As UK Employees See Falling Pay, Organisations Must Evolve Compensation Approach to Keep Top Talent
By Seth Kramer, Head of EMEA at people success provider, Lattice
May 29 2022 - As we enter our third year of the COVID pandemic, an enduring challenge for many UK businesses is the ability to hire and keep great people. In addition to all of the usual challenges of keeping employees engaged and growing, 2022 is bringing in increased focus on employee compensation. The cost of living crisis is a reality for many, as world events cause prices to rocket to unprecedented levels.
This is especially acute in the UK, as employees are seeing the biggest fall in their real pay (1.8%) since 2013 as the cost-of-living squeeze tightens, according to official figures from the Office for National Statistics (ONS).
Businesses may be tempted to scale back budgets in response to global rising costs, but with 67% of UK firms experiencing labour shortages since the pandemic began, itís clear that employees are reevaluating their priorities and exercising more bargaining power than ever before. Budget too conservatively, or miss the opportunity to evolve your overall compensation strategy to meet employee expectations, and you may risk losing your best talent.
Weíve seen the term "The Great Reshuffle" used to describe this shift in power dynamic. With the latest drop in real pay, UK businesses are at an inflection point. To attract and retain talent in this environment, employers need to find a solution that will both support and retain employees whilst also being sustainable for the business in the long term.
In short, it is time to rethink how work works - starting with compensation.
The Great Reshuffle by the Numbers
The effects of the Great Reshuffle have had a dramatic impact on employeesí expectations when it comes to compensation. According to Lattice data, salary was the number one reason UK-based employees were leaving their current roles, with over a quarter of employees who quit during the pandemic stating the primary reason was because they found better pay elsewhere.
One of the causes behind these record low retention numbers could be a fundamental disconnect between how employees and employers perceive compensation strategies. While five in ten (52%) HR leaders claim to have improved their financial wellbeing initiatives since the pandemic, almost three quarters (74%) of employees did not think that improvements had been made.
This reveals a major concern for UK businesses, who need to find ways to reinvent their pre-pandemic approaches to compensation in a way that is actually valuable for employees - or continue to risk losing talent.
Total Rewards Are the New Standard
The numbers may seem daunting, but this period of change also presents HR leaders with an opportunity to significantly evolve their overall People strategies. In order for companies to get ahead of the curve and meet employee needs and expectations, itís crucial that People leaders reshape benefits to play a larger role in what is typically a cash-centric negotiation.
Organisations should be thinking in terms of "Total Rewards" by building a holistic value proposition for employees including benefits, development opportunities and flexible work options. Total Rewards Packages can take many forms: Stipends, mental health coverage, financial wellness resources, fertility benefits, sabbaticals, and enhanced leave options, among many other factors. It can also include things like home office set-up bonuses for remote or hybrid employees, or learning & development budgets for early professionals.
Total Rewards are an especially attractive solution for appealing to the younger generation(s) of employees. Our data shows that nearly 20% of Gen Z workers are more likely to rank opportunities for career growth and advancement as extremely important compared to Boomers, who were 13% more likely to rank compensation/salary as extremely important when evaluating their satisfaction in a current job.
The Great Reshuffle is not going to be resolved solely by employers ramping up cash salaries for employees: Itís up to People leaders to give employees a reason to stay beyond the number on their paycheck. The great thing about the Total Rewards approach is that it ensures the employee still feels valued and allows the employer to make changes that are sustainable for the workforce and business in the long run.
Transparency Is Paramount
Rethinking your compensation strategy doesnít mean that you need to add every single benefit possible. The key is to be as transparent and communicative as possible with employees. In order to make meaningful change, companies need to eliminate the stigma of talking about compensation openly. Proactively talking about compensation is now the new normal, especially as different compensation packages are widely available in the public domain.
Start by listening to your employees and investing in the areas that they care about deeply and align most to your values. Many HR teams are on the right path, utilising tools like engagement and eNPS surveys to better understand employee sentiment. But itís especially important for businesses to harness these insights to take meaningful action in a timely manner. By actively seeking out and listening to employeesí input, HR teams can not only make compensation decisions more value-driven, but they can ultimately build a better company culture and ethos of openness.
The recent drop in real pay is just one of the many dominos fuelling the Great Resignation. Todayís employees are not only reconsidering what theyíre looking for in a role, but how they work entirely. And now, the onus is on employers to meet the needs of an empowered workforce.
There is no catch-all solution to retaining talent. Career growth opportunities, engagement, work-life balance, compensation, and other factors all contribute to employee satisfaction. The secret to keeping your talent happy isnít about investing time and resources in all of these areas equally - itís about taking a thoughtful, tailored approach to understand what your employees truly need.