Aon Hewitt’s latest Global Engagement Trends report revealed that pay, the extent to which employees believe they are fairly paid for their contribution to an organisation’s performance, is the third most important driver of employee engagement. In traditional engagement research, pay is often thought of as a hygiene factor. This means organisations have to get pay right, but incremental investments do not have significant impact. However, this recent shift in the importance of pay, up from sixth place in 2011, indicates that it is currently more important to employee engagement than it has been in the recent past.
These findings could be a consequence of a number of developments. Firstly, it could mean that ongoing pay and bonus constraints are really starting to affect the extent to which employees are prepared to say, stay and strive for their organisation. Secondly, traditional retirement security is either gone or at risk, and pay may be considered more important as a consequence.
Also, the employee psychological contract may be changing and staff with less long-term loyalty will value pay more. Finally, two of the three regions where pay is a top driver, Asia-Pacific and Latin America, are growing regions where the job market is competitive and pay remains a critical aspect of the value proposition to attract, retain and engage talent.
The medium-term risk for employers is that employees could become very mercenary as job opportunities open up for higher pay.
Looking in more detail at pay, about 40% of employees globally think they are fairly paid for their contributions. This is a low percentage and although we are unlikely to ever see high scores for this driver, there are steps organisations can take to improve employees’ understanding of their pay composition and how pay decisions have been made that won’t blow the wage bill.
Recognition is under-used
Recognition is often still an under-used and under-rated tool and is significantly less costly than direct pay. Employees look to leaders and managers for recognition, both in terms of their performance and also acknowledgement of some of the organisational challenges they sometimes have to deal with in performing their jobs. One benefit of formal and informal recognition is that it offers flexibility in the way employers recognise individuals, for example a public thank-you, a private personalised note, or a real-time acknowledgment of a job well done, all of which are important to motivation and engagement.
There is also the question of employee perception of reward and benefits. Often, the employee is simply not aware of the total package and the employer’s investment in them, which can include not just pay and benefits, but also training and development or softer cultural, non-financial factors, such as social responsibility. Investment in effective communication can give employers more bang for their buck. Aon Hewitt’s 2013 Benefits Administration Survey reveals that 28% of organisations cite communicating the full value of reward as their top engagement priority. This is especially important for employers with higher benefits spend.
Role of flexible benefits
Benefits provision, particularly flexible benefits, can play an important role in enhancing benefits perception and employee engagement, as long as the administration and communication around the package is optimised and seen to be fair. One of the most popular elements of flex is the choice and control given to employees over part of their compensation. The Benefits Administration Survey suggests that the use of flex is on the rise (70% of respondents offer it, up from 62% in 2012) and satisfaction levels are high.
The survey also suggests that the key benefits challenge facing employers is obtaining a higher return from benefits expenditure. In an environment of tightening budgets and increased demand for a tangible return on investment, organisations have to become far more creative when it comes to employee engagement.
Andrew Woolnough is client development director at Aon Hewitt
