What will be the key issues in reward and benefits post-Budget?

Need to know:

  • New budgetary policies could see a squeeze on employee benefits and rewards.
  • Reward professionals must tailor rewards to meet staff’s physical, social and financial needs in the ‘new normal’.
  • Employees are increasingly demanding sustainable rewards and benefits.

Reward professionals hoping the Chancellor’s latest Budget might provide radical policies to transform the rewards and benefits landscape will have been disappointed.

This was not so much a transformational Budget as a holding exercise, as the government continues to steer the economy through the choppy waters and hidden reefs of the Covid-19 (Coronavirus) pandemic.

But, while there were no big-bang policies marking fundamental changes to workplace benefits, there were a number of measures announced which could see change on the horizon.

Take, for example, plans to increase corporation tax from 19% to 25% in 2023, which Laura Jackson, associate at law firm Lexleyton, says could leave “little spare cash for businesses to spend on benefits and rewards”.

Stormy weather ahead

Iain Thompson, incentive and recognition director at Sodexo Engage, says firms are battening down the hatches for worse to come, with government expected to rachet up taxes as the economy recovers.

“Organisations may hold back on budget spend or expect a greater return on investment, requiring [reward] professionals to demonstrate the value of what they do and make benefits far more targeted to ensure absolute relevance,” he forecasts.

The Chancellor’s decision to extend the furlough scheme and boost the national living wage (NLW) is a welcome move says Charlotte Godley, head of proposition, Benefex, but warns that these put additional strain on employers already struggling with the pandemic’s impact, as will the rise in corporation tax.

“We may see a tightening of the purse strings, with no big budget to fund pay rises and no large pots of money for benefits and rewards. Instead we might see changes to existing rewards and benefits policies, rather than the creation of big ticket items,” she predicts.

Employers need to prepare to handle the fall-out from the Chancellor’s decision to freeze both personal tax allowance and the pensions lifetime allowance until April 2026, says Charles Cotton, senior adviser for performance and reward at the Chartered Institute of Personnel and Development (CIPD), which he says “could actually just damp down pay rises and prompt some employees to bring forward their retirement” .

Demand could rise for additional benefits in lieu of a pay rise or pension allowance which could result in others lower down the pay scale asking for the same, Cotton adds.

However Jamie Jenkins, policy director, Royal London, argues while more people will be brought into the higher rate tax band as their salaries increase, it could make workplace pensions more attractive as a means of offsetting that cost through tax relief.

“[Freezing the pensions lifetime allowance] may see increased demand for cash payments instead of pension contributions,” he adds, but warns this might not be the most tax-efficient choice.

Tightening of budgets

The furlough extension could also see rewards reined in. “The nature of the furlough scheme means that businesses seek reimbursement for wage costs, rather than having the money upfront, so this impacts on their cash flow,” Jackson explains. “[Employers] reliant on the furlough scheme are not placing an emphasis on big ticket benefits and rewards, such as bonuses.”

Planned rises to the living wage, outlined in the Budget, will add momentum to the continuing erosion of pay differentials at the lower end of the pay scale, predicts Justine Woolf, director of consulting at Innecto, part of the Personal Group. “Increasingly we will see organisations reframing their pay structures and amalgamating and multiskilling roles to respond to that constant push from the bottom end.”

Tailored rewards

So how should rewards and benefit professionals respond to the impact of these budgetary policies? Thompson says budgetary constraints mean organisations will need to tailor their rewards and benefits by finding out what employees actually want and by researching take-up rates, rather than providing blanket benefits for all.

Robert Hicks, group HR director, Reward Gateway, sees a shift to more personalised reward and recognition programmes, with annual reviews replaced by more frequent check-ins, conversations and team meetings. “Supporting and recognising colleagues will grow in importance as organisations realise just how impactful a simple ‘thank you’ can be”, he says, adding that, where previously employees were responsible for their own wellbeing, “now, more employers will introduce resources for exercise and mental health”.

With pay rises off the agenda for many organisations, employers must think creatively about how to reward employees, says Woolf, pointing to her own company which recently rewarded staff with £500 of shares. “Organisations need to think how they can show employees they care for them and are invested in their future. It’s not just about pay,” she explains.

Employers too often fail to promote these hidden benefits, Thompson notes. “Don’t just focus on the base salaries; clearly articulate the full ‘package’ they receive,” he advises.

He adds that, whatever the financial constraints, employers need to find ways to recognise the often heroic efforts employees have made during the pandemic, with some ‘nice to have’ benefits and rewards, while ensuring traditional benefits such as financial wellbeing and mental health strategies are able to meet demands thrown up by the pandemic.

Impact of societal issues

Mark Scott, senior defined contribution (DC) consultant, Benefex, predicts rising employee demand for corporate policies that reflect key issues highlighted last year such as Black Lives Matter and Extinction Rebellion.

“Inclusion, diversity and sustainability are becoming hot topics , particularly among Millennials,” he says.“For example, employers are being challenged on whether their pension schemes are investing sustainably.

“We are doing a lot of work helping employers ensure the providers they use and their default pension funds are applying an environmental, social and governance filter to exclude the worst performers from that perspective,” he says.

These societal factors are bringing fundamental changes to workplace culture, says Eva Jesmiatka, director of rewards, Willis Towers Watson. “[Employers] are putting lots of effort into making their organisations more inclusive to better reflect society,” she adds. “Having a more diverse workforce brings people with different needs, preferences and circumstances. [Employers] will need to meet those different requirements in their overall offering, so we will see a much more flexible and personalised approach to rewards and benefits.”

Jesmiatka adds that this will include a much more holistic approach to total rewards going forwards, with wellbeing, inclusion and diversity and sustainability top of mind and woven through all the different aspects of an organisation’s culture.