How will employers’ reward strategies change when furloughed employees return to work?

By August 2020, HM Revenue and Customs (HMRC) reported 1.2 million organisations had placed 9.6 million employees on to the government’s Coronavirus job retention scheme (CJRS).

As the end of the furlough scheme draws ever closer, and more employees return to work before the scheme finally ends in October 2020, it is inevitable that employers will be looking to streamline their total reward strategies. However, with every organisation experiencing a different level of financial consequence, there is not going to be a one-size-fits-all solution. 

Robert Hicks, HR director at Reward Gateway, explains: “If [it’s broken] down broadly into three groups; the first one being businesses that are doing well out of Covid, like the supermarkets; the second which are having a nervous Covid, which have had to make some adjustments but not quite sure what’s around the corner; and those which have been hit hard by Covid.

“Each of those will have a different strategy but fundamentally when they are making adjustments, they need to look at two areas; pay and benefits. It is really important that whatever they are doing, they need to be doing something tangible, knowing what their constraints are and seeing what can be done differently.”

The story so far

Organisations are trying a number of avenues to avoid making organisation-wide redundancies. According to research by Vestd in July 2020, 15% of small and medium-sized enterprises (SMEs) are planning to make pay cuts, with a further 48% having no plans to make any pay rises within the next 12 months.

Stuart Hyland, associate partner at Aon, says:  “The speed at which organisations responded in regards to the lockdown and how hard they worked to reduce the impact on headcount, introducing pay reduction for all of them or for groups of staff rather than losing people is so different to the last recession in 2009. It was all about headcount then and pay cuts were almost by exception, but now the numbers of employees who are taking a voluntary pay cut, even accepting a 20% pay decrease, is quite common.”

Communicating benefits on offer 

Although food retailers and delivery organisations are thriving, the majority of UK businesses have been hit hard and offering bonuses, in any shape or form, is not on the horizon for quite some time. The majority of employees will just be grateful they have a job to return to after the furlough scheme ends.

“If [an employer] cannot do anything new, giving employees access to reward statements to explain the value of their existing benefits goes a long way to engage employees and increase take up,” explains Hicks. “They don’t need to be complicated, if [they] can explain to people that they have a great employee assistance programme (EAP) or wellbeing product, for example, or they have received 10 recognition moments which are sitting in the system unread, you can actually explain the total value of what they’ve got.

“That becomes more helpful than taking things away [which] creates a real disconnect. Employees need to begin to regain the trust of their employers again.”

Flexible pay 

Money is a hot topic of conversation and one of the biggest concerns for many furloughed employees, particularly after a period of living on 80% pay.

Pete Briffett, chief executive officer (CEO) at Wage Stream, has seen a greater shift towards employees wanting instant access to their pay, especially given the impact that the pandemic has had on people’s earnings and financial wellbeing.  “Flexible pay is a very core benefit. I think a lot of employers are thinking about how they can look after their staff and how to look after their financial wellness,” he explains. 

“Employers are really focusing on the next 12-to-18 months and what benefits are going to work, and in terms of accommodating people, flexible pay is just another trend.

“The question is, why are employers paying a salary monthly and restricting an employees’ earnings? Why can’t they just give them access to their money immediately? It can have such a positive impact, particularly if they are suffering from stress due to financial difficulties.”

The new face of pensions

Pensions auto-enrolment is set in stone but many organisations, which invest more may look towards only paying the minimum contribution into employees’ pensions for the foreseeable future. However, other organisations might look at this as the perfect opportunity to uniform its offering and instead of having 10 different pension schemes running parallel, all with different charges or with different contribution levels, may choose to streamlne these into just have one.

Given that above-minimum pension contributions can set an employer apart from its competition, employers should consider their choices very carefully, says Romi Savova, CEO at Pension Bee.  “As we continue to move out of lockdown and the economy transitions, many talented workers will be looking for jobs. Particularly in sectors where there are skills shortages, we can expect competition among employers to be fierce.

“One of the best ways employers can stand out and attract talent is to create a competitive benefits package. Long-term employees value long-term compensation and pension payments offer just that. It is a very strong signal from an employer, if [it] offers this.”

Training and development

With organisations cutting costs at all corners, training and development could potentially be one of the areas that is put on hold. However, this can be a useful tool to give employees renewed confidence when returning from furlough and can be positioned as an important part of a total reward package, says Hyland. 

“If [employers] want to hang on to staff or certain staff groups they are going to have to keep developing people,” he explains. “Just because the world has moved on, individual people still want to grow, develop, learn and progress.

“However, I think that the way we learn will shift. I think the days of classroom-based learning are over, learning programmes will be based around e-learning, and employers will focus more on the delivery and how they do it.”

The changing face of total reward

Pay cuts are not the only new appearance within an organisation’s pay strategy in recent months. Twelve months ago, the idea of paying anyone pandemic pay was unheard of, but now a growing number of organisations have been introducing it, and the traditional list of essential workers has multiplied.

Many organisations are having to rethink their reward approaches to recognise this new group of employees, says Hyland. “I don’t think we could have survived without our local Amazon delivery driver,” he says. “Bonus pay, recognition or hazard pay are becoming more of a necessity. Retailers and delivery organisations have offered bonuses for those working through lockdown, sometimes in very difficult circumstances, and reward strategies moving forward can’t overlook this.”

The long-term approach 

With the future unclear, reward strategy trends will become more apparent as we head into 2021. Going forward, employers will be looking at their overall reward strategy and stripping it down to the bare minimum before rebuilding it back up again, says Hyland.

“The whole economic outlook has changed and the operating model is changing with a lot more emphasis on digital technology,” he explains. “There will be more focus on value for money. One of the key principles is simplicity and we need to make sure things are simply streamlined.”