Employers are realizing in 2024 that, when it comes to total rewards, more isn’t always better.
Fewer organizations enhanced their total rewards this year in comparison to 2022 and 2023, instead taking the opportunity to simplify or optimize the compensation and benefits they already offer, according to Gallagher’s 2024 Organizational Well-Being Report.
Base salary increases were, by far, the most commonly enhanced total rewards (TR) category, with 74% of surveyed employers raising salaries in 2024, compared to less than a third of employers enhancing other compensation or benefit categories — but 4% fewer employers increased base salaries this year. TR categories that saw a larger drop in enhancements include variable compensation or bonus programs, down 8%; medical, well-being, leave and retirement benefits, all down 7%; and voluntary or supplemental benefits, down 6%.
This year’s slowdown in hiring and growth, paired with increased expenses, puts HR leaders in the position of needing to show their work regarding the value of their rewards programs.
In fact, all TR categories Gallagher tracks (the ones listed above plus dental, pharmacy and life insurance benefits) saw lower employer enhancement this year compared to last. This represents a considerable pendulum swing from 2023, when employers increased their investment in almost all TR categories.
Taking a breath and assessing the state of a TR package is a normal and important cyclical process, said Steve Coco, the global managing director for human resources and compensation consulting at Gallagher.
“We know that enhancing total rewards can be a costly endeavor, so as organizations look to find cost efficiencies among their offerings, this may be a place where they pause and reflect every couple of years,” Coco said.
The Case for Pausing Reward Enhancements
After a period of adding “often innovative and timely” reward enhancements over the past several years, this year’s slowdown in hiring and growth, paired with increased expenses, puts HR leaders in the position of needing to show their work regarding the value of their rewards programs, said L. Marta Turba, vice president of content strategy at WorldatWork.
“[TR portfolios] go through cycles of introduction, growth and maturity,” Turba said. “Since 2020, we’ve seen rapid innovation to meet evolving employee needs. As these solutions mature, the focus shifts to assessing and refining them — measuring their effectiveness, evaluating their impact and finding areas for improvement.”
Removing rewards that no longer add value — after analyzing the potential impact of doing so — and instead reallocating resources to benefits that do pay dividends can have a significant impact on an organization’s bottom line, she said.
How to Assess, Simplify and Optimize TR
Simplifying and optimizing rewards does not countermand the current push for personalized benefits, Turba said.
“Personalization doesn’t mean having a different program for each individual, but rather tailoring packages, information and engagement strategies to meet the needs of various workforce segments,” she said.
To analyze and optimize their rewards, Turba said employers should:
- Regularly assess the strengths, gaps and market position of their rewards through external benchmarking to determine when to pause a new reward program, and when doing so may give the organization a competitive disadvantage.
- Look for inefficiencies, such as limited integration of reward programs and vendors, and offer a centralized rewards hub that is easy to access and use.
- Remove outdated or redundant components of the total rewards package, such as legacy reward plans or tailored solutions that no longer fit employee needs.
Seek Out the Employee Voice
In addition to the above, Coco suggested that employers solicit employee input as a tool to measure the staying power of certain benefits. He said such input may come through engagement or pulse surveys, focus or steering groups, and feedback gathered through intranets or portals.
“The voices of your people, especially your existing high performers and high potentials, are the most important factor to consider when optimizing and simplifying benefits,” Coco said. “Our clients are often surprised to learn what components of the total rewards package are really the most — and least — important to employees when they ask them; so, do ask.”
Using workforce data to help inform benefit decisions is also vital, he said, particularly if an organization’s TR portfolio is complex and may include benefit offerings that employees don’t fully understand.
Optimization through Benefit Communication
A period of simplifying and optimizing rewards also offers an opportunity to boost employee communication around benefits. Rewards can’t be fully optimized — and the investment in them maximized — if employees don’t know about them, understand them or fully grasp how to use them, Coco said.
Including the employee voice in the conversation when it comes to optimizing rewards means TR packages will likely appeal to potential employees, too, he noted.
“As employee wants and needs continue to change, and the organization’s recruitment strategy is forced to pivot, we must be sure that the total rewards packages offered are attractive to top-quality talent,” Coco said. “Employers taking this route find that selectively paring back on the quantity makes room for more engaging choices that are a higher priority among their workforce.”
Editor’s Note: Additional Content
For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:
- Employee Benefits
- Employee Compensation
- Total Rewards
- Finance and Budgeting
