Total reward is dead

Total reward is dead, according to Duncan Brown, head of the UK performance, reward and talent consulting practice at Aon, and Martha How, partner, reward and benefits at Aon.

Speaking in a session on ‘The demise of total reward’ at Employee Benefits Live on 24 September, Brown explained that the impact of the recession and the slow pace at which pay increases appear to be returning have changed reward and benefits irrecoverably. “The scale of what has happened over the last five or six years is still being assessed,” he said.

“Something does appear to have changed. The question is what is that something?”

One option is to move to a model of shared responsibility. How explained that, historically, employers have implemented flexible benefits schemes ostensibly for staff engagement and motivation purposes, when in reality, the move was primarily cost driven.

Going forward, she explained that employers have two choices. Firstly, they could continue with a market-driven approach that is bureauocratic, driven by costs and will mean that they still experience issues with differentiation, as well as mean that some demographics, such as graduates, cannot afford to pay into a pension scheme.

Alternatively, they could adopt a shared responsibility model, whereby the employee takes control of their full financial situation with their enabler acting as a facilitator and enabler, for example, by providing the workforce with the financial education they need to be able to take control.

How explained that a shared responsibility model would comprise five or six core benefits coupled with a self-serve ethos for employees. “If the employer provides the tools, provides the flexibility and provides the career development, the employee will have to walk down the road,” said How.

But communication is vital to ensure the success of this approach. “It is less about design and desire and more about communication and engagement. “Reward professionals will become marketeers,” said How.

Also, driving the demise of total reward is the ongoing squeeze between wages and pay inflation means some employees have seen up to a 12% drop in real income since before the recession, said Brown.

This is typically being felt more keenly by workers at the lower end of the pay scale, female employees and younger staff. As a result, there is now a real divide among workforces between ‘haves’ and ‘have nots’.

Consequently, salary levels have become more important as a recruitment and retention tool, with many employers no longer using benefits to differentiate themselves from competitors.

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“[Shared responsibility] is an effective direction for reward and a long-term sustainable model,” said How.