'Providing the highest compensation out there certainly isn't that the answer, it's not sustainable'
“There is no one silver bullet, there is no one answer.”
So says Sarah Beech, CEO of Gallagher Benefits and HR Consulting Division in Canada, in talking about the conundrum facing HR when it comes to employees requesting higher salaries amid record inflation, and employers trying to control costs.
“Providing the highest compensation out there certainly isn't that the answer, it's not sustainable. Because you can't increase your profit as much as you would need to in order to keep paying people more and more money,” she says.
“It's not [about] keeping people or attracting people at all cost — the pocketbook is not open with an endless supply… rather, organizations are wanting to make sure they have the right benefits in place for their people.”
On that note, an impressive 80% of employers boosted total rewards to better attract and retain employees in 2022 — a decisive increase from 63% in 2020 and 2021 — according to Gallagher’s 2022 Benefits Strategy & Benchmarking Survey.
Managing pay requests
A turnover rate of 15% or more impacted almost one in three employers in 2022, says Beech.
“There are certain industries where that would be standard turnover but for many industries, that's almost more than double what in the past would have been an average turnover rate.”
More than one in three (35 per cent) say turnover has increased compared to last year — a significant rise from the one in four (24 per cent) who said the same thing in 2021, according to a separate survey.
No other factor came close to compensation as a turnover driver than compensation, up from 37% to 54% in 2022, according to the Gallagher survey.
But if salary increase budgets for 2023 are less than inflationary increases, how should employers handle requests from employees for more pay?
“It's really important that employers show employees that they're being heard by listening compassionately,” says Liz English, a principal at Mercer in Toronto.
“Careful listening may bring up other areas, too, where you can make a change that helps keep the employee engaged and committed to the work without actually increasing their base salary. So maybe it's changing their shifts or assigning them different work projects.”
That also means there’s a greater need for manager training, particularly around pay transparency, she says.
“Putting managers at the front line to have discussions with their employees around the pay — how it compares to the market, the company pay philosophies — allows them to address directly some of these questions.”
It's also important that managers report these requests to HR, so they can track them and look for patterns in specific job geographies or business lines, for example.
“This also helps build the business case for the executive team and/or the board in case they decide to provide some type of off-regular adjustments,” says English.
Finally, employers should make sure that they have good governance in place, she says.
“If specific group of employees are asking for and receiving these increases, companies need strong governance to mitigate risks around pay equity concerns from these reactive adjustments.”
Moderating benefits
Employers have identified attraction (59%) and retention (52%) as their foremost challenges when it comes to benefit decisions, according to the Gallagher report.
“Rising benefit costs used to be at the top of the list — it's now third,” says Beech, adding that organizations “aren't looking to cut costs, they're looking to manage costs and make sure there is sustainability in what they offer.”
More employers have altered their benefits plan design, with a 10-point increase from 2021 to 49% in 2022. Looking ahead to 2023, 44% plan to make updates.
Enhancements were applied by 36% overall, followed by implementing a wellbeing strategy at 10%, and other modifications accounted for less than 10% each. Program enhancements are still the top focus for next year, at 25%, while plans to implement a wellbeing strategy jump to 18%. Introducing or enhancing benefits flexibility ranks third overall at 12%.
There were a number of interesting benefits and offers that were provided throughout COVID, such as virtual health care and a greater focus on mental health — and employers aren't taking them away, says Beech.
“There's a real emphasis around that wellness and keeping people healthy, financially, physically, emotionally.”
There’s also a lot of cost-benefit analysis going on, she says, and it’s about “Let’s just not look at numbers on a page in isolation. So, we have to look at our health plan in conjunction with our absenteeism in conjunction with our disability plan, and our turnover.’ So it's really connecting the dots. And that's where you go back to HR being much more of a strategic business partner.”
Workplace flexibility has gained importance in the wake of COVID and lockdowns but wellbeing benefits are now the most desired offering among employees, according to a separate survey.
Knowing that salary increases will likely be lower than inflation, and lower than what employees expect, employers are looking for other ways to support employees, says Michele Boisvert, a principal at Mercer in Montreal.
“It's really to ensure everyone has access to the benefits that are meaningful to them. And these coverages are typically fairly low cost. But they can have a significant impact on the employees who access those benefits.”
Employers are making targeted investments in areas such as DEI, mental health, and access to care, such as virtual health. For DEI, that can include coverage for gender transition or gender affirmation, fertility treatments and surrogacy benefits, along with adoption policies, she says.
It’s not about] broad changes to the benefits program, but more targeted ones, says Boisvert, “because these type of changes are relatively low cost, but they can still have a profound impact on employees that require such services.”
Touting total rewards
The top five enhancements to total rewards have all have grown to some extent, according to the Gallagher report. Base salary adjustments (58%) went up by 24 points, and enhanced wellbeing initiatives (41%) were up 11 points.
Extended health benefits (28%) were up 13 per cent, variable compensation (27%) by eight points and leave policies (20%) by five points.
“Really, organizations are looking at ‘How do we look after the whole individual?’” says Beech.
“So yes, appropriate pay, where people feel valued for what they do, is one component of it. But so too are employee benefits, retirement investment, savings, and equally time off with pay and… more time off for illness for bereavement.”
Every category of the employment experience has expanded to include career development, enhanced training budgets to reinvest in staff, career pathing, or tuition reimbursement benefit, she says.
But it’s also about communicating those total rewards to boost employee retention.
“[The employee may] go and talk to a new potential employer who… extols the virtues of working with them and describes all of the great things and tells an amazing story around it. Meanwhile, that individual may very well have even better stuff where they've been for the last several years, but they just aren't aware of it,” says Beech.
“Communication around total rewards — the employee experience, what it means to work for an organization — that is getting a lot of energy, time and energy. We're seeing a lot of work being invested there, because people are realizing, ‘We're investing so much money in these programs, and looking after our people, that if our people don't understand them, it's not doing anyone any good.’”
It’s not that employers aren’t providing enough benefits to support employees, it’s that communication needs to improve, said another expert, in talking to Canadian HR Reporter.
HR professionals have a lot of reward tools at their disposal, such as benefits, financial wellness or vacation policies, says English.
“It's also critical that organizations ask employees what's actually important to them. You may find that high-value and low-cost benefits, such as flexible working, are really a priority for your employees.”
Anecdotally, organizations are coming back to total reward statements to help add up the pieces in a monetary way and show an employee “that their vacation and benefits and pension and all those other great things are actually a fairly large portion of their total pay package,” she says.
“This is a great opportunity to focus on the employee value proposition.”
