REBA: Reward & Compensation - What are the longer-term implications of high inflation on reward strategies?
The ongoing disputes around pay this year have led to months of strikes across the public sector and have been a significant barometer in a tempestuous year. The impact of the cost-of-living crisis has been catastrophic for many workers in terms of their spending power. Organisations across every sector have come under pressure to respond as employees seek higher salaries in a competitive recruitment market.
The latest ONS data indicates that employee earnings grew by 6.5% on an annual basis in the three months to April 2023 - by 6.7% in the private sector and 5.6% in the public sector – but even these figures are tracking considerably lower than inflation. In response to this dilemma, companies are having to get creative. In some cases, efficiencies might be found to free up the cash needed to raise base pay across the board, or among groups that need it most. In others, it may be possible to reset the clock on pay review, and either draw down against savings or tighten belts in other areas to increase pay earlier than planned.
Rather than focusing solely on pay, though, at Innecto, we are encouraging clients to review all of their core principles and strategies around reward to put themselves in the best place possible to ride out the storm.
Why is Pay Benchmarking important?
Rising inflation rates have been a key influence on many recent pay decisions but they cannot and should not be at the centre of those discussions. Before taking inflation into account, companies need to be challenging themselves and asking whether employees are earning the correct salaries in the first place. If salaries are low, employees should potentially be receiving more than an inflationary increase. If they are already too high, no increase may be necessary at all, irrespective of the cost-of-living crisis and however unpalatable that may sound.
The best and fairest way to get to the bottom of things is to invest in a robust pay benchmarking exercise. By using a digital benchmarking solution such as PayLab, companies can gain a whole new understanding of their pay position and inform decision-making around overspending or underspending with granular insight. Armed with this level of data and understanding, companies can understand their true market position, move forward with confidence and even broach the whole area of salaries and payment with a greater degree of transparency than before.
The need for Flexibility
The big non-monetary benefit of our time is flexible working and the mutual trust that comes with it. Never has it been so important in the rewards matrix. Flexible working can allow employees to fulfil their hours in a variety of ways. For some it might mean retaining core hours, while others will be able to get the job done however and whenever they choose. In sectors like nursing and care, where employees are needed on-site, flexible thinking can still be achieved by enabling workers to drop or pick up hours, or by tweaking shift patterns and rotas to save on high-cost areas like travel or childcare.
Organisations are also being flexible with time in other ways that can pay immeasurably in staff morale and loyalty. For example, studies show how much productivity can rise by rewarding good work with extra time off. Meanwhile the ‘gift of time’ might also translate into buying or selling holiday days or greater flexibility around time off in lieu or birthdays.
Last year’s four-day working week trial was compelling, with over 90% of the companies that took part choosing to extend the provision. Most workers involved in the trial said they would not want to go back to a five-day week, so it is a brave move to make, but most of the companies reported an uptick in productivity, lower absence and higher engagement levels.
Looking beyond Standard Benefits
While pay rises cannot currently keep pace with employee expectation, another area we are urging clients to focus creative energy on is benefits. Gone are the days when a pension scheme by itself was enough, and the opportunities are now far more diverse. Activating employee discount schemes through apps like HAPI can deliver genuine savings for workers on the weekly shop, high street brands and eating out. on EVs, bike schemes, technology and household goods can add flexibility and value Salary-sacrifice while also scoring high on ESG. In addition to standard Medical and Health insurance, dental and health cash plans can make everyday essentials like eye tests and glasses easier and cheaper.
A useful starting point for realising a fully functional benefits package starts with a careful analysis of your employee demographics. This provides employers a better understanding of employee engagement. Attendance of webinars on debt advice might appear underwhelming company-wide, for example, but may rank relatively high among lower-paid roles, while older workers might dominate the audience at a retirement workshop. A strong benefits package should be able to cater for both ends of the spectrum, flexing to provide options for every individual as they plot their way through their career. Companies often worry that this means a complicated, expensive programme but by taking the time to understand their workforce it can usually be achieved.
Providing Total Reward Statements
Also, remember that an employee will never fully grasp the value of their package unless you spell it out for them with Total Reward Statements. These aid retention because they remind employees how much a benefit is worth, while also increasing usage and appreciation.
Investment in People
Often overlooked but seldom undervalued, opportunities around personal and professional development allow employers to show themselves willing to invest in employees, grow their skills and ultimately say ‘Stay with us’. This may form part of a broader succession planning strategy for homegrown talent, which can also mitigate the difficulty and cost of recruitment. This far-sighted approach encourages longevity in employees because invariably the investment and engagement leads to them feeling trusted and valued, sentiments they are more likely to pass onto colleagues in a virtuous circle.