The scenario is changing due to inflation and skill shortages. The perks and benefits that were once good to have now become critical in driving and attracting and retaining the right talent.
Mercer’s (2022) survey results have urged employers to adapt to win the war on talent. Employers need to embrace the new contract with Employees – the lifestyle contract – where people can find healthy experiences at work. This is a huge shift from the loyalty contract ( pay and benefits in exchange for commitment) which existed pre-pandemic. Companies that embrace the lifestyle contract – who try to understand employees’ priorities and meet their changing needs – can become an employer of choice in today’s job market.
A reward system needs to be future-proof only by incorporating a long-term perspective. The pay and its permutations are a vital part of the employee experience. It can impact employment brand, retention, diversity and inclusion, and overall company strategy. For example, As per the Deloitte report (2020) employees respond favourably to agile compensation programmes that offer raises, bonuses, and other incentives more than traditional once-a-year reward systems. Another challenge is that R&R programmes are unfair. Pay for performance, pay fairness, and pay equity has become a debate among employees.
Often dissatisfaction arising from lack of recognition and unequal pay is leading to a rising attrition rate. Making rewards and recognition transparent, real-time, and equal is critical for employee retention and experience. Organisations during the pandemic have used R&R platforms to drive their initiatives. The R&R platform should be able to communicate and recognise the efforts of employees and make them feel valued. The R&R strategy you devise and the technology you choose should offer a full range of total recognition initiatives that not only boost their performance but also make them feel valued to be a part of your organisation.
To summarise, While Employers continue to hope for more bargaining power in the future, as the economy softens, the job market is likely to remain tight due to a shortage of skills. Organisations that recognise these trends and demonstrate agility in adapting their Total Rewards frameworks so that their employees are at the centre of their efforts, can elevate employee engagement levels, improve financial performance, and ultimately generate long-term value creation.
Traditional methods of rewards and recognition are incompetent to drive a holistic strategy aimed at enhancing personal lives and invigorating employees’ sense of purpose. Organisations that have worked on developing a total reward strategy have focussed on finding the perfect balance between supporting employees’ needs and wants in an affordable, competitive, and attractive way. Future-centric organisations are examining ways to revamp their total rewards strategy and how they can fructify the aim of their reward strategy which is engagement and performance.