This is Part I of a two-part series. Part II will publish on Friday, Nov. 20.
In February 2020, which seems like a century ago, we published an article in The Journal of Total Rewards suggesting that fairness in total rewards goes far beyond pay, and a focus on diversity, equity and inclusion extends to all elements of the portfolio — including pay, benefits, careers and well-being.
We observed the result is good for performance, fostering well-being and driving engagement, productivity, business outcomes and sustainable financial returns. And it helps companies address social imperatives of investors, consumers and employees.
Since then, the triple crises of 2020 have challenged employee well-being across physical, emotional, financial and social dimensions. The COVID-19 pandemic has underscored the value of the health, safety and contributions of people to business success. The resulting financial crisis has caused additional disruption and uncertainty. Concurrent worldwide protests have brought to light many societal inequities both inside and outside the workplace.
Companies around the world moved quickly to reimagine work to balance safety and business continuity. They stepped up efforts to address diversity and inclusion (D&I) — with a greater focus on equity. In parallel, total rewards teams advanced their portfolios to align with well-being, new ways of working and D&I, using the “equity trifecta” of pay, benefits and careers to drive organizational resilience, workplace dignity and human capital sustainability.
This disrupted environment has surfaced a new total rewards model that highlights six emerging trends focused on creating total rewards equity, emphasizing flexibility, and putting well-being at the center.
Trend 1: Total Rewards and Well-Being Have Become Interdependent
Even before the pandemic, research and experience showed that total rewards program priorities were shifting toward a greater focus on well-being. In 2019, two-thirds of companies reported incorporating well-being into their overall benefit strategy, according to Willis Towers Watson’s “2019/2020 Benefits Trend Survey.”
Prediction: The total rewards function will increasingly align with well-being, not just include it in the portfolio.
The subsequent Willis Towers Watson “2020 COVID-19 Benefits Survey” showed that:
- 45% of companies made changes to benefits and 44% planned to make changes in the next six months.
- More than half were looking to enhance well-being programs focused on physical, emotional, financial and social well-being.
- About one-third planned to make health care changes.
- About one-fourth planned to make caregiving benefit changes.
Responding companies also reported a direct connection between the crises and employee well-being in four well-being dimensions:
- Health and safety risks → Physical well-being
- Economic uncertainty → Financial well-being
- Unrest, inequality and disruption → Social well-being
- Combination of all factors, plus anxiety, stress, loneliness and isolation → Emotional well-being
CHROs and total rewards leaders also reported increasing awareness of the role that all total rewards elements play on well-being in ways that may not be new but now are framed very differently. For example, organizations began connecting the impact of pay programs on financial well-being, while also looking at the role that social determinants of health and wealth play in exacerbating existing disparities within communities of color and lower socioeconomic status.
While it is not new to associate benefits with physical, emotional and financial well-being factors, connections between benefits and social well-being through diversity, equity and inclusion became more prevalent in recent years, as have efforts to address inclusive benefits that meet the needs of broader, more diverse employee groups. Career equity and fair representation also have been tied directly to financial, social and emotional well-being, and indirectly to physical well-being.
As a result of these insights, companies increasingly have put well-being in the center of total rewards, as shown in the Equitable Total Rewards model in Figure 1.
Figure 1: The Equitable Total Rewards Model
As such, many forward-looking companies report changing the names and/or remits of their total rewards functions to include well-being. They understand that well-being requires a mindset that goes well beyond health and physical wellness programs, and they acknowledge that fair pay, inclusive benefits and career equity have a significant impact.
It stands to reason, then, that the billions of dollars, euros and pounds they spend on pay, benefits and career programs can drive and be optimized around well-being for maximum impact.
Trend 2: D&I Is Executed Through Total Rewards
Similar to well-being, companies were increasing the connection between total rewards and D&I even before the pandemic. Globally, 55% of companies reported incorporating D&I into benefits design to a great or very great extent, according to the Benefits Trends Survey – and pay equity has become a focus of global organizations for a number of years.
Prediction: D&I strategy will be executed increasingly by total rewards teams to achieve greater equity and impact within the organization.
The crises of 2020 have created a moment in which companies are addressing D&I more broadly throughout the organization and its programs. The total rewards focus has been further accelerated by increased commitment to diversity, equity and inclusion through public statements of companies following the deaths in the U.S. of George Floyd, Breonna Taylor and Ahmaud Arbery, as well as through corporate social responsibility, sustainability commitments, and the continued adoption of environmental, social and governance (ESG) goals.
According to Morningstar and other sources, net investment inflows to ESG and sustainable investment funds continued in 2020 despite financial challenges, indicating a commitment by investors to these priorities as well. Further, Edelman’s “2020 Trust Barometer” found that consumers continued increasing their pressure on companies to align with purpose and values, with data showing 80% of consumers want brands to “solve society’s problems.”
Consumers are holding companies particularly accountable for:
- Setting an example within the organization of diversity, equity and inclusion (64%).
- Reflecting the full diversity of the local country in their communications (63%).
- Making products accessible and suitable to all communities (61%).
And there are consequences for brands that fail, according to Edelman; 52% of respondents of color said they would not work for a company that fails to speak out on addressing racial inequity, and 60% of Americans said they would boycott a brand based on its stand on racial injustice.
Equitable total rewards also have been fueled by greater focus on gender disparities at work and protecting the progress of gender diversity. According to McKinsey research, women’s jobs are 1.8 times more vulnerable in this crisis than men’s jobs. While women comprise 39% of global employment, they account for 54% of overall job losses. Women in particular report feeling overwhelmed, exhausted and burned out at work, and disproportionately responsible for duties at home as caregivers. As such, companies are responding to the fact that one in four women are considering a downshift in careers — or leaving the workforce entirely — according to “2020 Women in the Workplace Report” by McKinsey and Leanin.
Equitable total rewards also support focus on race and ethnicity, as the pandemic continues to shed light on the impact of COVID-19 on racial disparities for communities of color and the most vulnerable members of society effected by social determinants of health, including access to health care, job occupation, gaps in education, income and wealth and housing/living conditions. In the first few months, the CDC found that Non-Hispanic Black or African American persons and Hispanic or Latino persons were 4.7x and 4.6x, respectively, more likely to be hospitalized due to COVID-19 compared to White, Non-Hispanic persons. Equitable total rewards are a tool that organizations are using to respond to this need as a key business imperative and means to improve the health, well-being and access for all their employees.
The role of equitable total rewards in meeting all employees “where they are” and “where they want to go” has accelerated. Understanding the preferences of a diverse employee pool through listening strategies and optimized total rewards with a lens on equity becomes the highest priority to know what to change and for whom. Companies have realized that building a culture of inclusion is essential, and unless (and until) they address equity through their sizeable total rewards investments, they can only go so far in enabling their desired cultures.
Trend 3: Treating People Fairly Does Not Mean Treating Them the Same
Note: In this article, “equity” is defined as fairness and creating a level playing field for success, while “equality” means providing identical treatment and resources to all, regardless of situation or need.
Traditionally, companies have defined “fairness” in broad brush strokes as “treating people the same.” However, as workforce diversity increases, it becomes clearer that different employees have different needs and priorities.
Prediction: Choice, customization and personalization will expand exponentially.
As more members of society proclaim they want to be “seen,” companies must understand and support their differences. For example:
- Employees in different racial or ethnic groups often report having different total rewards needs and preferences from each other.
- Late-career employees have different needs and preferences than early-career employees.
- Employees in India have different needs than those in Germany.
- Working parents of young children often have different needs than those employees without children.
- Working mothers have different needs than working fathers.
The list goes on, but the one factor in common is that each of these groups wants to be seen, heard and understood — and they all want their needs met. In response, companies are getting serious about expanding equitable total rewards to consider the individual needs of a diverse workforce.
Take gender cohorts as an example. Organizations are aware of the impact that job loss for female employees can have on workforce composition. Amid disruption, the greatest opportunity companies have to engage and retain existing female talent is to provide the necessary programs, practices and policies that address their key needs. These include enhanced flexible work arrangements (both spatial/where work gets done and temporal/when work gets done), dependent care programs including enhanced caregiver access and subsidies, and enhanced well-being programs to help address physical, financial, emotional and social challenges.
Historically, age and gender have been the primary equity focus for many companies, but that’s changing. Willis Towers Watson’s “Global Priorities for Employee Benefits” survey reported that ethnicity was the least-focused-on area prior to 2020, but in 2020 there was a 43% increase in companies planning to build considerations into employee benefits and pensions in the future for this employee cohort. In the second half of 2020, we saw this more fully take shape.
To address racial inequities, organizations began using employee listening strategies such as virtual focus groups and conjoint surveys to learn about the preferences and needs of employees of color. They began digging into existing programs, practices and policies to determine where bias might exist in the talent lifecycle, including the way employees experience the organization through total rewards.
Focusing on the needs of a broader, more diverse workforce requires greater choice, flexibility and personalization in total rewards — all elements that help shape the way employees experience the organization. Behavioral data support the view that choice and personalization are connected to D&I, and are valued by employees across a broad range of demographics. Most people believe they can make more appropriate choices for lifestyle needs and preferences than their employer. In environments in which choice exists, an identical mix of benefits choices occurred only once in every 154 enrollments, according to research by Steve Nyce and Jari Greenbaum in Benefits Quarterly, demonstrating the diversity of needs and preferences among plan participants.
The global crises also have highlighted the conflict between total rewards equity and a strategy of segmentation for key talent groups. Most companies searched for the sweet spot between a homogenous approach and too much segmentation that would lead to over-complexity. Success meant determining the critical cohorts to differentiate and then deciding whether to focus on to segmented design, choice, or personalized communication. (See Figure 2.)
Figure 2: Segmentation Range
Total Rewards is the greatest controllable spend of a company; shouldn’t it have the greatest impact?
About the Authors
John Bremen is managing director, human capital and benefits and global head of thought leadership and innovation at Willis Towers Watson.
Amy DeVylder Levanat is senior director, human capital and benefits at Willis Towers Watson.
Carole Hathaway is a global practice leader, rewards, at Willis Towers Watson.