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Modernizing Total Rewards to Drive Human Capital Sustainability

The world of work has changed and shows no signs of going back. To the contrary, it suggests an uptick in speed and evolution. Consider that freelancers represent more than one-third of workers in the United States, and some estimates expect that figure to increase to more than half of workers by 2027. And those freelancers are reskilling at almost twice the rate as traditional workers. Add to that a talent shortage brought about by demographic shifts due to generational transitions in both senior and entry-level roles in organizations:

  • The large Baby Boomer generation (75 to 80 million) is retiring at the rate of one every nine seconds between now and 2029, according to USA Today Money.
  • The much smaller Generation X (61 to 66 million) accounts for 51% of leadership roles globally, according to the Conference Board Global Leadership Forecast.
  • Millennials (74 to 79 million) are now the largest generation in the United States’ workforce, representing more than one in three workers, according to Pew Research.
  • The smaller Generation Z (60 to 65 million) is entering the workforce out of secondary schools and universities in large numbers.

Throw in that 65% of children entering school today will end up in jobs that don’t exist yet, that robotics and AI are practically mainstream, that the virtual workplace is institutionalized, and it’s clear that the future is here. Amid this seemingly nonstop cycle of disruption at a constantly increasing velocity, many are asking: Is this pace sustainable? Perhaps more importantly, what happens to the ability of people and organizations to keep up in a productive, engaged and focused state of well-being?

Sustainability is defined as the ability to maintain a certain rate or level. While often associated with environmental factors, sustainability applies in the broadest sense to individual, team, corporate and societal performance. How can organizations maintain pace, productivity and desired outcomes without losing sight of health, well-being, quality of life, quality of products/ services, quality of relationships and the importance of the most basic human interactions? Effectively addressing each of these areas results in human capital sustainability.

In July 2018, in “Purpose, Certainty and Modernized Total Rewards in an Era of Disruption,” the authors addressed the paradox that society faces between the continuously increasing rate of change and, simultaneously, people’s increasing need for certainty — a craving for a sense of affirmation that tomorrow will be OK despite ongoing disruption. With this desire for certainty comes a desire for purpose — an understanding of the “why.” Why are we here? Why are we doing this?

Defining one’s individual purpose — and understanding an organization’s or initiative’s broader purpose — begins to create a greater sense of clarity, confidence in tomorrow and an appetite for broader, longer-lasting impact. In turn, this sets the stage for organizations to create programs that support a sustainable work ecosystem not only for today’s talent, but also for the talent of tomorrow.

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In “The Future Is Now: Work and Rewards in Evolved Organizations,” published in the March 2018 issue of Workspan, the efforts by evolved organizations to modernize their talent value propositions and total rewards programs was discussed. These modernization efforts continue to develop — with strong interest coming from boards and the C-suite — and are centered on three data-driven themes that focus on talent and performance sustainability:

  • Purpose: Purpose-driven companies outperform the market by 42%, according to the Conference Board Global Leadership Forecast, and institutional investors have taken notice.
  • Well-Being: The cost of ill-being is $2.2 trillion annually in the U.S. (12% of GDP), according to the Global Wellness Institute. Other reports put the number at more than $3 trillion annually.
  • Dignity: Roughly 60 million individuals in the U.S. have faced some form of harassment, according to the RFK Foundation Workplace Dignity Initiative. One in three workers is unsure whether it’s safe to speak up at work, and one in three women (ages 18 to 25) reported having been sexually harassed. 98% of employees acknowledged being a victim of workplace bullying at some point in their working life. Add to this the impact of dignity erosion that comes from job displacement, where long-tenured talent is losing ‑ and will continue to lose ‑ jobs as a result of AI, automation, robotics and the overall changing nature of work.
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These trends have motivated organizations to focus on a more deliberate and personalized talent experience, combined with a modernized and sustainable talent value proposition (TVP) that focuses on four elements: purpose, work, people and total rewards. (See “What Is a Talent Value Proposition?”)

PURPOSE

Focus on the Organization and the Individual

Most organizations have purposes that create a broader societal benefit beyond mere profit: saving lives by developing new drugs; creating vacation memories; allowing people to travel great distances inexpensively; making other companies or markets more successful; providing nourishment; and/or powering cities.

Employees are three times as likely to stay in a purpose-driven organization and are almost one and- a-half times as engaged, according to Vic Strecher, author of Life on Purpose. Employees with a stronger purpose in life are more likely to engage in preventive health-care measures (for example, colonoscopies or mammograms), thus helping reduce health-care costs. And purpose promotes general well-being: People living with a purpose have a 15% lower risk of death in the next 14 years, according to the results of a longitudinal study conducted by Patrick Hill and Nicholas Turiano.

Clearly, it is important for organizations to articulate purpose in today’s environment, as it helps create meaning, clarity and an emotional connection for employees as to why they work where they do. At the same time, most employees also have individual purposes that go beyond earning a paycheck or keeping a job. Companies have found it powerful to help talent discover and articulate their individual purpose and its connection to the organization’s purpose as a means to create greater engagement and meaning from their contributions. Through this effort, organizations are equipped to align their total rewards strategy and programs with both organizational and individual purposes.

Create a Personalized Talent Experience

For organizations seeking human capital sustainability, a personalized talent experience includes several attributes that allow companies to meet their talent where they are — as well as where they want to go. 70% of employees across all organizations believe their organization should understand them to the same degree that they are expected to understand external customers, according to Willis Towers Watson research. For many, this means more tailored and personalized total rewards with increased choice for participants. (See “Creating a Personalized Talent Experience.”)

A personalized talent experience means more differentiated pay, more tailored benefits, variety in work assignments and locations that can provide new and interesting challenges, as well as a more sophisticated, real-time and consumer-grade user experience that typically includes a meaningful employment brand, as well as a variety of communication touch points. These touch points, which meet talent where they are throughout their career lifecycle, come in ways that are most relevant and accessible, generally featuring a combination of outreach efforts, whether it be digital (such as email, blogs, social media, apps and/or text messages) or print (such as signage or hard-copy mailings).

WORK

Skill Enablement and Reskilling as a Talent Differentiator and Catalyst for Dignity

Organizations have an immediate opportunity to ramp up skill enablement through reskilling efforts and place more prominence on career-long learning through the learning and development aspect of the “work” component of their TVP, as well as the “careers” component of total rewards. One-third of U.S. workers could be jobless by 2030 due to automation, and 60% of occupations have at least 30% of constituent work activities that could be automated, according to a McKinsey study. At the same time, as global markets tighten, global organizations already face skill deficits, with widely reported skill shortages in critical areas. 85% of jobs expected to exist in 2030 have not been invented yet, and they generally will require skills that are unavailable in today’s workforce, according to a Dell Technologies report authored by the Institute for the Future.

Simultaneously, income polarization continues to proliferate in developed nations and labor forces bifurcate: Smaller portions of the population have “modern” skills, while increasingly larger portions have generalized skills that are displaced (and many members of this larger portion are existing employees of corporations).

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All combined, those organizations that are focused on sustainable human capital have identified skill enablement and reskilling — as well as the advancement of lifetime learning in general — to be both a talent differentiator and a potential source of dignity and confidence for mid- and late-career employees. Yet, while most organizations have formal training and career development systems in place, far fewer have made a dedicated effort to establish the type of formal reskilling and adult learning programs required today. With only half of corporate America investing in reskilling, many jobs risk obsolescence. If current technology trends continue, more than 5 million occupations could be permanently lost in the U.S. by 2020, according to an August 2018 Robot Report.

Purpose has an impact on culture and dignity ,with employees more optimistic about the future of their organization when they feel respected and connected to a higher purpose.

Experts already have correlated the relationship between job loss and depression, opioid addiction and rising suicide rates, particularly among the populations that are dropping out of the workforce due to skill obsolescence. By focusing on skill enablement and reskilling, companies not only create a competitive advantage over freelancing, they also retain important sources of institutional knowledge, while improving engagement and productivity. Reskilling also helps break the costly, decades-long economic cycle of hiring, training, laying off and replacement hiring.

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PEOPLE

A Culture of Dignity

Data suggest that dignity ‑ defined as the quality or state of being worthy of honor, esteem or respect ‑ leads to a more engaged, productive and healthy workforce. The Global Wellness Institute suggests that the world’s 3.2 billion workers are becoming less happy, with about 40% of workers suffering from excessive stress at work and 25% being actively disengaged at work.

To counter this trend, it remains important to observe the impact that purpose has on culture and dignity, with employees more optimistic about the future of their organization when they feel respected and connected to a higher purpose. (See “Building a Culture of Dignity.”)

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Inspirational Leadership

“Purpose unifies management, employees, and communities... The world needs your leadership,” wrote BlackRock CEO Larry Fink in his January 2019 letter to CEOs. People have always looked to their leaders to provide inspiration and hope. Especially in today’s environment, talent turns to business leaders to provide a sense of integrity, authenticity and inspiration. Talent also places greater emphasis on purpose, workplace dignity, well-being and an overarching sense of human capital sustainability. Leaders who recognize this are considered purpose-driven leaders and they practice meeting employees where they are, creating a healthy company culture and emulating a TVP that says, “People matter, purpose matters, work matters, total rewards matter.” (See “Attributes of Purpose-Driven Leaders.”)

Inclusion & Diversity

Organizations that focus on inclusion and diversity (I&D) efforts are creating differentiated talent, performance and brand advantage from their peers.

The Center for Talent Innovation reported that organizations that have high ratings for I&D are 70% more likely to be successful in new markets and 45% more likely to improve their market share. Additionally, the most gender-diverse companies are 15% more likely to have financial returns above their industry means, according to Paradigm for Parity. Companies with 50% women in senior operating roles show an average of 19% higher return on equity than their peers.

Willis Towers Watson research reports that most organizations said they have formal processes in place to address bias or inconsistency in hiring and pay decisions, and there is a trend toward creating greater fairness in the workplace. (See “Moving Toward Fairness.”)

TOTAL REWARDS

Evolved organizations have modernized their total rewards to create sustainable value and performance. Modernized total rewards are defined as pay, benefits, career and well-being initiatives that:

  • Align with and advance an organization’s purpose, values and culture;
  • Reflect attributes of a healthy company culture, including I&D efforts;
  • Amplify the TVP with a differentiated talent experience;
  • Are user-centric and meet talent where it is and where it wants to go through personalization and choice;
  • Drive engagement, productivity and financial performance; and
  • Unleash workforce capability and enable inspirational leaders to flourish.
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Companies focused on modernized total rewards have adopted several practices focused on human capital sustainability related to each component.

Fair Pay

In the current environment of purpose, well-being and dignity, the subject of fair pay can make or break an organization’s reputation with investors, customers and talent. It’s also a key element of modernized total rewards and human capital sustainability.

The impact of gender pay-gap reporting in the United Kingdom, pay-equity legislation at the state level in the U.S and interest from institutional investors have driven the focus on fair pay. Evolved organizations have recognized that it is in their best interest to ensure all talent is receiving compensation consistent with their efforts, level and contribution.

While fair pay is an essential element of modernization, it is just one of many other components. Evolved organizations also consider diversity among employees as well as among those who are promoted to senior levels. This ties into the company’s culture and leadership focus, where all employees can contribute and do their best work. In markets in which the fair-pay agenda is already established, companies are moving from simply complying with legislation to integrating fairness into their organizational culture.

Purpose-Driven Benefits

Purpose-driven benefits are policies and programs that meet participants both where they are in terms of understanding their priorities and preferences, and where they want to go through personalization, choice and impact. Purpose-driven benefits put the employee at the center of the talent experience and help optimize everyday living. They also are most effective when offered in the context of modernized total rewards. (See “Examples of Purpose-Driven Benefits.”)

Nonlinear Career Paths and Lifetime Learning

In the modern work world, the traditional career path is making way for a portfolio of broad and nonlinear work experiences, including those that involve periodic reskilling and lifetime learning. Evolved organizations offer a wider array of professional development opportunities; embody agile thinking, interpersonal and communications skills (all necessary for the changing nature of work); and prepare and promote talent that will evolve in parallel with the organization. This moves companies away from the idea of “upward” promotions and pay increases every time an employee moves to a new job.

Perhaps not surprisingly, employees highly value development opportunities: They are willing to make trade-offs in other areas of total rewards to access direct learning opportunities, including reskilling. This trend is expected to grow, exacerbated by the displacement of key jobs due to AI and automation. According to Willis Towers Watson research, employees want more out of career management programs. Employees place a premium on development opportunities and work experiences that allow them to build new skills and remain relevant. Yet only 44% of employees believe their employers are getting career management right.

Variety in work assignments and locations provides new and interesting challenges, supports reskilling, raises employee engagement and leads to increased retention. In many cases, “horizontal” promotion is valued as highly as “upward” promotion. Evolved organizations also expand their definition of leadership potential, develop leaders earlier and embrace reverse mentoring. While leaders can’t always articulate what future jobs might look like, they can prepare and promote talent as the organization advances.

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Integrated Well-Being

For several years, evolved organizations have engaged their talent under a common theme of integrated employee well-being, defined as having a fundamental focus on four key dimensions:

  • Physical well-being includes lifestyle behavior choices to improve health, avoid preventable diseases and help manage existing medical conditions. Evolved organizations treat it as a key competitive advantage, with 72% of employers reporting that in the next three years it will be important to differentiate their health and well-being programs from those of other organizations.
  • Financial well-being relates to having control over daily or monthly finances, staying on track to meet goals, having the ability to absorb a financial shock as well as the financial freedom to make choices. In the past few years, financial concerns have become a more important issue for 70% of U.S. employees, as many of their financial situations have deteriorated. 45% reported living paycheck to paycheck with no significant savings and 37% reported a lack of financial resilience. Lack of financial security is a significant driver of stress. Those in good health and who are financially secure are 81% more likely to be highly engaged than those with health or financial issues.
  • Emotional well-being relates to behavioral health concerns, such as stress, depression and anxiety (as well as a focus on resiliency, be it through building individual purpose and impact or learning how to manage stress and improve sleep measures). Even five years ago, it was unusual for emotional well-being to be discussed in organizations; today, it’s commonplace. In fact, 71% of companies reported emotional well-being is an important priority in the next three years.
  • Social well-being is employees’ sense of involvement and acceptance with family, friends, colleagues and other people within their communities through various channels and interactions. Like emotional well-being, only recently has social well-being become a common topic of conversation in organizations.

Focus on Sustainability Metrics

Also prominent in organizations focused on modernizing total rewards and human capital sustainability is the establishment of metrics that connect their efforts to business outcomes. This occurs in the current environment, in which various investor, customer and talent stakeholders are requesting organizations review and consider the role of sustainability metrics within their businesses. The most common term for such sustainability metrics is environmental social and governance (ESG), which increasingly includes human capital commitments such as maintaining safe, inclusive, dignified workplaces and ensuring diversity, ethics and fair pay.

Studies indicate that when investors consider ESG factors, they are identifying sound corporate behavior that will help keep capital safe. In many ways, such metrics are viewed as a measure of how nimbly an organization addresses the increasing pace of change and disruption, and to ensure long-term sustainability and ability to create value. In the long term, stocks from companies that focus on these issues are likely to outperform the broad market and, in the short term, this type of investing can reduce risk.

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Employees place a premium on development opportunities and work experiences that allow them to build new skills and remain relevant.

Sustainability metrics aren’t necessarily a new concept but, given correlations between these metrics and financial performance (as well as external brand impact and talent engagement), various mainstream investor groups are asking more questions about ESG commitments with interest extending beyond the impact on funds. Additionally, proxy advisory firms are incorporating ESG analytics and perspectives in their summary reports. Organizations such as the Sustainability Accounting Standards Board (SASB) issued ESG standards for 77 different industries. They include a wide range of measures across many aspects of ESG, including human capital metrics, which according to SASB “address the management of a company’s human resources (employees and individual contractors) as key assets to delivering long-term value.” While investors have indicated that a focus on ESG can’t replace a strong focus on financial and operating results, they do believe that ESG can differentiate companies if they have solid underlying performance characteristics.

“ESG is not just a temporary ‘feel good’ exercise or the latest buzzword,” according to the January 2018 Forbes article, “The Danger of Not Embracing ESG.” “Most companies today are serving diverse markets and should have board members with diverse backgrounds and experiences to make better-grounded financial decisions on their products and services provided… The best companies are responding effectively and positioning themselves for future growth. They are making decisions that will speak to the talent pool in the workforce today such as Millennials that make up 34% of the labor market, and Gen Z that represents 21% of the U.S. population and (is) growing in consumer market importance.”

Total Rewards of Tomorrow, Today

In a world advancing at an unprecedented pace, the notion of human capital sustainability is helping leaders create a better tomorrow and shining light on efforts that improve the overall well-being, engagement and productivity of talent. It is striking to observe that investors recognize the correlation between sustainable human capital commitments and longer-term financial performance, encouraging corporations to move from what has been an increasing awareness of such factors to a more proactive stance.

As organizations continue evolving and adapting to unprecedented levels of change and disruption, leading enterprises are creating a more sustainable talent experience by acknowledging that all four elements of the TVP have impact. Said differently, people matter, purpose matters, work matters and total rewards matter. In taking this position, evolved organizations provide a modernized total rewards offering that not only meets employees where they are today, but also helps them get to where they want to be tomorrow. The result leads to true human capital sustainability.



John M. Bremen John M. Bremen is managing director, human capital and benefits, at Willis Towers Watson; and global co-head of its health and benefits business. Connect with him on LinkedIn.

Amy DeVylder Levanat Amy DeVylder Levanat is director, human capital and benefits, at Willis Towers Watson. Connect with her on LinkedIn.

John and Amy founded Willis Towers Watson’s CHRO Thinking Ahead Group.


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