Twenty-twenty will forever be known as the year an historic pandemic settled in and began to transform the nation. In fact, the lingering outbreak continues to cause organizations to rethink their ways of doing things.
But even before COVID-19, many employers had begun, in earnest, lining up pay with performance in an environment newly imbued with sustainability and corporate responsibility.
Then when 2020 arrived, organizations doubled down. And now, the disruption caused by COVID-19 continues to provide an opportunity to reflect, recenter, and put together a rewards strategy that better complements today’s still-changing business milieu. In fact, future-focused companies are rewriting the rules on rewards.
Employers over the last few years have felt increasing pressure to do something about societal issues including gender parity, systemic racism, and pay inequality. Such demands come from all stakeholders, too, from employees to regulatory entities and shareholders. The fact is that employers that possess a strong sense of purpose, as well as obligation to stakeholders, typically have a more formidable bond with customers and adjust to evolving societal demands. Overarchingly, purpose drives long-term organizational profitability.
Now, toss in a transformative pandemic, and it’s no wonder that organizations as a whole are amid the flames of change. And that can be a positive development, especially in a tight economy, when rewards efforts are crucial to the ability to recruit and retain key talent.
Aligning Purpose and Rewards
Organizations increasingly realize that consideration of all aspects of total rewards is necessary. If they aim to respond to stakeholders’ wishes, that is. After all, that kind of holistic approach provides employees with access, opportunity, and transparency.
To be clear, total rewards refers to all the benefits, rewards, and compensation employees get from an organization in exchange for their contributions and membership.
How Key is Aligning Rewards with Purpose?
Consider these results from a recent study by leading benefits consultant Mercer:
- One in three respondents would prefer to work for an employer that shows an obligation to stakeholders.
- Employees who are thriving in areas of career, wealth, and health are four times more likely to join a company that promotes equity in pay and promotion decisions.
- Three in four companies whose chief executive officer is accountable for environmental, social, and governance initiatives grow at a rate of 6 percent or better.
A New Approach to Incentive Compensation
More and more, companies are taking a fresh look at how, when, and what to pay their people. For time immemorial, top executives’ pay was simply linked to organizational performance. While that’s still true to some extent, organizations are increasingly using pay to make certain that environmental, social, and corporate governance, as well as, diversity, equity, and inclusion (DEI) goals, are met.
This is the way executive compensation is increasingly being decided. According to another Mercer survey, for example, 36 percent of participating employers were considering including a DEI provision in their bonus plan. Currently, just 6 percent had one.
Organizations Must Be Able to Pivot
If there’s anything the pandemic has taught us, it’s the importance of having the ability to turn on a dime if the business environment warrants. The good news is that a nimble infrastructure is fostered by the integration of ESG and DEI concerns into executive compensation plans. What you’ll then have is an increased ability to attract, retain, and motivate top people who can flourish during this still-uncertain period.
So, yes, future-focused companies are rewriting the rules on rewards. The question for you is whether you’ll get ahead of the game -- or be left behind.
For help reshaping your rewards program, we suggest leading global benefits consultant Mercer.