What they really, really want
Paul Ashcroft looks at how the element of ‘doing good’ interacts with other aspects of total reward strategy in the non-profit sector
Today’s employees demand a lot from their employer. Amongst other things, they want fair pay for a fair day’s work, generous benefits, a good work-life balance, recognition of their contribution, access to training and development, and clear career progression.
Meeting all these demands is potentially very costly and, according to Mercer’s Total Rewards survey [1], keeping total reward costs affordable and sustainable is one of the biggest challenges HR leaders face. Pay and benefits typically equate to at least 60 percent of revenue so employers must ensure they are getting value for their money and their reward budget is being used to best effect.
Understanding the role of different elements of the reward package in engaging employees is important as engaged employees take more ownership of their work, deliver better results and, in doing so, improve the overall performance of the organisation.
However, Mercer’s employee attitude survey What’s Working [2] shows a frequent mismatch between what motivates employees and what employers offer them. While employers tend to focus attention on the fixed and variable pay elements, work-life balance and career aspects are equally important in ensuring their engagement. The survey found that employees are most motivated by respect, type of work, people they work with and providing good service. In the case of charities and other not-for-profit organisations, a clear motivator is also the ability to ‘do good’ for their cause. Pay is identified as the next most important motivating factor, followed by benefits, flexible working arrangements, long-term career potential, learning and development opportunities and, finally, their bonus. In more detail:
- Base pay. While base pay is clearly an important driver of employee engagement, many companies don’t view it as an investment, thereby making this expenditure less effective. Fewer than half of employees feel they are fairly paid and fewer than a third feel their pay is linked to their performance.
- Benefits. Although benefits are a less important driver of employee engagement than base pay, when communicating their policy employers appear to put more emphasis on benefits than on base pay. On average, employees are more positive about their benefits package than their remuneration package.
- Career. Similarly, although career management and opportunity are important factors in employee engagement, many employers appear to neglect this aspect of ’reward’. According to recent Mercer research, just 40 percent of employees feel that their managers play an active role in their career planning.
Employee choice and flexibility
The same expectations gap between employer and employee exists when it comes to providing choice in rewards. According to Mercer’s European Total Rewards survey, employers view increasing employee choice and flexibility in total rewards as their least important challenge in the near future.
Yet from the employees’ perspective there is strong evidence to show that, when choice is offered, employees appreciate and take advantage of it. A flexible benefit scheme, for example, may offer a wide choice of benefits ranging from pension, private medical insurance and other insured benefits to additional holidays, childcare vouchers and retail discounts, and employees generally respond very favourably to the choice that is offered.
Such schemes allow individuals to tailor their benefits to their personal lifestyle needs, by selecting them from a menu of options and trading the value of them up or down. Here for example are some of the reasons that employees have given for selecting certain benefits – especially in the current economic environment:
- They wish to save more than in the past as their reduced mortgage commitments enable them to do so.
- Because of salary freezes, or lower bonuses, they wish to reduce their holiday or health-care benefits to provide extra cash to meet their daily needs.
- They want to take advantage of favourable tax treatment for purchasing season tickets.
- With new family responsibilities, they wish to enhance their life assurance and family health care, and benefit from child care vouchers to subsidise their nursery costs.
- Where both spouses are employed in different companies, and receive similar benefits, they wish to make selected choices of life insurance, disability and health-care coverage to avoid duplication of these benefits.
Flex also offers employers the opportunity to use their group buying power to secure good deals from suppliers and pass these onto their employees as part of an extended range of voluntary benefits. With falling consumer demand, the ability to secure better deals has increased significantly. These apply to all types of common purchases, from insurance to wine, and from bicycles to theatre tickets.
Constantly improving technology has meant that the administration of voluntary benefit schemes is not nearly as complicated and costly as it used to be, and many organisations, large and small, are now introducing these schemes not just for motivational purposes, but to save money in the current recessionary conditions. Importantly, flex enables employers to create a maximum benefit pot for individual employees, who are then empowered to manage their own benefits within that budget, according to need. Employers can also make substantial cost savings where salary sacrifice arrangements are put in place for these benefits; the savings they make often offset the cost of setting up a new flexible benefits programme. Figure 2 below summarises the basic steps to setting up a flexible benefits scheme.
The future of reward
[1] www.mercer.com/referencecontent.htm?idcontent=1284740
[2] www.mercer.com/whatsworking
Author: Paul Ashcroft
Paul Ashcroft is a principal at Mercer and heads the London unit of Mercer’s health and benefits business. He has over 20 years’ experience in consulting and client relationship management, covering advice on healthcare, insured benefits and flexible benefits programmes.
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