‘Total reward’: a phrase past its sell-by-date in the post-pandemic economy?

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27 Apr 2022

Duncan BrownDr Duncan Brown, Principal Associate

With the news from a UCL social survey that more of us are now worried about our finances than about catching Covid, with price inflation rocketing to 7 per cent, 10 times the level twelve months ago in the latest ONS data, HR functions are having to rapidly pivot from dealing with a health crisis to a cost-of-living crisis.

HR functions have had a surprisingly successful pandemic response. As one of the respondents to XpertHR’s Annual HR Roles and Responsibilities Survey (2021) put it,  ‘HR are the true heroes!’ But despite this success and the expansion of their welfare benefits and wellbeing support, I am increasingly convinced that ‘total reward’ is the wrong concept and terminology for HR professionals to be centring their future reward strategies on.  So why do I feel this and what are the alternatives?

Total reward: how we got here

The concept of total reward has a long history, but in the UK the idea really took off in the 1990s, with the spread across the Atlantic of North American ideas of business-enhancing, strategic human resource management (see our IES research Armstrong and Brown, 2019).

At IES in the 2010’s we helped a wide variety of employers with their total rewards projects, including working with NHS Employers to develop their total reward strategy toolkit designed for NHS trusts, with a related one on drafting and using total reward statements. We also researched and wrote the Local Government Employers’ total rewards toolkit for councils and local authorities.

Total reward: the problems

I was initially led into questioning the concept of total reward in the decade following the financial crash in 2008/9. This was not a ‘totally rewarding’ era for many employees, as Peter Capelli (2014) noted in a well-known Harvard Business Review article on the contrast, ‘Why Google adds benefits and Walmart cuts them: oddly the logic is the same’.

The current dispute at P&O shows these issues and fears have not gone away as Covid recedes. Some employers clearly still believe that a completely un-total, lowest cost rewards package is the only or best reward model to employ.

Our 2016 IES research detailed the links between total rewards and employee engagement and performance, and found other major issues, notably ‘confused terminology’ that was ‘difficult to isolate and research’, leading to ‘complex and controversial relationships’ with performance and HR practices’.

How total reward approaches need to change post-pandemic

What words and phrases better characterise this new reward landscape? I would highlight three trends in particular.

1.       The move back to reward as security and welfare, rediscovering ‘boring benefits’

First, rather than maximising an individual’s total rewards through our policies, Covid has highlighted the importance of collective security, defined by the OED as being ‘free from danger or threat’. Security from catching Covid during the pandemic; and now security and protection from declining living standards.

IES research last year found that low-paid workers were twice as likely to have been made unemployed, to have been away from work or to have had fewer hours of work. As well as further increasing the real living wage, the CIPD notes that ‘the crisis has further increased the pressure for necessary reforms in employment status and to better protect those in low-paid and insecure work in the UK'. I am also seeing the word ‘welfare’ cautiously re-emerging in the reward and employment strategies of even the most profit-hungry large companies, defined as a ‘statutory or social effort to promote a base level of physical and material wellness for people in need’.

The CIPD was founded in the early 20th century as The Institute of Welfare Workers. Debi O'Donovan wryly observes in ‘Why boring benefits are back ‘(2020) that ‘it appears that it takes a global pandemic for employees and directors to realise how important ‘boring benefits’ are’. Not providing (beyond any statutory minimum) a company pension or sick pay scheme, a common strategy over the previous decade, suddenly seems a really stupid thing to do in a global pandemic.

2.       The emphasis on health and wellbeing

Second, health and wellbeing are perhaps the two most obvious and now most commonly-used watchwords that summarise the considerable additional activity undertaken by reward professionals during the pandemic. The CIPD’s Health and Wellbeing at Work surveys found that 40% of the employers they surveyed had a wellbeing strategy in place in 2018 and 55% said wellbeing was on their leadership’s agenda. By 2021 these had jumped to up to 50% and 75% respectively.

3.       ‘It’s the pay – stupid’; …… and fairness and financial wellbeing

Many people were shocked to find during the last two years that many care and keyworkers are only paid the statutory minimum wage and employed on insecure zero hours contracts. When care workers can move for an extra £1 per hour to work in their local Amazon warehouse then it is perhaps no surprise that we have an acute staffing shortage and ‘care crisis’. Increasing pay at the moment is perhaps the simplest way of improving employee wellbeing and reward, helping to explain the ‘pay battle’ and rises we are currently seeing for shopfloor staff in our major supermarkets..

The virus also encouraged a growing emphasis on collective support and fairness in pay and conditions, with for example:

  • A significant growth in voluntary ethnicity pay reporting;
  • The growth in interest in collective profit sharing and employee ownership. The number of employee-owned trusts is up over the past two years, from 550 in 2020 to 800 companies in 2022.

Conclusions on the future for total rewards

The experiences of Covid and the current cost-of-living crisis and talent war ‘crunch’ highlights the need to stop using the phrase ‘total reward’ as generic branding, and particularly to stop the abuse of the concept in practice, with some employers in the past using it to cloak employment cost-cutting.

I have described some of the key themes and terms I am seeing in my contemporary rewards work. These include pay and progression; protection and security; fairness and collectivism; health, wellbeing and welfare. ‘Total reward’ can only survive if its meaning and application are totally reborn into a new, more focused, engaging and responsible approach.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.