Navigating financial stress: How to structure your reward programmes to support employee wellbeing (2024)

The current economic landscape is fraught with challenges. Given the subdued growth and worryingly persistent inflation in the UK, it comes as no surprise that UK employees are dealing with a range of financial concerns.

Data from our Inside Employees’ Minds research not only point to immediate challenges but also present an opportunity for organisations to foster a workplace culture that prioritises inclusivity, flexibility, fair compensation and genuine care for the financial wellbeing of every employee¹.

Covering monthly expenses is the top priority for UK employees and the biggest reason people say they would leave their employers. The discrepancy between the rising costs of living and relatively slower wage growth is a clear and pressing issue, resonating across various demographics. Younger employees, women, single individuals, those with shorter service and remote workers feel this financial strain more keenly.

Interestingly, this worry also cuts across income levels; our data show that earning more doesn’t necessarily equate to feeling more financially secure, as higher income might be offset by greater commitments. Over half (52%) of employees have reduced spending, and more than a third (35%) have reduced savings or tapped into their current savings due to continued high inflation.

There is an urgent need for companies to address the financial challenges their employees are facing, especially in meeting their basic monthly costs.

The inverse relationship between personal debt concerns and annual income sheds light on a predictable yet critical aspect of financial stress. Lower-income individuals and those with shorter service tend to worry more about personal debt, which is linked to interest rate rises. This often overlaps with worries about job security, creating a complex web of financial and employment uncertainties.

Although entry-level employees express concerns about job security, according to our study, the highest level of apprehension actually occurs in the midlife bracket (45–54 years). This aligns with career, personal and financial milestones, indicating a broad spectrum of the workforce is affected by worries about employment stability.

As retirement approaches, concerns about the ability to retire become more pronounced, with a direct correlation to the proximity to retirement age. This trend highlights potential challenges in engaging younger employees in retirement provisions. At the same time, older workers grapple with concerns about the adequacy of their retirement income, potentially facing the prospect of working longer than initially preferred.

The employment benefits landscape also reflects diverse age groups’ interests, preferences and needs. For 18- to 24-year-olds, priorities include covering monthly expenses (11%), managing mental and emotional health (10%), and achieving personal fulfilment and purpose (8%). By contrast, individuals aged 55–64 and 65-plus place a larger emphasis on the ability to retire (11%), workload/life balance (11%), and physical health and fitness (11%).

As with many of the financial issues, concern over fair pay is more pronounced among lower-paid individuals, emphasising the importance of equitable pay structures.

More than 60% of 18- to 34-year-olds in our study research pay ranges for their own — and other — roles, and more than half share their compensation details with colleagues. This reduces significantly for over-45s; less than 40% will share compensation information. This age bracket is also less likely to research pay ranges (only 30% of 55- to 64-year-olds will look at pay ranges externally and 46% via internal postings).

Ensuring fair pay is essential, particularly as competition for talent intensifies and environmental, social and governance (ESG) efforts come further under the spotlight. Paying fair wages is critical for the social component of ESG. However, many companies struggle with defining fairness in compensation, leading to potential feelings of unfair treatment among employees. To address this, you need clear definitions of fairness, incorporating foundational elements such as grading structures and principles for pay disparities.

It is important to recognise the uniqueness of individuals and their contributions. Although equal pay is a goal, the focus should be on identifying valid reasons for pay differences among those in similar roles. Establishing effective governance is crucial in achieving fair pay outcomes by offering managers clarity, data, and guidance to make consistent and informed decisions regarding pay recommendations.

Communication and transparency also play vital roles in addressing fair pay concerns. Clear communication about pay decisions helps manage employee expectations and fosters a sense of fairness and equity within the organisation.

Ask yourself questions such as:

• Are we acknowledging and rewarding individuals based on their skills?

• Are we ensuring competitive compensation?

• Is everyone paid above a decent minimum standard (a living wage)?

These considerations, including being mindful of talent scarcity and criticality in certain areas and roles, should always be part of your approach, regardless of whether the times are good or challenging.

Also consider taking the following practical actions:

• Conduct an in-depth and comprehensive review of your company’s current pay and compensation structures.

• Instigate regular, open conversations about remuneration expectations and satisfaction levels within your workforce.

• Understand the role of pay in broader total rewards. Examples of this might include professional development opportunities, flexible working hours or wellness programmes.

Get in touch to learn more about how Mercer can support your organisation

While pay remains a crucial aspect of the employment offer, there has been a notable shift in priorities, with a significant 8% decrease in its perceived importance. Instead, there is growing emphasis on factors that contribute to a balanced life outside work and a more flexible lifestyle.

The study reveals a 9% increase in the importance placed on a company providing a good work-life balance. Remote working has seen an 8% increase in significance, aligning with the desire for greater flexibility. And retirement benefits have experienced a 6% boost in importance, indicating a growing consideration for long-term financial wellbeing.

Although our study emphasises the importance of pay, the results suggest that these non-monetary aspects play a key role in retaining talent.

The data highlight the necessity of building a framework that allows your employees to tailor your employment proposition to their preferences and needs. This involves incorporating personalisation and flexibility, cultivating a work environment that resonates with individual preferences. Concurrently, a focus on wellbeing, as well as diversity and inclusion, is paramount.

Developing benefits and practices that genuinely cater to the diverse needs of your workforce reflects your dedication to these values. Additionally, the consideration of ESG factors, particularly sustainability, introduces an additional layer of influence into your employment proposition. By integrating these aspects, you can craft a comprehensive and attractive work environment for your current and future talent.

• Be clear on your overarching principles

  Effective reward programmes are typically anchored by clear and well-defined principles that provide clarity on why people are rewarded as they are. These principles typically focus on “what fair looks like”.

• Provide support for employees

  Consider implementing targeted financial support programmes or benefits to alleviate immediate financial stress for employees. For example, address concerns about personal debt by promoting financial literacy programmes. Empower employees with the knowledge and tools to manage their finances effectively, contributing to their overall financial wellbeing.

• Diversify benefits to align with employee priorities

  Tailor your benefits packages to the unique needs of different groups. Engage in open conversations to understand and address concerns among employees, particularly regarding job security. You might also enhance compensation packages strategically by incorporating non-monetary benefits, such as professional development opportunities, flexible working hours, or wellness programmes to add value and meet evolving employee expectations.

• Build manager capability

  Managers play a key role as advocates of the reward programmes. They translate the principles and implement the programmes to make the reward experience feel real to employees. Yet many companies say manager capabilities are highly variable. Therefore, more time and effort is needed to ensure consistent and appropriate reward decisions across the board.

• Define and ensure fair pay

  Conduct a comprehensive review of your pay and compensation structures. Establish clear definitions of fairness, incorporating grading structures and principles for pay disparities. Promote communication and transparency to address fair-pay concerns.

• Look at your entire employment proposition

  Develop a comprehensive and attractive employment proposition by incorporating personalisation, flexibility, and a focus on wellbeing as well as diversity and inclusion. Consider how your organisation’s compensation strategy can contribute positively to societal and environmental concerns, reflecting a commitment to responsible business practices.

• Regularly review priorities

  Gather feedback from employees, conduct surveys, and stay attuned to changing priorities to ensure compensation packages remain relevant and attractive.

• Know the market

  Although understanding how your programmes compete for talent is important, great organisations go further by actively scanning the market to identify opportunities to distinguish themselves from competitors through the employee experience.

Get in touch to learn more about how Mercer can help you support your employees' financial wellbeing

Footnotes

1. Mercer. Inside Employees’ Minds, 2024, available at Mercer. Inside Employees’ Minds, 2024, available at https://www.mercer.com/en-us/insights/talent-and-transformation/attracting-and-retaining-talent/2023-2024-inside-employees-minds-survey-report/.

David Wreford

- Sustainability Consulting Lead, Mercer