Ahead of the Chancellor’s first budget in October, speculation is rife about the government’s support for society’s most vulnerable. At the peak of the cost-of-living crisis in 2022/2023, Reward Directors faced the unprecedented challenge of creating sustainable support schemes for employees while navigating the post-Covid economic landscape.

A poll conducted in October 2022 on behalf of the Financial Times by the Chartered Management Institute, estimated that at least a fifth of UK companies were offering some level of additional financial support to their staff during this time.

As we enter the final quarter of 2024, the cost-of-living crisis remains a critical issue impacting millions across the country. The continuation of various economic pressures has created a landscape of financial uncertainty, straining household budgets and influencing lifestyle choices. It has significantly reshaped both the workplace and workforce, extending beyond personal finances to impact professional life. With inflation continuing to affect wages and job security remaining uncertain, the need for adaptive strategies and supportive measures is crucial.

Here, we have gathered insights and reflections from the experience of leading Reward Directors on how they have approached this situation in recent years and discuss future implications amid economic uncertainty. The companies represented included several FTSE 100 businesses as well as a number of major privately held companies from a wide range of sectors including consumer, retail, financial services, manufacturing and telecoms.

Diverse strategies and their impact

From our conversations it was clear that there was no “one size fits all” approach to supporting staff through the cost-of-living crisis. Every organisation we spoke to had attempted to provide some form of relief to their colleagues, but the method varied between companies. Typically, it took the form of either one-off payments or increased wages, although a number of businesses also used the opportunity to review their wider benefits and wellbeing offering as well.

Our conversations focused specifically on the UK market; however, several of the Reward Directors we spoke to highlighted the challenging global nature of the crisis with hyperinflation in markets such as Turkey and Argentina, and natural disasters including flooding in Brazil. Responses had to be market-specific and with resources stretched, the level of support offered had to vary according to need.

Balancing immediate relief with long-term sustainability

One-off payments can offer immediate financial relief to employees, addressing urgent needs arising from economic pressures such as inflation. However, organisations must weigh the benefits of these payments against their long-term sustainability. One-off payments or temporary increases may provide short-term support but might not address underlying financial issues or long-term economic instability.

Setting fair and transparent eligibility criteria

While one-off payments offer immediate financial relief, they are not a comprehensive solution for long-term stability within an organisation. Balancing short-term aid with long-term strategy requires careful consideration of eligibility criteria to ensure that support is both effective and fair. Establishing clear and equitable criteria for these payments helps in aligning short-term relief efforts with long-term organisational goals.

Different approaches include setting salary thresholds, using job levels, or providing broad-based increases. Each method has its pros and cons:

• Salary thresholds: Can create clear boundaries but may lead to dissatisfaction among those who fall just outside the eligibility range.
• Job levels: Allows for targeted support but may not fully address the needs of all employees.
• Broad-based increases: Can be more inclusive but may be financially challenging for the organisation.

Communicating compensation changes

Whatever outcome is decided on, it is critical that the Reward Director can explain and defend the logic behind their approach. Transparency in how decisions are made and communicated helps mitigate negative reactions and ensures employees understand the rationale behind the measures.

Compensation is an emotive topic at the best of times, but during this period, emotions have been particularly heightened. Reward Directors need to be thoughtful about the likely response to the measures they introduce and to  craft their narrative accordingly, focusing on clear, direct communication.

Inevitably, Reward Directors across the board received a level of “pushback” to their solutions. As one Reward Director put it, “It is one of those topics where everyone thinks they can do better. Reward needs real credibility to rise above the noise. There’s no substitute for knowing your data and being prepared to bust the corporate myths that will naturally arise.”

Addressing employee expectations and setting precedents

Introducing cost-of-living payments can set expectations for future financial support. Organisations need to be mindful of how these actions might influence employee expectations and whether they will lead to demands for similar measures in the future amid ongoing financial uncertainty. A number of the Reward Directors we spoke to admitted that this was a concern. As one put it “Will employees now look to their employers for support when they would not have before?”

A comprehensive approach that combines immediate financial relief with broader support measures, such as enhanced benefits, and improved workplace facilities, can be effective. Addressing employee needs from multiple angles helps create a more supportive and resilient work environment.

Using data to inform decisions and understanding employee feedback is essential for developing effective cost of living strategies. Data helps in setting fair thresholds and understanding the impact of payments, while feedback provides insights into employee needs and reactions.

Navigating political and social sensitivities

Several Reward Directors acknowledged that cost-of-living payments arose as a response to perceived inadequacies in government support. However, they warned that organisations must be mindful of the political and social implications of positioning themselves as replacements for broader societal support. One questioned, “Is it a company’s responsibility to manage inflation?” and another cautioned, “We are talking about a particular moment in time. To make cost of living payments a regular feature of compensation would be overtly political and I don’t think anyone wants that.”

In light of these concerns, it is crucial for organisations to carefully navigate the balance between addressing immediate employee needs and avoiding unintended consequences that could arise.

In conclusion, the varied approaches to the cost-of-living crisis highlight the complexities involved in responding to economic pressures. While financial assistance can provide immediate relief, organisations must carefully consider the long-term implications of their compensation strategies. A balanced approach, which includes both direct financial support and enhanced employee benefits, is crucial for addressing the many challenges of economic hardship. Effective communication and a data-driven understanding of employee needs are essential for maintaining trust and morale in the face of ongoing economic uncertainty.

Ultimately, for many companies the question comes back to culture and values. Times of crisis are when a company’s values are most tested and the response of a business during these periods will be remembered when the crisis had passed. Every Reward Director we spoke to agreed it was the “right thing” to do something to support their colleagues. As one put it, “Whilst it was commercially challenging, from a moral perspective we had to do something and that was the most important consideration.”

To navigate a complex external landscape, the expertise of seasoned Reward Directors becomes invaluable. At Eton Bridge Partners, this is a key specialism, and we are well-placed to help you find the right talent to enhance your Reward strategy and ensure your organisation is best positioned to meet the changing economic climate.

Get in touch with Eleanor Sutton, Partner within Executive Search, specialising in Reward, to help you find the right talent for your HR team.

Find out more about our Reward Leadership specialism here.