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How will reward strategies change after Covid?

4 Jun 2020 By Eleanor Whitehouse

From a greater focus on financial benefits to compensation for ‘hazardous’ jobs, the post-pandemic pay landscape could look quite different

When it comes to Covid-19’s impact on reward, in many cases it’s been either feast or famine. From supermarkets seeing vast increases in demand and rewarding staff with bonuses for their hard work, to organisations that have had no choice but to furlough staff on a reduced salary or implement pay cuts, few HR professionals will have escaped managing and communicating changes – good or bad. Indeed the CIPD’s latest Labour Market Outlook survey found 33 per cent plan to freeze pay as a result of the virus, rising to 51 per cent in the private sector. And a poll by Haymarket Business Media in April revealed that of the 29 per cent of workers whose jobs had changed as a result of the crisis, 31 per cent had seen their pay cut.

At time of writing, the furlough scheme has been extended to October 2020, and the economic outlook and predictions for pay trends look bleak well into 2021. The Office for Budget Responsibility has said UK GDP could drop by up to 13 per cent in 2020, and government borrowing could increase at the fastest rate since the second world war, with public sector pay freezes – which would raise £6.5bn by 2023-24 – being mooted as one option in response.

So as lockdown slowly lifts, how should employers go about managing reward – particularly if they’re unable to bounce back to previous pay levels quickly or offer rises for some time?

Regardless of an organisation’s specific circumstances around levels of furlough, pay cuts or redeployment, coming out the other side is about “communication, communication, communication”, says Debi O’Donovan, director of the Reward & Employee Benefits Association (REBA). She points out that if an employee trusts the communications they’re getting, they’re more likely to understand and accept the situation, and not feel put out when, for example, their temporary bonus ends, or they’re not offered back pay for time spent on furlough or on a reduced wage while still working: “Employers need to make it clear they’re there to support staff, and do it in a very sensible, grown-up way.” 

This crisis has also demonstrated the need for businesses to be much more transparent about reward, especially when the situation is so unprecedented, explains Valerie Hughes-D’Aeth, director of VHD Consulting and former BBC chief HR officer. “We need to be very open and honest about our reward practices,” she says. “People need to understand how reward decisions are made... and that’s not always happened in the past.”

With many employers facing tricky decisions in the next few months, their attention will undoubtedly also turn to their total reward package, including benefits. A recent Willis Towers Watson survey found 42 per cent of firms have made, or are planning to make, significant changes to their benefit programmes as a result of Covid-19. “We will start to see more of a focus on financial wellbeing,” says Charles Cotton, senior reward and performance adviser at the CIPD. “When employees begin returning to work after lockdown they are likely to have become more financially insecure, so it makes sense to invest in employee financial education to help them save and spend their money more effectively.”

That’s certainly been the case for Aegon UK. The firm has intentionally avoided using the government’s furlough scheme, instead offering a similar company-funded arrangement whereby staff whose circumstances mean they’re unable to work from home are put on leave and still paid 80 per cent of their salary. But its employees’ family members may not be so fortunate, explains head of reward, employee relations and inclusion Iain Barton, so the company put an increased focus on financial wellbeing. “We’d been developing a strategy anyway, but we’ve increased our wellbeing focus and brought forward a number of initiatives in response to coronavirus,” he says. “We’re offering additional financial education, support and guidance, and providing access to discounted advice to support staff whose family members may be in difficult situations.”

Similarly, Wiltshire Council is launching a salary finance scheme, recognising some employees’ personal situations may have changed. “As a public sector organisation we can’t offer bonuses and have to really consider what additional payments we can support, but our reward package as a whole is good,” says Joanne Pitt, director of HR and OD. “Staff might be struggling if their partner has lost their job, so providing financial advice and access to salary sacrifice loans can help in the right circumstances.”

For many companies, the overall focus is getting back to normal as soon as it’s safe and practical to do so. But with a May survey by REBA revealing that 29 per cent of organisations believe they do not have a clear future as a business once the pandemic is over, as well as 22 per cent either already expanding or planning to expand areas of their business, and 13 per cent either planning to launch new areas or already doing so, it seems a return to normality isn’t on the cards for many.

However, that may not be a bad thing. Many will see this as a chance to make larger-scale improvements to reward. “My worry is that in future months people will gradually just go back to the norm,” says Hughes-D’Aeth. “And we absolutely need to make sure that doesn’t happen, because it’s a massive opportunity.” 

So what might this new and improved approach look like? People professionals, says Cotton, need to be aware of how the reality has changed for their organisation, and ensure they align with this. “Pay and benefits are often seen as a means to an end, so organisations forget to focus on the outcomes they’re trying to achieve,” he says. 

Cotton adds that HR needs to engage employees as well as external stakeholders in this process: “Changing pay, benefits or sales incentives involves a lot of different perspectives based on things like job role, grade, background and caring responsibilities. So taking these into account will mean responses are more empathetic.”

For Hughes-D’Aeth, it’s also important organisations take stock of what they’ve already got in place. “Many HR departments often still struggle with knowing what they’ve got in terms of pay and benefits, especially if these are legacy arrangements,” she says. “Understand exactly what you’ve got today, then you can map out what you want for the future.” HR teams also, Hughes-D’Aeth ventures, need to make sure reward remains part of their strategic workforce plan and isn’t treated as a silo. “Sometimes HR people aren’t entirely comfortable with in-depth reward work,” she explains. “But it’s part of the holistic employee experience and how you’re going to retain or attract the staff you need moving forward.”

There are also hopes that out of this crisis will come a long-overdue assessment of the lower-paid end of the labour market. A number of employees, including supermarket staff, care workers and delivery drivers, have been dubbed ‘key’ or ‘essential’ workers for their role in keeping the country going. However, they are also notoriously some of the lowest paid. According to research by the Institute for Fiscal Studies, a third of key workers earn less than £10 an hour and average hourly wages for this group are 8 per cent lower than for other, non-key occupations. “We’re now considering the value of jobs that were not valued before but are now essential for the functioning of society,” says Dr Rita Fontinha, lecturer in strategic HRM at Henley Business School. 

“I think that will have consequences over the next four or five years and revive pay for those types of jobs. I don’t think they will go back to low-paid status when this all goes away.”

Many also hope this greater focus on low-paid roles, along with the financial hardship the pandemic is likely to cause many, will lead to a reassessment of the national minimum wage and national living wage (NLW), above and beyond the government’s current plans to increase the NLW to 66 per cent of median earnings by 2024. “The minimum wage is just too low in this country, and I’d like to think the government will take a very hard look at those who are undervalued and paid far too little,” says O’Donovan. 

Some governments are already doing so. Scottish Water, which unlike English utility companies is publicly owned, has been asked to award a basic pay increase of 3 per cent to its employees this year – more than might be expected at twice the rate of inflation. “We’re in the slightly unusual situation of pushing ahead with a pay award, and doing so earlier than usual in the year,” explains head of performance, reward and analytics Darren May. “A lot of public sector staff are clearly providing vital services, and I think the view from the government is to make that pay award at this time of uncertainty, to recognise the essential contribution and give employees some surety over what’s happening.”

But what about the other end of the scale? “We’ve flipped things on their head with the lowest paid getting more of a focus, but executive pay has run away in the last 20 years, and there’s a real opportunity for us as a society to re-examine it,” says O’Donovan. Hughes-D’Aeth agrees: “The difference in some organisations between the average employee [salary] and the chief executive is very great – can you really justify that in today’s world?” 

As with essential workers, it seems public scrutiny will play an important part as organisations strive to make headlines only for the right reasons. Many companies have been quick to curb executive bonuses and salary – for example, BT’s CEO Philip Jansen is donating his salary to charity for “at least” the next six months, and senior executives at several large banks including Barclays, HSBC and NatWest have agreed to give up their 2020 bonuses. And it seems the EU at least is already taking this scrutiny on board. According to a leaked document seen by the Guardian, businesses rescued by EU state share-buying programmes will be barred from paying executive bonuses.

The pandemic has also spurred the reassessment of what constitutes a ‘dangerous’ job and focused increased attention on the concept of hazard pay – particularly for previously ‘safe’ roles such as supermarket workers. “Working as a shelf stacker or a care home assistant, you don’t necessarily expect to put yourself in danger when you sign up for these job,” Cotton points out.

While the concept is currently more high profile in the US – at time of writing the US House of Representatives is due to vote on a $200bn hazard pay package for essential workers – it has started making its way to the UK. The Liberal Democrats have called for frontline NHS staff to be given a £29-per-day ‘frontline service reward’ similar to that received by members of the Armed Forces when on active duty. And a petition on the official UK government website to introduce hazard pay for key workers has so far garnered more than 7,000 signatures. “I think in the future there will be a reassessment of what hazard pay means to a broader number of jobs,” says Fontinha. 

So there are numerous legislative changes potentially coming over the horizon that people professionals will need to keep a close eye on. But beyond this and, most crucially, organisations will need to ensure the way they reward and recognise staff now elevated in many people’s minds as ‘key’ and ‘essential’ stands up to public scrutiny – especially in relation to executive pay. And the most savvy reward teams will use this crisis as an excuse to re-evaluate how they manage and communicate pay for staff at all levels.  

Organisations must recognise they can’t simply return to pre-pandemic reward assumptions, says Cotton: “Rather than bouncing back, we should be thinking about bouncing forward – and making sure reward is aligned with the needs of employees, business and society.”

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