HR 2025

HR 2025 Series: The compensation trade-off is the big challenge in the 2020s

People want to do trade-offs and these trade-offs are likely to keep changing as your workforce does. The compensation trade-off, I believe, will be the major challenge for rewards teams in the next five to 10 years.

Employee rewards and benefits are always hotly debated. Trends can be mapped against the types of compensation offered. Often these trends are linked to the wider social or environmental agenda.

All good in principal, but you must ask; do individuals tangibly benefit? Are the offered solutions motivational? Will they attract and retain talent? “Nice to have” rewards and benefits suit the modern workforce but have limited impact in reality.

Changing expectations

The number one benefit increasingly requested globally is flexibility. It seems money can’t buy time, and this is not limited just to compensation and rewards, but to the set-up of work.

The expectation is that if I only want to work four days a week, the company will help to make this possible. If I want to work remotely, some or all the time, the company will make this possible. Obviously, this is not an option for all roles.

Not being flexible, creates a recruitment challenge. The companies that are most flexible will be the most successful in the grand scheme of things.

This flexibility needs to extend to the entire reward package too. People want to do trade-offs and these trade-offs are likely to keep changing as your workforce does. This, I believe, will be the major challenge for rewards teams in the next five to 10 years.

Listen to and learn from your employees – you might be surprised

You need to be reflective of the situation you are in as a business, and employer. Many companies do regular employee surveys, but often people do not enjoy the output because the findings are not as expected.

For example, what if many of the colleagues want a company car, although HR futurist have seen this as a disappearing model? It’s not my job to judge whether this is good or not. It is my job to create a reward model that relates to the needs of our existing and potential employees.

The company car trade-off

While one might be working on a policy for low emission cars, and combining this with flexible working options, the reality is, so many organizations, are located in tier two cities, and smaller.

The public transport links might not be as comprehensive as they are to major cities and for many, the only realistic way (and the preferred one) to get to work is by car – and one of the main reasons they need a car is to get to work! Furthermore, not all roles can be adapted to flexible working. Therefore, it makes sense to offer this as a benefits option.

Offering railcards and other travel options can be part of benefit options. In Germany, for example, a train ticket is more beneficial than a car because of the wage tax system. People can also work on the train, so the commute becomes part of the working day.

There are also very practical reasons why people would like a company car. Many working people have traditional family set-ups. People like to get a family car as a company car. It is a cost-effective alternative to purchasing a vehicle. This is highly valuable and while HR like the idea of the wellness benefits, people need practical rewards.

There’s a trend for holistic benefits, but often take up is quite low. Yoga classes are timetabled, one that perhaps doesn’t work with work needs.

Furthermore, they’re are not seen as value-add; something otherwise out of reach. They are nice to have if available, but not as a salary sacrifice. Organizations can find that they’re spending a lot of money on a service that only a few people use.

Make your business a place people choose to work

Moving forward, rewards as they are today will disappear – not the practice, but people who consider working for your company will look in a holistic way. The modern workforce is already looking at what comes with the job. Location, comp package, colleagues and the ability to work from wherever are all important considerations.

A major ‘benefit’ often overlooked is culture and management. Is your organization a place people want to work? Highly motivated, highly qualified people will deliver high performance. A mediocre alternative will get mediocre results.

Reputation is vulnerable now. Social media spreads the word and mandatory reporting for larger companies is increasingly common. Only a huge compensation package might make a toxic environment acceptable to some people, but not for all.

Diversity and career opportunities are ranked highly across all age groups, but more so by those rising the ranks. In many international businesses, things like the gender pay gap reporting in the UK, spark open discussions on the topic – the way you are forced to do it is perhaps not the right way, but it started conversations.

Often it is realized that while there is no actual pay gap, common to many organizations, the actual legacy issue is that the higher you go up in the organisation, the fewer women you find in senior roles. The pay is often the same, but the number is significantly less.

Make it possible for returners to work to have comparable careers

Universally I would say that it’s the coming back to work where the issue stems. With this insight we all need to empower women to have a great and comparable career to men.

Companies need to create environments that enable women to come properly back to work. This will influence rewards in the future. For example, it’s better to split up a job between two highly qualified women than to risk losing both. Proactively addressing this gives you a recruitment edge vs. the market.

One size does not fit all

I am not a believer in global benefits programs. Yes, you can determine a strategic guard rail e.g. we want to be a top-notch employer offering the best private healthcare, but the options available will vary by country. You must consider many elements, such as those that governments offer, tax legislation and so on.

There are also different roles within an organization where a single benefit cannot apply. There are functions, such as front line emergency services, retail and manufacturing for example, where an employee must be insitu and for a set amount of time.

Following trends might also be dangerous

Currently, we’re seeing a return to old school motivation – a return to variable compensation. Attend any industry event and it’s clear there is a circular move back to bonus structures.

Three to four years ago, every HR person said the bonus culture would disappear. When organizations broached this, it proved to be unpopular among those motivated by the ability to earn more per effort, measured against individual and group KPIs.

I truly feel bad for the companies that rushed into the time and cost of getting rid of bonuses and now must bring them back. There is a lesson to learn here. Listen to your workforce, not the media and don’t be led just because others are doing.

Readiness for the future of work

You need to be self-aware if you want to modernize your reward set-up. You need to recognize what is of value to existing and to new employees. The younger generation wants to decide how they are compensated.

I think it will get to a point where we see the option to have €50 less salary a month in return for a MacBook rather than a standard device. This trade-off is because technology is important to them. If something makes someone feel good, why diminish their worth by not allowing them to have tech that motivates them?

With regards to flexible working, I believe the primary reason so many organizations don’t have work-from-home policies is because they don’t have a clear picture of what they want to achieve. If all team members know what they’re working towards they can work anywhere.

If people aren’t clear why they are doing something, then it will always hard to let people work from home, but this is more a people management issue. Companies need to know, what, why and when they need people to achieve and then make it possible to do so.

Whatever happens, we still need money to pay bills

This all said, I don’t envisage drastic changes to rewards in the next 10 years. We will still have bases salaries. After all, this is why we go to work, to pay bills, but a move to practical benefits is key. Benefits that present tangible opportunities to people as well as the opportunity to trade-off benefits to tailor a package.

5 tips for a successful rewards strategy

  • Go into rewards review with an open mind.
  • Be reflective of who you are as a company, where you want to be and who you need to get you there.
  • Understand exactly what motivates your entire workforce.
  • Don’t force “global” down an organizations throat – apply global where it is applicable
  • Don’t blindly follow trends.

Philipp Bastian is Vice President Global Total Rewards at GfK.