Future of Total Rewards: Trends and Strategies | Deloitte US has been saved
Authored by Allison Boucher and Jason Flynn.
How we got here
The world of work changed forever at the beginning of 2020 when the global COVID-19 pandemic propelled organizations into new and more flexible ways of working, whether they were ready or not. Organizations had to swiftly adapt their total strategies to reflect this “new normal,” which had lasting implications on the future of work, the workforce, and workplace—challenging traditional rewards approaches. Decades ago, rewards were as simple as getting a paycheck for hours worked. Since then, the concept of how businesses recognize work has been expanding. The pandemic accelerated this trend, and now, high-performing organizations must look beyond basic market-related rewards—providing a more total rewards strategy that includes broader, sustainable offerings to support a person’s overall well-being, purpose, and shared values.
As we continue to emerge from the pandemic in 2023, global economic trends and behavioral shifts in the labor market are further forcing organizations to reconsider total rewards strategies to adapt to increasing changes and disruptions. From the new normal of remote work to the broader expectations of employers, evolving workforce needs will require new and differentiated approaches to rewards. The uncertain business and labor market, coupled with new workforce needs, is driving new areas of focus for total rewards organizations. As we look toward the future, employers will need to think more holistically about total rewards, aligning needs and preferences of the organization and the workforce.
A changing landscape: Trends in total rewards
In the last two years, the year-over-year average increases in the cost of goods have surpassed corresponding increases in wages. This gap between inflation and wages has been further exacerbated by global disruptions, including trade wards, the global pandemic, and the war in Ukraine. These disruptions have damaged the ability to manage global supply chains and as a result, global companies will likely diversify supply chains, boost redundancies, and reduce their reliance on certain markets due to perceived risk.
Now more than ever, recognition is critical to employee satisfaction and engagement. Lack of recognition is the No. 1 reason most professionals leave their jobs. Organizations with recognition programs had 31% lower voluntary turnover and were 12 times more likely to have strong business outcomes. About half of professionals surveyed reported wanting more recognition from their immediate manager and coworkers.1
Total rewards leaders are increasingly feeling the pressure to do more with the same budget in a very dynamic environment. This would suggest a one-size-fits-all approach in the pursuit of spending efficiency and while this strategy may have been successful in the past, an evolving and still hot labor market demands a more personalized total rewards approach. Moreover, given the changing nature of work and ever-shifting skill requirements, HR and total rewards professionals will increasingly need to move beyond job-based compensation frameworks going into the future.
Amid all these pressures, workforce and demographic shifts are adding further challenge and complexity. As the fastest growing demographics in the labor market, Generation Z and millennials are already tired of being resilient and are striving for balance, eager to advocate for change in their workplace. According to the Deloitte Global 2023 Gen Z and Millennial Survey, these demographic groups report facing financial concerns around the cost of living, leading them to actively explore new working models to widen their income.2 The Great Resignation signals a breaking point and ongoing challenges related to workplace mental health, presenting an opportunity to reassess how we work by prioritizing sustainable choices and environmental action by employers.
Deloitte’s perspective
The impact of the pandemic has been profound on business operations, leading us to rethink how we approach work and recognize the workforce getting it done. Work is more than a set of activities; it’s the way people interact, learn, grow, team up, and innovate to produce maximum output.
In this new world, the connection between the workforce and organizations requires a reevaluation. The workforce has increasing influence and agency, and leading organizations will need to view their workforce needs through a new perspective to enable desired business outcomes. Workforce needs vary from the basic requirement of providing for their families and themselves, to finding purpose in the work they do (plus many things in-between). The workforce itself no longer consists of just traditional employees—it’s expanded to include a workforce ecosystem of gig workers, contractors, broader stakeholders, and vendors.
The workforce value proposition is the connective tissue that links broader workforce needs with organizational needs. The idea of a workforce value proposition is not new; most companies already talk about this, but in practice, fail to act holistically. Everything a total rewards function does makes a difference for the workforce. Traditional rewards such as compensation and benefits are still important, but the workforce of today and tomorrow is increasingly looking toward a wider array of organizational support that aligns to their individual needs. Not all members of the workforce have the same concerns and interests in the rewards experience, so it requires a dynamic relationship and rewards ecosystem that invites the workforce to be active participants in engaging and shaping the rewards experience.
Leadership considerations
Given the rapidly increasing changes and disruptions occurring within organizations and in the market, today’s total rewards leader needs the right strategy, people, and tools to stay agile and continue to meet the evolving needs of their workforce. There are a variety of organizational triggers that can drive leaders to consider redesigning their strategy around employee experience, such as well-being, culture, and motivation. To effectively transform your total rewards programs, impact must extend beyond the rewards strategy and offerings themselves. Design the structure of the total rewards function, leverage data, and leading technologies—with intent—to enhance decision-making, and focus on operations and service delivery to optimize the employee rewards experience.
As organizations adapt to a world of high employee turnover, leaders should consider the impact on business strategy. In recent years, employees have had increasing power and influence, and it’s unclear if an unstable labor market combined with looming economic uncertainty may shift the balance of power back towards organizations. Moving ahead, the “workforce” will increasingly include a mix of traditional employees, gig workers, freelancers, contractors, and other forms of fractional labor, and total rewards leaders must consider how to adapt their strategies to meet the needs of this expanded workforce. Leaders can continue to increase utilization of corporate social responsibility, sustainability, diversity, equity, or inclusion metrics into incentive programs, extending this trend down throughout the organization, beyond just the executive level.
Total rewards leaders cannot tackle all of the challenges facing their organizations and must think strategically about which top priorities to spend time and effort on—while optimizing return on the significant investment of their rewards programs. To balance the ever-evolving needs of the business with needs of the workforce, leaders must begin thinking beyond just their total rewards programs, and instead, consider how the total rewards experience fits into the overall workforce value proposition.
Authors:
Endnotes:
1 Natalie Wickham, “The importance of employee recognition: Statistics and Research,” Quantum Workplace, July 6, 2023.
2 Deloitte, 2023 Gen Z and Millennial Survey, 2023.
