Businesses of all sizes have felt the impacts of the COVID-19 pandemic in some way. As the crisis wears on, it has forced many organisations to revisit their reward strategies.
2021 is proving to be just as tumultuous as 2020 for nearly every person and business, regardless of industry or location. In the last 18 months, we experienced not only a pandemic but also devastating floods and wildfires, political and social unrest, and uncertain economic conditions. To respond to these ongoing challenges, business strategies have been evolving at a record pace over recent months. Therefore it comes as no surprise that redesigning total rewards strategy to align to changing business needs is a priority for many organisations.
Our survey of over a thousand HR leaders in the Asia Pacific region between March and April 2021 revealed that 41% of the respondents plan to review their total rewards strategy. Although the reward elements they want to focus on are often different depending on their business priorities, three key questions are frequently on our clients’ minds when it comes to optimising their total reward in turbulent times: How can I ensure my reward strategy helps drive top talent performance? Is it time to end my firm’s pay entitlement culture? Could non-financial rewards help improve engagement and retention?
The widespread salary freezes of 2020 are far less prevalent in 2021, but many organisations are still working with limited salary budgets. Getting these three questions right will help organisations enhance employee motivation and drive business performance.
1. Ensuring top talent performance
While many employees do not feel adequately valued during periods of constrained financial rewards, it is top talent, and those with in-demand skills, who are the ones most likely to leave.
Top talent needs to see its value manifested in multiple ways, whether it’s through small adjustments to base pay, guarantees, reductions in variable pay thresholds, or simply by being listened to and involved.
Organisations looking to differentiate rewards that recognise top talent would benefit from the following considerations:
Reaching a total-rewards mindset
- Educate managers and employees about the total value proposition.
- Develop tools for managers to target additional rewards for deserving employees.
- Continually communicate the company’s non-financial benefits.
Differentiating the reward strategy for key talent
- Clarify reward strategy and degree of variation/individualisation for key talent, including principles, design, and communication.
- Monitor program and rewards for top talent to ensure appropriate differentiation. This includes all cash reward elements and non-financial reward programs, on a current year and multi-year basis.
Clarifying key-talent management program
- Define key talent with respect to “high potential” and “potential for what?”
- Specify a governance structure and roles of corporate, business unit, and functional leadership in key- talent management process.
- Ensure transparency in talent reviews and a process that minimises ownership by business, and promotes collaboration and systematic calibration.
- Articulate a top-talent communications strategy that includes
- clear key rewards messages,
- the benefits and risks of communication
- identifies messages, messengers, and mediums of communication.
2. Dismantling the pay entitlement culture
For years, many CEOs have bemoaned a pay entitlement mindset in their organisations, especially as it relates to base pay increases. The current economic conditions could present an opportunity to shift this mindset.
Instead of across-the-board increases, employees can expect to see more variation in the level and distribution of salary increase budgets, both within organisation employee groups and across industry sectors. The focus instead will be on differentiation for strong individual contribution, on critical or hot-skill roles, and less well-paid employees (relative to market and internal comparisons).
3. Non-financial rewards help improve engagement and retention
Rewards extend far beyond base salary increases, bonuses and benefits and leaders should consider how they can maximise non-cash elements of their reward strategy. The returns from fully exploiting an effective non-financial reward program can be high due to their relatively low cost of many non-cash elements, and their high retention value.
Non-financial rewards are becoming increasingly attractive as organisations seek to retain talent with flexibility in a post-COVID workplace. In fact, our research indicates that non-financial rewards—especially flexible working practices, meaningful work, career development, training, recognition, and an energising work climate—are better for talent engagement and retention than base pay and variable pay programs as long as these are aligned to the corporate culture.
This is also an opportunity to customise rewards to appeal to what individuals will value most, whether it’s greater flexibility, additional leave or specific career development opportunities.
At times of great uncertainty, total rewards plans are critical to operating successfully. When leaders take a holistic view of total rewards and align their approach (and investment) to strategic priorities and workforce needs, organisations enhance the employee experience and drive success.