A conversation with a friend recently revealed that they were very happy in their new role. They told me their mental health was much better in the new job, they had purpose that they hadn’t been able to find at work for years, and were balancing their home and work lives better than ever. But there was one sticking point – the recent pay rise they had received wasn’t big enough (it was actually 50% higher than the National average this year). It felt like there were two conversations going on here, when there could have been only one. I know this friend well and I know that if the pay went up, but the rest dropped, they’d be even more unhappy. So how do we make sure that the compensation conversations we have at work aren’t just about money? How do we get our people to re-focus on the entire experience of work, rather than just one single element of it?

Our reward at work is so much more than just pay
I’ll caveat this whole article with the fact that I believe in fair wages, I believe in a living wage, and I understand that we all have to work to be able to pay for the lives we want. But where pay is high enough to cover a reasonable standard of living, our compensation conversations with our employees must expand further than just pay if we are to keep them motivated. The proportion of low-paid jobs in the UK has thankfully been falling in recent years and in 2022 decreased to 24.5%, the lowest on record. But the point of this article is that pay is not the only motivator when it comes to making work attractive for employees.

As many as 90% of us say we’d forego some pay do work that was more meaningful. More than half of us would quit our jobs if we weren’t given the flexibility we need. Even in Gallup’s extensive research, pay actually ranks almost as equal as work life balance, wellbeing, benefits and job security as the things we rank as most important at work.

The challenges of linking wages to inflation
Wages are rising, but inflation is rising faster. Wages were not the cause of the challenging economic environment we find ourselves in, but they appear to be the focus of the cure, and as an employee advocate and an employer, this is complicated. The Bank of England is responsible for controlling inflation, not employers. While inflation and salary increases generally move in the same direction, they aren’t the same things and are driven by different factors. Wages are driven by a number of different factors, including supply and demand. There are many examples in our recent past where inflation was higher than wage growth and other instances where wage growth was higher than inflation.

Most employees (unsurprisingly) agree that it is a company’s responsibility to regularly increase wages to keep up with the rapidly rising cost of living. As employees feel the squeeze of rising costs, turning to pay to reach some kind of parity makes sense. However, what if deflation happens (a reduction of the general level of prices in an economy) as some experts are predicting by 2025 – should wages go down? This was a question posed to be by a HR director at a recent cost of living roundtable I ran and it’s been bugging me ever since.

If deflation does happen in the next few years, we will see the opposite of what we’ve seen in 2022 to 2023; prices will drop, company profits will get smaller, and the employment market will get tighter. In many instances, job growth already appears to be stalling and, in the US, job growth was down -44% from February this year. For the first time since May 2021, job openings in the US are below 10 million. What will this mean to the luxury of choice and influence that employees have seen for the last few years?

A buoyant job market has enabled employees to feel more confident in switching jobs and quitting without any other options. ‘The Great Resignation’ made a lot of headlines but appears to be short lived. In the UK, unemployment ticked up to 3.8% in the first few months of 2023 and vacancies fell by 47,000. But even if deflation doesn’t happen, the Bank of England is predicting that the UK will see unemployment rise In 2023-2024. If this happens, the luxury of choice employees have had recently will fall.

We can’t continue to keep having pay conversations when the data tells us so many other things impact our experience of work.
Herzberg’s two-factor theory comprises of two factors that are needed for job satisfaction – motivation and hygiene. Motivation factors like sense of achievement and belonging aim to inspire and engage employees. Hygiene factors, like pay, are necessary for employees to remain satisfied at work. Hygiene factors are basic job necessities, if not met they will cause dissatisfaction. However, they don’t motivate, or if they do, that motivation tends to expire after a short while.

Recognition as an example is a motivator, not a hygiene factor. If we have high hygiene and low motivation, we are coasting along. So ‘the deal’ an employee gets at work has to compromise more of motivating factors than hygiene ones (such as pay).

In some experiments, allowing an employee to choose their own salary doesn’t mean they wouldn’t enjoy their job anymore. For any of us that have chased the money, the lure of a higher wage can be very quickly overshadowed by a lack of flexibility, enjoyment, and purpose. Money is obviously important, but high employee engagement isn’t achieved by just giving people more money.

Money doesn’t buy engagement
One of the most comprehensive studies in this area  combined 120 years of research to amalgamate the findings from 92 different quantitative studies, with a dataset of more than 15,000 employees. The results of this meta-analysis indicated that the association between salary and job satisfaction is actually quite weak. Furthermore, any gains in pay tend to be quite short lived. Something psychologists call Adaption-Level Phenomenon states that people have a tendency to quickly adapt to a new situation until it becomes normal. Once this ‘normality’ is in place, we look for the next exciting thing (something I’m sure we can all relate to). For most employees, the motivational effect of a basic salary increase lasts for less than two months. For payincreases to be enough to be motivating, it needs to be hitting almost 10%, which many raises don’t; most pay rises of a couple of percent are likely to have minimal motivational impact.

Globally, benefits are proving to be motivators
Studies have found that “Employee benefits are powerful tool in the hands of companies. Benefits are a great opportunity to lure, engage and  keep employees.” Some studies have also found that employee benefit programmes have a greater influence on the motivation and job performance of younger employees, and there are several studies showing the impact of benefits globally. In the US, employee benefits are positively associated with employee attitudes. In Slovakia, employee benefits are now one of the major factors that impact work motivation. In Czechia, researchers have determined the significance of employee benefits to employee motivation and retention. In India, employee benefits are having a ‘momentous’ effect on employee engagement.

The value in employee benefits
Employees are looking to their organisations for support across more areas of their lives than ever before – from wellbeing to health, financial education and beyond. And when so public services around the world are over-stretched, access to health benefits like a digital GP, or health insurance or wellbeing support can be highly valued by employees. From providing employees with extra security and support in their lives, to enabling them to make the most of their leisure time, or saving them money on their everyday purchases – there are lots of ways benefits can enhance their standard of living.

And as employees seek out organisations that they feel will be aligned well with their own values, DEI and sustainability are moving up on the agenda for reward and benefits leaders. In fact, research* found that a third of employees think their employer’s benefits provision could be improved if it was better aligned to their values and  – to meet this need, organisations are introducing more inclusive and sustainable benefits like electric vehicles, tree planting, eldercare and live-stage healthcare such as menopause support. Benefits are therefore a way for organisations to support their culture, mission and values.

“A more systemic approach to pay and benefits is the best way to make your company ‘irresistible’ to current and prospective employees”

– HR Thought Leader Josh Bersin

A more holistic approach
In 2022, my own personal employee benefit scheme led me to make more than £2,280 worth of savings – that’s equivalent to seeing an additional £190 per month in my bank. None of these things were products or services I wasn’t already buying.

Although the effect of any single benefit on an employee’s attitudes and behaviours at work is likely to be small, the cumulative effect of an entire benefits program can be – and is – shown to be a motivational factor that can have a substantial impact on organizational outcomes. Job satisfaction correlates with employee benefits for longer than pay does and there is high positive correlation between benefits and employee retention as well as employee satisfaction.

Before the cost of living crisis began, nearly four in five employees said they would prefer new benefits to a pay increase. When the pressure of the crisis eases next year, I have no doubt that we will see a return to this preference. It is clear that in order to attract, retain and motivate the best employees, we must take this more systematic approach to total renumeration. So “the deal” and employee gets isn’t just about pay, but covers benefits, employee wellbeing, flexibility, career development, sense of belonging, recognition, and purpose at work.

*Research from Benefex – Great Expectations