We want to give key workers a pay rise, while an unprecedented quarter of the UK workforce has had the majority of their wages covered by the government. With a recession on the horizon and predicted changes to the way we work, how should HR approach the new landscape for reward and recognition? Jo Faragher investigates.
July’s issue of Vogue in the UK didn’t feature a supermodel on its cover or a film star. Instead it chose to recognise three key workers – a train driver, a midwife and a supermarket assistant – who supported their communities during the coronavirus pandemic.
Its recognition of the millions of frontline workers reflected the nation’s gratitude for their contribution – a sentiment demonstrated every Thursday as families clapped outside their houses to support NHS and other key workers. But there was also a growing feeling of angry solidarity, that it wasn’t enough to clap for carers or put them on the cover of a magazine, it was also time to give them a pay rise. A survey by investment group AJ Bell found that 77% of people would be willing to pay more income tax to make that happen.
But a recent report by think tank the Resolution Foundation highlights the tension. “Britain’s low-paid workers have been at the heart of the current economic crisis. They are the most likely to have lost their jobs, or to have put their own health at risk by working on the frontline,” says Hannah Slaughter, an economist at the foundation.
“The appreciation now being expressed for these workers is in stark contrast to the fact that for too long we have offered them a world of work based on insecurity and exploitation, not dignity and respect.”
The report found that lower earners were three times more likely to have been furloughed during the pandemic, 1.2 million are working in precarious roles, while more than half of care workers are paid under the voluntary Living Wage, recommended by the Living Wage Foundation.
“Britain’s post-pandemic economy will look different from the one before the coronavirus hit,” adds Slaughter. “For low earners that should be because the government has put in place a new settlement, based on more respect, higher pay, and better conditions at work.”
Duncan Brown, an independent reward consultant, believes UK employers are at a “watershed moment” where the HR community must now re-evaluate how they reward people after the crisis.
“We came out of the Second World War wanting to build a better state and this is the closest we’ve ever come to something like this,” he says. “We need to look at who shares in success, how we recognise it in everyone.” Together with a group of fellow reward professionals, government policy advisors and academics, Brown this week published Rewards after the Pandemic, a ‘charter’ for HR professionals as they review their reward strategies over the coming months.
The charter argues that there should be three principles behind future reward strategies: that organisations consider their reward principles, goals and success criteria; that they look at whether their current reward policies deliver on those criteria; and whether they need to make changes to their practices moving forward. There is also a fourth prompt for organisations to look at what they have learned from adaptations to how they work during the coronavirus. For example, are there any temporary changes that could be maintained in the future, or is there scope to adopt something “completely different and new”?
We need to look at who shares in success, how we recognise it in everyone.” – Duncan Brown, independent reward consultant
The reality is, however, that any appetite to make pay more equitable and ensure that low-paid workers are more richly rewarded will be met with one major hurdle: how to afford it. “Some industries are in an existential crisis such as airlines and hospitality, with big losses at the sharp end and worries about the future of the employees they’ve put on furlough,” explains Norman Pickavance, a former retail HR director and currently chief executive of financial inclusion charity Tomorrow’s Company. “In pure economic terms, when this happens you’d expect a cap on wage increases.”
“At the same time, lots of these workers are in front-line jobs and we know that they’re key to the running of our society, which presents a real challenge. On the one hand we have the moral imperative to give these workers a pay rise but the economic imperative to survive,” he adds.
A number of employers have already taken action to protect their businesses, suggests research from recruitment and consulting firm Korn Ferry. Its global survey of employers in May found that a quarter of employers have implemented or are considering pay cuts, with reductions in pay averaging around 20%. Other actions include cancelling or deferring annual salary increases, reducing certain benefits and adjusting variable pay measures such as bonuses or performance-based commission.
A growing number of organisations favour applying a degree of temporary ‘pain’ in a bid to secure more jobs in the longer term. Law firm Reed Smith recently announced it would introduce a mandatory four-day working week, while another legal employer said it would give staff six months off with 30% of pay. Measures such as this could be more useful in the longer-term in terms of workforce planning than making knee-jerk decisions now around permanent redundancies. “It’s balancing tough decisions and building for improvement,” adds Brown. “We’re seeing new ways of hanging onto people – the law firm would rather lay some people off temporarily than be short of lawyers in 12 months’ time.”
The frustrating thing is that few HR and reward professionals know how the economy or labour market will look in months to come. There are some lessons to be learned from the financial crisis of 2008, but no real models exist for reacting to a pandemic that saw millions of workers sent home, placed on furlough or out of a job in a matter of weeks. Stuart Hyland, associate partner at Aon, captures this sentiment: “The thing that’s noticeable here is that nobody knows. Everything companies thought they knew about responding to a downturn doesn’t apply. Will there be a phase two, a phase three?”
Ruth Thomas, co-founder of reward consultancy Curo Compensation, agrees – her company’s reward modelling software has had to be tweaked to manage negative salary changes. “Most people’s targets have gone out the window – if financial metrics drive bonus outcomes they will need to be reviewed,” she says. The difficult climate means many organisations are reframing how they look at variable pay, she adds.
“When it comes to bonuses or performance-related pay, companies may have to consider what else have employees contributed? They could think about basing incentives on behavioural factors such as safety adherence, how employees demonstrated company values during the crisis, or how they acquired new skills in such a short period of time. The whole question around how you pay for performance was already under scrutiny before this, and has now been accelerated.”
If the pandemic is a turning point, as Brown suggests, how can employers re-build their reward structures to be more equitable? Pickavance believes now is an opportunity to think more about shared ownership, partnership or co-operative models, such as we see at John Lewis Partnership. “Give employees a stake in their organisation. If you offer a stake now it may not be worth much now but you will eventually see a return,” he says. One of the recommendations made in the Rewards after Pandemic Charter is to extend this risk-sharing to other benefits, such as Collective Defined Contribution (CDC) pension schemes, where risk and investment is spread across all members.
The thing that’s noticeable here is that nobody knows. Everything companies thought they knew about responding to a downturn doesn’t apply. Will there be a phase two, a phase three?” – Stuart Hyland, Aon
Executive pay will also come under greater scrutiny. Pay ratio reporting, introduced in 2018, has highlighted the disparity between those at the top of the organisation and average earners or the lowest paid, but has it gone far enough? Pickavance adds: “If the government’s covering 25% of corporations’ pay bills, that’s taxpayers’ money, so it’s appropriate for the public to question those huge pay packets being pocketed by executives.”
We’ve already seen outrage at how some executives have chosen to lean on government support while still pocketing bonus pay-outs. On the face of it, the gesture made by Disney chairman Bob Iger to forgo his $3 million salary, and for CEO Bob Chapek to forfeit half of his $2.5 million salary, is a positive one. However, both will still reportedly accept bonuses that dwarf their salaries while Disney has furloughed thousands of workers.
That new start must also consider other areas of pay inequity, such as women and black and ethnic minority employees, particularly as diversity and inclusion initiatives may have slipped down the agenda during the pandemic. Mandatory gender pay gap reporting for 2019 has only been completed by around half of the eligible employers after the suspension of enforcement penalties this year, and ethnicity pay gap reporting legislation, although having been through consultation, may not see the light of day for some months or even years.
Thomas argues that “now is not the time to give up on your pay equity or diversity goals”. “Flexible working was one of the barriers to pay progression for a lot of people, and now organisations realise that it’s not a barrier to productivity,” she says. “The pandemic has highlighted the impact on lower earners, how experiences differ depending on your gender or ethnicity. We had to focus on tangible actions at the start but now we can reflect on the number of men versus women who were on furlough, or the ethnic breakdown.”
Those discussions around pay equality also have to take into consideration how the very shape of work itself will change. If the majority of the workforce begins working from home on a more permanent basis, does that alter how you reward them?
In the US, Facebook founder Mark Zuckerberg announced last month that employees will have the option to work permanently from home from January, but can expect a pay cut if they move to less expensive areas to continue their job. “That means if you live in a location where the cost of living is dramatically lower, or the cost of labour is lower, then salaries do tend to be somewhat lower in those places,” he told employees. “We’ll adjust salary to your location at that point. There’ll be severe ramifications for people who are not honest about this.”
Alongside the increase in those working remotely, this period of lockdown may have changed many employees’ perception of their work-life balance – meaning there could be a rise in requests for shorter working weeks or non-traditional working hours. “I think the wellbeing economy will be one of the slow builds out of this,” says Pickavance. “We’ll see people moving out of London, not going into offices, changing their lifestyle.” Flexible reward structures will complement this and organisations could also consider boosting non-financial benefits such as mental health support or access to low-interest loans, or “reward with compassion” as it is described by Brown.
Reward committees face an unenviable task this year in deciding how to move forward with pay awards and the benefits they offer. There may be some shared pain in the short term, but it could mean organisations emerge better prepared to recognise and retain workers for the longer haul.