Using reward and benefits to re-engage the workforce after the recession

As the country recovers from recession, employers face the tough task of re-engaging their workforces, says Nicola Sullivan

In May 1940, Sir Winston Churchill famously told the House of Commons in his first speech as prime minister: “I would say to the House as I said to those who have joined this government: I have nothing to offer but blood, toil, tears and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many long months of struggle and of suffering. You ask, what is our aim? I can answer in one word: Victory.”

As the recession tightened its grip last year, many organisations also had to deliver stark messages to their staff. It was a year when many employers had nothing to offer their staff but redundancies, pay freezes, pension scheme closures, and reward and benefits reductions.

The huge upheavals many employers underwent to survive the recession had a significant impact on established organisational structures, job roles, people processes and business models. Although a Churchill-style victory is still a long way off, some employers are beginning to achieve relative stability and are finding themselves with the daunting challenge of having to reconnect their staff with the business after a difficult year.

Aligning organisational systems

Chantal Free, head of workforce strategy and solutions for the UK at Towers Watson, says: “There has been a lot of fundamental thinking going on about how to run an effective business. Although this has happened, all the organisational systems may have not been aligned yet.

“An employer may have redefined its business objectives but has yet to ‘operationalise’ it with its people. Have employers established what an employee’s job means now? What is the employee accountable for? What is the employer now going to start rewarding them for? What new behaviours do employers expect from their employees?”

One of the first steps for employers is to go back to their business strategy and analyse what has changed. For example, in a retail organisation, there may now be an increased focus on online selling, which will require staff with different skills to be rewarded in a different way.

Meeting business objectives

A good level of staff engagement is key if the organisation is to meet both its pre-existing and new business objectives, as well as remain competitive in the upturn. Last summer’s MacLeod Review, a government-commissioned report on employee engagement, said staff must be fully engaged with their employers to ensure businesses could take advantage of new opportunities. It also called for government support to ensure the employer-employee relationship was at the centre of business strategy.

But such a task will be particularly difficult if the workforce has been left demoralised by the way their employer handled the economic storm. And many workers could be forgiven for focusing on their own short-term future rather than on their employer’s long-term prosperity Cary Cooper, professor of organisational psychology and health at Lancaster University, says: “If employers were good at HR, communicated well and looked after their employees during the recession, they will not have a problem post-recession. The organisations that are going to have problems are those that treated employees as disposable assets.”

In a poll of 950 UK workers published by PricewaterhouseCoopers (PWC) last month, 33% said they had not felt valued by their employer during the recession and would move to another job if they could. Of those who said their employer had shown appreciation for them in the downturn, 41% said they had no plans to leave.

Employers of choice

Michael Rendell, partner and leader, human resource services at PWC, says: “Some big employer brands fell down at the end of the noughties and the long-term impact of people decisions taken during the downturn is now being felt. The ways people are recruited, rewarded, retained, incentivised, trained and retired over the next few years will determine the employers of choice for the new decade and beyond.”

An employer’s reward strategy has a key role to play in reconnecting and re-engaging employees with an organisation. If used effectively, it can drive the right behaviours for different groups of staff to ensure they are connected with the business strategy going forward. But various approaches may be needed for different groups of employees. For example, to get the best performance from sales staff, some organisations have redesigned commission structures and sales incentive plans to recognise the fact it can take longer to close a sale during a recession, says Towers Watson’s Free.

“A lot of sales compensation plans have been redesigned to ensure sales people spend their time with the right customer and are focused on the right sale. It has been much more prescriptive, and there has been much better prioritisation of accounts to make sure sales are more effective.”

Executive remuneration

But Rob Burdett, a principal at consultancy Hewitt New Bridge Street, says remuneration structures for executives are likely to remain fairly static and there will be no significant changes in the way executives are paid. Because institutional shareholders are taking more interest in executive pay and bonuses, employers will have to tread carefully when making changes to executive remuneration at board level, but could find they have more freedom when it comes to packages for the next tier down.

“Employers may have felt they do have more flexibility and may have taken a view that they can take account of the economic downturn more directly for those senior employees who are below the main board directors,” says Burdett.

But Duncan Brown, director of HR and business development at the Institute for Employment Studies, warns that if organisations are perceived to be offering excessive rewards to their senior staff, other employees’ engagement and commitment could be damaged. Outrage over executive pay and bonuses, particularly in the financial services sector, is still simmering and employers should seek to redress the balance by ensuring as many employees as possible get a chance to share in the organisation’s success. For example, employee-owned John Lewis Partnership last year paid its 70,000-strong workforce a bonus equal to nearly seven weeks’ pay.

Employers should also consider rewarding staff as teams rather than as individuals. This will help eradicate a culture of self-preservation resulting from the recession, says Lancaster University’s Cooper.

Incentive-based systems

“The only way to get real engagement out of employees is to offer incentive-based systems, get people involved in decision-making but also reward them for success, not as individuals but as teams,” he says. “Otherwise, as we get out of the recession, we are going to get still more self-protective behaviour.”

One of the ways employers can get a handle on employees’ concerns and needs is by conducting an engagement survey. These surveys seek to establish how much employees are committed to their job, are prepared to go the extra mile for their employer and are willing to stay with the organisation. Workers can also be asked about their satisfaction with pay and other benefits, enabling employers to see which elements of their package are most valued.

Martin Laws, a principal at Hewitt Associates, says the benefits that are important to employees can defy an employer’s expectations. For example, although staff might be able to rationalise big changes to benefits, they may be frustrated over administrative problems with flexible benefits schemes or delays in receiving long-service awards. “If an organisation decided to have a pay freeze, quite a lot of people would be disgruntled by it but, given the economic reality, it will be rationalised and [is likely] to be accepted,” says Laws. “If employers decreased their pension or increased their membership contributions, staff would probably be more annoyed but, again, if they thought it through, they would probably rationalise it.”

Carry through on promises

Ian Bird, senior partner at Foster Denovo, adds: “The only thing to consider in this instance is that employers need to listen to the responses and carry through on any promises made.”

More and more employers’ communication strategies are highlighting how an employee’s reward links to their performance and that of the business. Christopher Hopkins, director of Caburn Hope, says: “Employers are tending to want to highlight areas of performance that can affect how the company will improve next year, and therefore so will the employee’s benefits.”

In instances where benefits have been cut back or axed completely, employers should also be upfront about the business reasons for the changes. Adrian Furnham, professor of psychology at University College London, says: “What happens in bad times is managers hide or tell porky pies and that is exactly the opposite of what they should do. People much prefer to be told the bad news.

“People prefer the truth rather than a pack of lies. We can cope with bad news. We need to be told what is going to be done about it and we need to be told people are sharing the burden [equally].”

Understanding package value

Looking ahead, Hewitt New Bridge Street’s Burdett expects to see more employers making greater efforts to ensure senior staff understand the value of their package, which will be affected by new fiscal and legislative measures.

These include the forthcoming introduction of a 50% income tax rate for those earning more than £150,000 and changes to pensions tax relief, as well as the one-off 50% tax on discretionary bonuses of more than £25,000, the last of which was contained in last December’s pre-Budget Report.

“In more benign economic market conditions where bonuses were being paid, share incentives were vesting and people were receiving decent salary increases year on year, [employers] might have felt less inclined to put a huge amount of resources in explaining the value of the package to executives because there was a value,” he says.

Now that many bonuses are not paying out, shares incentives are not vesting and there are pay freezes for many, Burdett says: “We will see a lot more time and effort spent [by employers] explaining precisely to individuals how their bonus opportunities are structured and how long-term incentive awards are structured.”

Employers that want to engage their employees with the direction of their business will need not only to practise what they preach and reward accordingly, but will also have to create a culture of openness and transparency to regain any trust lost during the recession.

The role of total reward

Duncan Brown, director of HR and business development at the Institute for Employment Studies, says: “When there is not much cash to throw around, it highlights which employers provide a totally rewarding environment. For employees who want to turn up to work every day and do their best it is about a lot more than just pay and bonuses. It is about employers creating a culture where staff feel valued and respected. Staff need to feel involved and know their views are being taken into account.”

Organisations that have restructured and have a smaller workforce to do the same amount of work could create positive opportunities for staff. If done sensibly and fairly, expanding someone’s job role could be perceived as job enrichment rather than extra work, says Adrian Furnham, professor of psychology at University College London. Simple forms of recognition for a job well done also go down well with staff, such as a thank-you letter, a team night out or a bunch of flowers.

Flexible and voluntary benefits programmes can also play a key part in a total reward offering. Mark Eaton, director at Personal Group, says: “If money is a problem, solutions include providing access to voluntary benefits or a flexible benefits scheme. Using benefits in these ways can result in increased motivation and engagement and show employees that they are valued.”

Case study: RS focuses on total reward

Corby-based RS Components, part of the Electrocomponents Group, has been analysing its UK reward strategy for the past two years. The recession has increased the importance of this work.

The global company, which distributes industrial components, went through a major restructuring programme and, from a business point of view, is focusing increasingly on e-commerce. Because these changes would inevitably affect employees, the company took steps to address staff engagement levels and worked with consultancy Watson Wyatt (now part of Towers Watson) to raise the profile of total reward

Karl Ward, group reward manager at RS Components, says: “People were not leaving, but the concern was they might be quitting psychologically and staying. We therefore realised now was the time to start engaging with employees on a total reward basis and putting in front of them a better understanding of all the elements of reward available to them.”

Personalised total reward statements were sent out to all employees’ home addresses. These contained details of individuals’ salaries, allowances and benefits. The statement also highlighted some of the less tangible elements of employees’ reward package, such as training and development and opportunities for promotion.

RS Components has put a lot of effort into establishing a brand around total reward that will be used as a platform for future total reward communications.

Case study: Port of London Authority buoyant over benefits

The Port of London Authority looked to re-engage staff as it felt they did not understand the full value of the benefits they received beyond base pay, meaning these were not fully appreciated.

In 2006, it took steps to tackle the issue by implementing total reward statements in conjunction with provider Benefex.

The Port of London Authority felt paper statements would be most appropriate for its employees, many of whom work outside an office environment. The statements include information about extra allowances and overtime, as well as pensions data and forecasts. They also contain information about employees’ state pension forecasts.

The statements were branded in line with existing corporate communications, using a “leisure London” theme to emphasise the lifestyle benefits that are associated with employees’ total reward package.

Glenn Witham, HR director at the Port of London Authority, says: “We have been very impressed with the introduction of total reward statements. Benefex created a theme that complemented our corporate culture and touched the right tone – professional yet personal. Total reward statements have now become a key part of our communications strategy.”

As a result of the exercise, the Port of London Authority believes the differences between salary and total remuneration are better understood by its employees, which has helped to shift their focus away from purely base pay.

The move has also improved employees’ understanding of pension benefits.