Financial wellbeing in 2022: why total reward schemes are so important

British workers have seen their pay cut in real terms while simultaneously trying to cope with rising prices – and the cost of living crisis has “only just begun”, experts have warned.

The UK’s rate of inflation rose to 5.4 per cent in December, the highest level for nearly 30 years, as the cost of living crisis deepens.

Figures published by the Office of National Statistics (ONS) indicate that price rises in food and non-alcoholic drinks pushed up inflation last month, the ONS said, while costs also rose for restaurants and hotels, furniture, and household goods, as well as clothing and footwear.

There’s no doubt that many of us are now feeling the pinch.

With many employees facing challenging times, some will be looking for additional support from their employers who, in turn, are under increased pressure to provide more, despite ongoing challenging market conditions in many industries.

In this post, we look at the importance of developing total reward strategies and the part these play in supporting people, both in financial terms and also in providing benefits which focus on employee wellbeing in other ways.

What are total rewards? 

Why are total rewards so important? 

Total rewards and company culture

The importance of striking a balance

What are total rewards?

Put simply, an employee’s total reward is the combined package of pay and benefits they receive from their employer. This may include tangible benefits with a monetary value such as salary, healthcare, life insurance and gym membership alongside intangible benefits. These include things such as flexible and hybrid alongside a healthy company culture.

Intangible benefits may not necessarily have monetary worth, but they are highly valued by employees nevertheless, especially at a time when the pandemic has made people more reflective about their work and lives in general.

Many total reward schemes will include a mixture of elements from the following three categories:

1. Base pay

• An employee’s basic salary  

2. Benefits

• Holidays

• Loans

• Professional subscriptions

• Pensions

• Cycle to work schemes

• Childcare vouchers

• Health care

• Life insurance

• Employee Assistance Programs (EAPs)

3. Engagement

• Cultural values
• Learning and Development
• Quality of work
• Growth opportunity
• Contribution recognition
• Work‐life balance
• Recognition
• Career breaks
• Job-sharing scheme
• Long service awards

Why are total rewards so important? 

A well-designed total rewards scheme goes beyond base pay by including a range of benefits that underpins the organisation’s culture and organisational objectives. It promotes and encourages employee engagement, which in turn improves business performance.

At the moment, high numbers of employees are choosing to change jobs as restrictions imposed due to the pandemic are lifted and people are once again permitted to move around more freely.

Currently, it’s very much an employee’s market. According to the Office of National Statistics, the number of job vacancies in October to December 2021 rose to a new record of 1,247,000 (an increase of 462,000 from its pre-coronavirus January to March 2020 level) with most industries displaying record numbers of vacancies. 

The combination of the rise in the cost of living and the high number of employees moving jobs creates a perfect storm for employers. Employees may well be actively seeking roles with higher renumeration to help them cope with rising bills and prices. This means that businesses are having to work harder to compete for candidates and many companies are having to rethink their total rewards and the range of benefits on offer to new and existing team members.

Total rewards and company culture  

To add to the challenges brought about by the increased cost of living, there is also a growing body of evidence which shows that employees want meaningful jobs where they feel a sense of purpose, in addition to the money they need to pay the bills and feed their families. This is a trend we discussed in our 2021 Culture Economy Report.

Although many larger companies can absorb increased monetary costs associated with higher salaries and other financial benefits more easily than small businesses, it’s the latter who can make more rapid cultural changes such as offering flexible and hybrid working which people are now prioritising alongside financial renumeration. With the cost of childcare increasing and this adding to financial challenges, working parents are very likely to value flexible and hybrid working more than ever before.  

In a recent article about the evolution of employee reward and recognition driven by the crisis and the need for new approaches to leadership that puts peoples’ wellbeing first, Robert Ordever, MD of workplace culture expert, O.C. Tanner Europe writes, “organisations that used to provide transient perks are now recognising that more meaningful support is now needed, with 2022 being about providing genuine and tailored rewards. This might include home office equipment and furniture, a mental health support line or new flexible working arrangements.”

Peter Ordever added that financial wellbeing and support is just as important, with many people finding themselves in difficult situations due to the pandemic fallout. “Offering financial education, support and advice will be well-received by many employees, together with finance schemes such as salary sacrifice loans."

The importance of striking a balance

Rewards are an important element in every business. In order to be effective, businesses companies must answer the fundamental question of why people should commit their time, effort, and ideas to it.

While total reward as a philosophy emphasises all aspects of the employee proposition, pay remains the foundation on which everything else is built. It continues to be a key consideration for employees joining an organisation. Highlighting other elements of the employment package does not mean employees will forget about their base pay, which needs to be fair and equitable.

Once base pay is perceived to be fair by employees, communicating the value of the more intangible elements of the employment package can help to bring about higher levels of engagement, improve recruitment and retention and – ultimately – increase productivity.