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07 Apr 2020
by Dr Duncan Brown

Reward and benefits strategies after the pandemic: where do we go from here?

Preparing as I write this to take part in the second REBA podcast on the effects of coronavirus for reward and benefits professionals, I watched the first one which provides a great overview of the unprecedented challenges which the crisis has thrown at us: from funding the pay of furloughed employees and their pension plans, with the revised sick pay mechanics, through to mental health and financial wellbeing support for our now homeworking employees.

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But founder Debi O’Donovan ended that first podcast with a great challenge for us all: what are you doing to plan ahead for your reward package and employment brand after this is all over?

It’s a question many other commentators, corporate leaders and politicians are asking right now: ‘where do we go from here? and more specifically, ‘will it be all change, or just back to business as usual?’. I have found personally that sitting at home in lockdown affords a good opportunity to reflect soberly on where recent reward and benefits orthodoxies and trends have taken us; and how they need to change in the future.

From a government perspective, The Financial Times called for further "radical reforms" in the week of billion pound welfare and aid packages being announced, believing that unequivocally "the state is back"; as "the virus lays bare the frailty of the social contract" and "an irregular and precarious labour market"; with welfare support which involved trying to live on £94.25 per week on Statutory Sick Pay or £317 a month on Universal Credit. For, as their leader noted, "the pandemic has exposed the limitations of unfettered markets…marks the close of an era in which power migrated from states and governments to markets".

Universal Credit has consequently been transformed overnight from the absolute minimum needed to keep ‘benefits scroungers’ alive to a lifeline for hundreds of thousands of newly unemployed workers and self-employed.

This same conclusion I believe will be drawn by employers in respect of their extreme market-driven and one-way-flexible reward policies. The responsible employer and their comprehensive, security and support-driven reward package is back!

But a key question is whether enough employers will recognise and act on this voluntarily, or as with gender pay reporting and the National Living Wage, government will need to compel them to do what’s good for their employees and freelancers, especially the least-powerful and lowest-paid amongst them.

Rebalancing the economy and reward strategies of the future

If ever employers and their employees and contractors needed a change for the 2020s, then pay and rewards is the place to start; and one good outcome of this horrendous virus is that it might stimulate this realisation and response far faster and more extensively.

The High Pay Centre in unequivocal that government bail-outs and employee pay support of large businesses affected by the coronavirus must include social and environmental conditions including: fair pay, fair tax contributions and worker representation on company boards.

Interestingly, asset manager Schroders feels the same way, and that companies should ‘put employees, customers and suppliers first’ as they battle to survive the lockdown. Schroders has just written to distressed firms offering rescue capital quickly, but in return expects boards ‘to suspend dividends and reconsider management remuneration’.

There clearly is an important role for government here, to further protect and improve the benefits for gig economy and zero-hours workers, to strengthen the push for equality, and for wider human capital reporting.

But assuming you have the good sense to respond voluntarily to Debi’s challenge, what might this mean in terms of your future compensation and benefits strategies, to help us to ‘avoid returning to the status quo, to seize the opportunity’, to create what one of you responding to my last blog on this subject called ‘a more equitable, compassionate and collective’ approach to reward after the crisis?

Let me briefly outline five areas that I would hope and expect more of us to be paying attention to and acting on in the months ahead.

1. A return to ‘fair’ pay and reward policies, paying people a decent wage, providing career and pay progression opportunities for all; and recognising their growth in skills and added value in their pay. Our research on reward effectiveness shows that cost-minimisation low pay and benefits strategies simply end up costing employers more in the medium to long-term, with demotivation, higher staff turnover and absenteeism the result.

The institute of Employment Studies’ Progression in Employment project funded by the JP Morgan Foundation highlights the range of actions that ‘good work’ employers are taking to support progression of low-skilled workers, ranging from regular career conversations to multi-skill-training and skills-based pay progression.

2. The rebirth of job evaluation and pay structures, so that all staff, including executives, are paid on a common basis, fairly in relation to their skills and responsibilities; and men and women are paid equally, rather than continuing to import market-biases and premia.

3. More collective bonus plans and sharing in success. The CIPD’s latest reward management survey finds that individual performance is the most common form of variable pay, used by 62% of those with bonuses. Yet while their incidence may be lower, collective bonus plans have a much stronger record in research. Greater use of collective pay schemes, such as profit and gainsharing, coincides with better site and organisation performance (Eurofound, 2015). For example, Benson and Sajjadiani (2017) report that manufacturing plants that use gainsharing plans experience greater productivity, higher quality and other performance improvements.

UK employers need to drop their obsession with executive and individual incentives and let all employees share financially in the benefits of their success.

4. More hybrid and shared risk pension and benefits plans, such as CDC schemes along the lines the Royal Mail has been developing, so as to better share the risks, costs and benefits between employers and employees.

5. Greater attention to employee’s mental health and financial wellbeing. Fortunately, many HR and reward professionals have already woken up to the damaging impact of growing levels of mental ill-health and financial indebtedness in the workplace, which the virus’s impact will only intensify.

As my colleague Catherine Rickard suggests, a worrying feature of our IES case-study research on this, was senior management opposition to providing mental and financial wellbeing assistance. The employer risk is in not acting, rather than taking such action. Taking responsibility to actively support employees means going beyond just providing Employee Assistance Programme phone lines. It means auditing, then helping employees much more broadly with financial education, be that through online financial tools, debt management support, pensions’ guidance, budgeting support and so on.

In the civil service, a variety of new measures have been introduced to better support mental health, including the provision of mental health champions and trained mental health first aiders, while the Cabinet Office will be launching new guidance on financial wellbeing once the lockdown is over. Many more employers need to follow their lead.

The vision and the action plans

Green Party MP Caroline Lucas believes that as a result of the pandemic we are “seeing people’s jobs and roles afresh: people who yesterday were ‘unskilled’ are now essential workers”. As such “the coronavirus may be the locomotive of history which accelerates the transition to a fairer society”. FT columnist Philip Stevens similarly believes that “rebalancing of the responsibilities of government, business and citizens’ will be an enduring legacy of the pandemic”.

We in reward and benefits are generally an experienced, well-grounded, realistic bunch, perhaps not given to such high-flown ambitions. But this should and will, I believe, occur too in reward strategies in the year and decade of recovery ahead. But we all need to act now to have a chance of making it happen.

So what are you going to do now?

The author is Dr Duncan Brown, Fellow at CIPD and visiting Professor University of Greenwich.

To hear more from Duncan, tune in to our podcast which will be released tomorrow (Wednesday 8th April).