I'm sure you've heard the term the ‟new normal,” but does this employment market and ridiculous inflation feel normal to you? I hope not! Everywhere you turn, there are “HELP WANTED” postings broadcasting the fact that just about all employers are in desperate need of staff. Even smaller operations, like your dentist or pediatrician’s offices, are feeling the pinch and having a hard time keeping critical support roles filled (e.g., receptionists, dental hygienist, and nursing assistants). It's really a challenging time for employers, and who are they turning to for problem solving — their Human Resources team.
The role of the HR professional has never been more in the spotlight than in the past couple of years. Leadership teams recognized that whether or not the company emerge triumphant from the global pandemic and supply chain challenges would be determined in no small part by the aptitude of their HR team.
As we head into another year, with inflation soaring, employees and job seekers holding the reigns when it comes to negotiating employment, and the continued evolution of what consumers demand from companies, what should the dialed in HR leader focus on to make the most impact?
Understanding what's important to your employees
At the heart of so many other talent and reward strategy decisions is understanding what your employees want.
It’s important to engage in ongoing dialogue with your employees. Find out what they want, implement a program, and then ask for feedback. Checking in with employees is not an occasional activity. With employees' shifting preferences, employee research is a priority. For example, if you were to rely on media reports of employees' preference to work from home or outside of the office, you may infer that the best thing to do is to close down your office locations. However, in reality, your employees may have different preferences. If you conduct a quick pulse survey, you may learn that the majority of your employees would like to be in the office 2 or more days a week. With that knowledge, you can then develop a flex working program that takes into account your employees' needs. This leads us to the next priority for the HR team — flexible work programs.
Building a flexible work program
The majority of North American companies that participated in Mercer's Flexible Working Policies and Practices Survey indicate that they have implemented and communicated a flex working program or plan to employees. They also reported that they are continuing to modify elements of their program, such as eligibility, flex options, and expectations in time around the office. And who is leading the effort to collect employee feedback and model changes? — HR, of course!
While managers play a large role in determining the flex arrangements and eligibility for their teams, typically various HR teams are responsible for administering the program. Along with that responsibility would come compliance, ensuring that opportunities for flex working are equitably offered and their impact and success are measured. Determining the best way to create the right model of flex work for your organization is certainly a top priority for 2023.
Increasing employee engagement
You may have recently heard of the term ‟quiet quitting”, but what exactly does that mean? Quiet quitting is defined by Wikipedia as ‟work-to-rule,” meaning employees only work to a certain prescribed hour doing clearly defined tasks. The fear is that quiet-quitters are disengaged with their jobs and uninterested in the overall success of the company. Here are some of the top reasons employees are quiet quitting:
- Employee burnout
- Lack of motivation or meaningful work
- Greater focus on work life balance
How does an employer attempt to shift this phenomenon and increase employee engagement?
Not to sound like a broken record, but it starts with understanding what your employees want and then creating an employee value proposition that aligns with their wants and values. One of the common challenges is making sure that your performance management system actually does drive employee behaviors by creating a link between goals, performance, and rewards. If employees don’t feel there’s any reward for going above and beyond, why would they? Additionally, being flexible with hours and finding ways to truly meet their work-life needs goes a long way towards increasing engagement. But, again, it’s not a one size fits all approach – find out what matters to your employees and adjust your offerings accordingly.
Rethinking total rewards
While there’s been a slow shift occurring for the past 5 years or so, most employers now understand that the annual increase that we once described as a ‟merit” increase is not doing the job of rewarding/driving employee performance. With merit increase budgets at or below 4% for the past decade, providing any kind of meaningful merit increase for high performers just hasn't been possible. With the additional pressure of high inflation, employers are having to rethink how they reward employees.
A whole host of challenges around base pay are facing pretty much all industries, with a few of the most impactful being:
- Increased starting pay for new hires has created the need for internal equity adjustments to alleviate compression and pay inequity.
- Employees are dealing with the real impact of inflation. While employers have typically shied away from adjusting pay in reaction to inflation, having learned from similar economic climates in the past, many are experimenting with temporary vehicles to provide relief for employees, such as allowances or bonuses.
Additionally, annual short- and long-term incentives have risen in importance in the total rewards package. In 2022, approximately half of the participants in the US Compensation Planning Pulse survey indicated that they paid out STI above target; a similar percentage paid LTI out above target. Typically employers are using short-term incentives to reward employees for annual achievements. Long-term incentives are usually designed to encourage the employee to focus on goals and objectives that may not come to fruition for several years. In addition, given the role LTI plays in employee retention, we are seeing employers pushing eligibility further down in the organization. Employee benefits are another area that can impact employee satisfaction.
Employee preferences are diverse, particularly if a workforce spans the baby boomer generation all the way down to Gen Z. If you aren't currently offering employees choices that will allow them to align their benefits elections with their current life phase and needs, then it's time to do so.
Shifting from pay for performance to skill-based pay
You’ve likely heard of ‟pay for performance,” which measures and rewards employees for achieving certain objectives/goals tied to their job. However, many organizations are shifting the way they hire, reward, and promote from a job-centric point of view to a skills-centric point of view. Their hunch is that skill based pay model is a more appropriate way of compensating people to help attract, build, and retain critical skills.
The challenge is that many organizations don’t yet have a framework in place that provides them with the knowledge of what skills they need in order to be successful. Sure, most companies have an idea of the core competencies they need. Often times those take the form of "We look for team members that embrace change, are creative, thrive in teams..." However, that's much different than knowing what skills are needed in each function/department that will allow them to achieve objectives. Beyond that, what skills are applicable regardless of department that will allow the organization to create agile teams to tackle critical projects and business needs?
Many companies are just at the start of their journey in trying to figure out how to approach a pay for skills approach. There are so many pieces to put in place, but now is definitely the time to get started.
Looking ahead to 2023
We are bound to experience a few curve balls in 2023 – continued inflation, a recession, more supply chain challenges, and the evolving relationship between candidates/employees and employers. Preparation, anticipation, and flexibility will be the name of the game. Mercer has a variety of resources as well as expert support to help you adapt to challenges with agility and prepare for the future with confidence. Give us a call at 855-286-5302 today to prepare for 2023.