What’s new: HR leaders are having to rethink and relearn traditional rewards strategies in response to the growing need to vary, customize and recalibrate rewards packages.
The big picture: The design and delivery of rewards packages have grown more complex because of factors like remote and hybrid work, data transparency, artificial intelligence, and sudden shifts in benefits preferences caused by the pandemic.
What’s next? HR leaders should consider several strategies, including considering different cultural norms and expectations, aligning rewards objectives with business objectives, customizing and optimizing reward package selection options, and combining data science with the art of human judgment.
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As the need to vary, customize and recalibrate rewards packages increases, human resources (HR) leaders across different industries face a uniform challenge – getting out of their compensation and benefits comfort zones to unthink and unlearn traditional ways of working.
New working models, salary transparency, advanced technologies and rapidly changing employee expectations make it imperative to embrace a “total rewards optimization” strategy. This approach, which centers on letting employees choose (and to some degree customize) their rewards package, should align with the organizational culture, strategic business objectives, budgeting constraints and global employee preferences.
While this concept is not new, rewards optimization is newly urgent. HR groups have a pressing need to redesign rewards packages to satisfy an increasingly diverse (in the broadest sense) and continually changing collection of employee needs – and to do so as effectively and cost-efficiently as possible.
Remote work, artificial intelligence (AI) and other disruptions
For decades, rewards leaders have designed compensation and benefits packages by selecting a blend of compensation offerings (e.g., base salary, short-term bonuses, annual incentives, equity awards and other long-term incentives) and three categories of benefits:
- Core (medical, dental, vision and retirement)
- Productivity (well-being and commuting assistance)
- Lifestyle (family-forming, such as fertility, adoption and surrogacy assistance), education assistance, gym memberships and the like.
While these benefits categories remain relevant, the design and delivery of rewards packages has grown far more complex due to the following factors:
- Remote and hybrid work: From a lifestyle benefits perspective, remote employees have different preferences and needs than in-person employees. Hybrid employees also have unique needs: membership to a gym close to their home may be valuable, but so may a flexible parking stipend. Remote working models, geographic expansion and business consolidations also necessitate an increasingly global rewards perspective. In India, for example, it is customary for employees to include their parents on their medical plans. Dutch workers, meanwhile, expect employers to offer benefits that reflect their country’s proactive approach to addressing employee burnout and other aspects of emotional well-being.
- Sudden swings in benefits preferences: In 2017, family-forming and inclusive employee benefits marked a priority in most organizations. That changed the moment the global pandemic struck, as employees sought benefits that helped them address loss, uncertainty and anxiety. While we expect employees to continue to prioritize family-forming and well-being benefits, external uncertainties and unrest will continue to drive frequent, sweeping shifts in benefits preferences. In response, more HR groups should consider allowing employees to select their own rewards packages and to easily reconfigure those offerings as needed each year. Some employees might want to pay off student debt or want assistance with starting a family. Others might prefer 529 plans to assist with their children’s college tuition or would like assistance with the high cost of elder care. “Sandwich generation” employees caring for aging parents while paying hefty college tuition bills may want both.
- Data transparency: Fifteen years ago, organizational compensation data was kept under lock and key. Today, every candidate and employee can access pay data. Whether or not that data is accurate is another matter. It is becoming increasingly important for HR professionals to carefully and expertly respond to employees armed with potentially misleading, self-reported data from salary websites. Their responses help employees and recruits understand the business context and organizational strategy that crowd-sourced data often lacks.
- Artificial intelligence (AI): HR groups that leverage generative AI to assist with compensation analyses and benefits benchmarking have more time to devote to rewards-related planning and communications. AI-assisted rewards analyses provide valuable opportunities to make better, more cost-efficient rewards investments, but it will take time to adapt traditional processes (and mindsets) to fully leverage these transformative tools.
Bedside manners matter
Disruptions like these place new demands on reward and recognition leaders, who must increasingly operate as a combination of data analyst and creative artist. As HR teams rethink rewards strategies and designs, they should consider the following steps:
- Broaden your horizons: In U.S.-based global companies, it helps to start the rewards-design process outside the U.S. Considering different cultural norms and expectations can help HR groups cultivate a more expansive and inclusive understanding of the varied needs and preferences they must address.
- Know the business context: Not even the largest, most successful companies have blank checkbooks. HR teams should align rewards objectives with business objectives, budgets and employee preferences: What are our strategic and talent objectives? What is our budget? What does our latest employee survey say about rewards priorities? To what extent do our rewards packages demonstrate our organizational culture and values? These inputs help rewards professionals think critically about the design of benefits portfolios.
- Customize and optimize: The ability to choose from a selection of rewards packages can improve employee satisfaction, engagement and retention. However, excessive options can cause employees to expend too much decision-making effort, leaving them dissatisfied with their choice (a psychological concept known as the paradox of choice).
- Work on data analytics and your bedside manner: Advanced analytical approaches mark a leading rewards-design practice. We’ve helped HR groups conduct conjoint analyses, a survey-focused statistical technique, to help determine how different employee segments value different benefit offerings. While data science can optimize benefits packages, “art” is just as important. Even the most powerful number crunching can falter if HR professionals do not effectively communicate the rationale for the organization’s rewards-related decision with employees.
- Recognize regional regulatory requirements: While U.S. regulations allow companies to enhance, reduce and recalibrate benefits offerings as they see fit, the same does not hold in other regions. In the European Union (EU), for example, it can be extremely difficult to eliminate or reduce an employee benefit once it is granted.
These steps will help HR leaders revamp rewards offerings in an optimized manner. Data analytics will help produce customized offerings that employees value. And HR teams that embrace change will nudge employees toward benefits decisions that reflect their best interests.
Satisfying new rewards requirements may not be comfortable at first, but it is necessary work.
This article originally appeared on Forbes.
