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Article | Executive Pay Memo – UK

Rethinking flexible work in the current environment

Executive Compensation|Future of Work|Wellbeing|Total Rewards|Employee Engagement
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By Katie Johnson | September 16, 2021

We discuss pay strategies in a flexible work environment and highlight how some of our clients are approaching the challenge.

Flexible work: a topic on everyone’s minds at the moment. To go back to the office? To stay at home working from our kitchen tables? Or get the best of both worlds by splitting time between working from home and being in the office? Despite Rishi Sunak’s plea for us all to return to the office, organisations are increasingly interested in hybrid work models – a view supported by Willis Towers Watson’s survey findings.

Implementing an effective and sustainable flexible work strategy requires a holistic approach. Organisations must consider a wealth of different areas – the future of work and the employee experience, implications for learning and development, considerations for inclusion and diversity and the impact on Total Rewards, to name a few. Focusing on this last area, the transition to a flexible work model poses serious questions for Total Rewards. How do you reallocate budget to support the new work model? How do you assess your compensation, benefits and wellbeing programmes to support work in a flexible environment? What “worked” during the pandemic may not be suitable moving forward in the “new norm”.

Flexible work framework - Where, When, How?

Reimagining Work

Do our work processes, technology platforms, tools, and cyber security capabilities support collaboration and flexible work? Which work in jobs is most suited for a flexible approach (interactive versus independent work; or physical/on premise requirements)? How do we need to reimagine the job to create more flexibility?

Total Rewards

Do our compensation, benefits and wellbeing programmes support work in a flexible environment?

Wellbeing

Has our wellbeing strategy and programmes evolved for where and when people work? Do they support the diversity of need and means of engaging?

Inclusion and Diversity

Do our flexible work policies support the needs of underrepresented talent – and ultimately our diversity targets? Are flexible work arrangements equitable and accessible to all employees where applicable?

Employee Experience

What impacts does flex work have on collaboration and employee perception? Have employees been asked about their preferences and needs to thrive?

Policy, Programmes and Governance

Are our policies, programmes, and governance for flexible work supportive of our different employees’ needs?

Leadership and Change Management

Do leaders in our organisation have the mindset and the required skills to lead in a flexible work environment? Do organisation values, behaviours and enablers support or inhibit flexible work?

 

What hybrid work approaches are seen in the market

Our recent Flexible Work and Rewards Survey found that more than half of employees prefer a hybrid working model – a mixture of onsite and remote work. This is further supported by our 2021 Employee Experience Survey  where we found that 73% of organisations have identified flexible work as a priority to improve the employee experience over the next three years. Of course, there are some industries and sectors where some (or all) roles have to be site-based, but other organisations insisting on a fully onsite location-based models will likely face significant talent implications. Our research showed that 30% of employees would consider switching employers if their organisation returned to a fully on-site work model.

So, what does this mean for how organisations reward employees? When we asked employers in 2020 how they plan to change their pay strategies to accommodate hybrid working arrangements, over 6 in 10 organisations told us they plan to pay fully remote workers the same as in-office workers, regardless of their actual locations, for all jobs. However, the question we would ask is – is this optimal in all cases? Interestingly, Google has recently announced they may give a pay cut to employees in the US who decide to work from home permanently, leveraging a pay calculator to demonstrate to employees the effects of working remotely or moving offices and helping them make informed decisions about how and where they choose to work.

How varying pay strategies can align with a hybrid work approach

Regardless of the level of flexibility organisations choose to pursue, we believe that now is the time for organisations to review their pay strategy to ensure it is fit for purpose. Having a clearly defined and thought-out pay strategy that is aligned to flexible working policies can help to ensure an equitable approach to rewarding employees and foster an improved employee experience.

Organisations are debating three primary pay approaches to support flexible working strategies:

  • A geography-aligned approach considers where the role/incumbent is located which has an impact on determining base pay levels. This is the prevalent model today, but organisations are considering whether location-based pay should still be used, or whether they should transition to a “national grid” as employees may be more dispersed geographically moving forward. Some organisations we speak to are choosing to take a “wait and see” approach to see how market data changes.
  • A value-aligned approach considers the value of the work and/or scarcity of the role or skills and determines base pay levels regardless of location and where work is performed. This approach neutralises geographic inequities in base pay and streamlines and simplifies the pay management process, however it can come at higher cost.
  • A segmented approach may mean a core pay approach for most of the organisation and a different approach adopted for select segments/job families. This approach enables an organisation to utilise the best of both approaches in specific parts of the business, however this adds complexity in pay management with different pay approaches for different segments.

To determine an appropriate pay strategy the following should be considered:

  • Time horizon – is your compensation approach designed to satisfy short-term or longer-term flexible work needs?
  • Business strategy and compensation strategy – how does your business strategy and compensation philosophy inform your pay strategy for flexible work?
  • Internal equity – are there pay strategy changes that could inadvertently cause internal equity issues?
  • Segmentation – would you adopt one approach for the organisation or are there select segments that would require a different approach?
  • Employee experience – have you surveyed your employees on their flexible work and reward preferences to understand perceived value?
  • Compounded costs – would changes in pay strategy result in broader implications on benefits and employer tax obligations and/or other liabilities?

Beyond this, it’s also important to consider legal, regulatory and tax implications of such a strategy, as well as the impact on diversity and inclusion.

What are other organisations doing?

Many of our clients who are currently re-designing their flexible work policies claim that they do not expect to ever go back to 100% in-office working. One professional services firm refers to its future hybrid working arrangements as “2-2-1”. They expect employees will spend on average two days per week in the office, two at home, and one day either in the office or at home – and it seems that others are planning a similar approach. Some firms even take a step further and suggest that it’s not just about letting people work from home; they are also considering relaxation of working hours, allowing for more flexibility to be incorporated into the working day.

One organisation we work with chose to segment its employee population based on the collaboration needs of each job. The idea is that only c. 50% of its employees are estimated to truly benefit from working closely and being in the same physical space with others. These jobs are where collaboration is an essential part of their role and is key to innovation in the business. The in-office working requirements for them will be different going forward.

While most of our clients agree that no immediate changes to cash reward will be necessary for employees who will now move onto the hybrid model, the model itself has given rise to a multitude of challenges. How should we restructure our benefits proposition, where it was previously so strongly linked to the physical office environment (think local gym discounts, in-house doctor, and a subsidised canteen)? What if some of our employees request to work 100% remotely – how do we reward them? Is our old reward strategy still fit for purpose now that our talent pool has been extended nationwide and potentially beyond?

One of our clients operated a very complex geography-based pay model, which worked well for them in the pre-pandemic world and allowed for granular differentiation in reward where it was deemed necessary. They are now re-designing the model to be more reflective of the new expected way of working going forward – the likely more dispersed talent base, lesser relevance of the physical office and so on. Ultimately, they see this as an opportunity to simplify their regional pay and move on from having fragmented structures to a more unified approach to reward.

Summary

Doing nothing is no longer an option for organisations that are redefining their flexible work strategies. As we move into the “new norm”, not having a clear strategy around pay could result in negative consequences such as inequity and compliance issues; trouble with talent attraction, retention and engagement; pay processes that are not consistent or easy to understand; and an administrative burden for HR and managers. It is therefore vital that organisations define their future work models to provide employees with clarity and certainty in uncertain times.

If you would be interested in having a 1-hour conversation with us to hear more about what other organisations are doing as they consider re-defining their pay strategy, please contact your Willis Towers Watson consultant.

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Director, Executive Compensation & Rewards

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