Total Rewards Quarterly

The Reward Rankings: The Usual, the Unusual and the Underrated

In an age where social media, data analytics and personal branding reign supreme, the popularity of customization comes as no surprise. We are living in a world, where from customizing the toppings on your pizza to designing perfectly distressed jeans to customizing your summer vacations, the possibilities are proving endless. Whether using Amazon, Netflix or a host of other online services, consumers today are used to receiving suggestions and offers based on their unique shopping and viewing patterns. Internet users receive pop-up ads that eerily resemble what they were thinking about just minutes before. People with particular tastes in music can define their own unique radio stations using tools such as Spotify and Pandora. Clothes can be ordered to specific preferences in color, fabric, and, of course, precise size.

The world, especially for consumers, is becoming more and more individualized, and our experiences as consumers, particularly on the web, are shaping expectations of what we should encounter at work as employees. Indeed, the trend towards mass consumerization or personalization is now taking centerstage in the workplace. Employees today demand a choice in how they design their compensation and benefits packages and the right to be treated on a “oneto-one” basis, regardless of the size of the organization.

For the success of an organization or its HR policies, it is imperative to understand the individual preferences of the employees and thus provide them with a more relevant, engaging and customized experience.In an attempt to uncover trends around what employees really want from their rewards program, Aon Hewitt conducted the Employee Preference and Rewards Study 2.0. The data for this study was collected from over 7,000 employees representing 15 organizations across 8 industry segments.

The Rankings First!

Figure 1 shows the overall preference rankings by 7,000 employees, 1 being the most preferred and 7 being the least preferred. Topping the charts clearly was cash based compensation – both fixed pay and incentives. Interestingly, flexible working arrangements topped the list after cash, followed by a preference for higher contribution to retirement benefits. The bottom of the list has items such as childcare since it is applicable to only certain parts of the population.

As we went into details of this study, there were a few outcomes or hypothesis we were hoping to put to test and let’s just say we weren’t disappointed. What was interesting to note, however, is that we uncovered a few counterintuitive or rather bizarre themes by analyzing the data received from this survey.

So what is intuitive?

  1. Cash is (still) king
  2. Employees prefer learning & development opportunities over retirement, health & other wellness benefits

What is counterintuitive?

  1. Flexibility isn’t only for the women employees
  2. Gender Bender: Preference for childcare benefits changes with life-stage (not gender!)
  3. The reasons an employee joins an organization are not the same that he/she stays with the firm for

And finally, what is bizarre?

  1. Millennials are more concerned about their retirement savings than the baby boomers
  2. Market alignment does not guarantee employee satisfaction which is not the same as employee preferences

Cash is King and Employees Want More of it!

While organizations focus on creating empowering work cultures and differentiated benefits & practices that address employees’ specific needs, there is one truth that cannot be denied. Cash aka fixed and variable pay/incentives are still top preference for employees.

Cash ranked as the most preferred element of Total Rewards (amongst others like benefits, learning opportunities, career opportunities, etc.) for all employee demographics – be it age, gender, location, marital status, life-stage, socio-economic status, etc. It’s like there is no such thing as too much chocolate in a triple chocolate fudge brownie, employees too are never really satisfied with their pay, no matter what the quantum. In fact, 65% employees prefer to be recognized for their top performance through higher increments/ bonuses and other monetary recognition levers.

However, one must also understand that cash is spent quickly and forgotten just as rapidly. It also does not help build strong relationships with employees which other tangible, experiential and alternative rewards can. And hence, for cash to really be a differentiator for employees, it has to be significantly higher. The question however is – is this strategy of over-emphasis on cash rewards affordable and sustainable, especially in trying economic times. So is cash really king?

The Workforce Wants to Know (More)!

When asked to rank in order of preference, the 7,000+ surveyed employees ranked professional development and better learning opportunities at Rank No. 5 or No. 6 across various demographics. In fact employees indicated that they would prefer development/learning opportunities over additional paid time-off, insurance & retirement benefits and even health & wellness programs provided by organizations.

However, the survey also showed that employees valued some learning & development activities more than the others. Mentoring was identified by employees as least preferred, while company sponsored technical or behavioral training programs were most preferred.

Challenging work content was ranked amongst the top two priorities across all demographics. A stark difference between married and single employee population can be seen in terms of priority 1. While married population rank clear line of sight on career progression as first priority, single employees ranked this at 5 and gave top three priorities to challenging work content (1), overseas assignments (2) and functional trainings (3). Married population on the other hand, ranked overseas assignments as rank 5, indicating preference of stability.

Overall, the survey showed that 74% of the employees are satisfied with the development opportunities provided by their organization and feel that they are adequate, thereby allowing employees to build valuable skills and advance to take on higher professional responsibilities.

Flexible is Incredible – But for Everyone!

One of the most reassuring findings of this research was the overwhelming demand for flexibility, not just flexibility of work arrangements but also flexibility to choose from a menu of benefits options as per individual employee needs. Let’s understand the trends around both.

More often than not, when we think about flexible work, we think of a woman who is balancing parenting responsibilities with her paid work. The world however, has changed. Flexibility should be seen not just as a “women’s issue,” but a broader need that even men and non-parents should be equally entitled to. Our survey findings helped validate the same hypothesis. Flexible Work Arrangements (FWA) which may include flexi-hours, break-shifts, compressed work week, job share and part-time, was ranked as ‘the most preferred benefit’ for employees (3 on a scale of 1 to 12 amongst different Total Rewards elements with fixed compensation and performance bonus being rank 1 and 2 respectively). As we sliced the data further, we found FWA was consistently ranked the highest across most demographics including millennials, generation X, men and unmarried employees. In fact, workplace flexibility can be leveraged as a great recruitment tool, since it is ranked by employees as No. 2 (amongst 9 other rewards elements on a scale of 1 to 10) amongst other factors influencing their decision to join an organization. The other fundamental shift is towards increased consumerization of rewards, wherein a staggeringly high percentage of employees (96%) prefer to have a flexible rewards package with a menu option to allow for trading up and down of plan options as per individual needs. In fact, 83% of the employees are even willing to make voluntary contributions to get access to additional benefits at company negotiated rates. Catering to such customized needs of employees has its own advantages for employers – a differentiated EVP, higher utilization and therefore better appreciation of benefits and in the long-term effective cost management.

Childcare – Dependent on Life-Stage & Gender, Not Gender Alone!

It is usually assumed that the mother/woman is the primary caregiver since she gives birth to the child, while the father is the provider for the family and as an employee, bereft of any active responsibility in childcare. Hence, all childcare benefits (including the recent amendments made to the Maternity Bill) are all centered on women employees.

To this end, we analyzed our data to uncover some interesting trends. Optically, Figure 4 will suggest that female employees attach a far higher preference ranking (No. 2) to childcare support benefits (including day care, crèche facilities, child counselling, child healthcare & child engagement programs) as opposed to male employees who rank the same at No. 7 on a scale of 1 to 8, with 1 being the most preferred health & wellness benefit. However, on further slicing the data by life-stage of an employee, we found that of the 23% women who ranked childcare as priority 1, 91% were married with children.

Further analysis revealed that 40% of the married males and 66% of the married females ranked childcare support programs as amongst the top 3 preferred health & wellness benefits provided by organizations.

Such high percentages across both genders revealed that while childcare is more preferred by women, the preference cannot be pinned to gender alone, instead must be studied along with life-stages.

The survey clearly spells out the implications for organizations. Childcare support along with flexible work arrangements can no longer be treated as a discretionary benefit offered to women employees only. Organizations that deploy this as a deliberate strategy will be able to gain a competitive advantage over others by ensuring lower attrition, higher levels of productivity, access to a diverse talent pool and over a longer period of time – organization sustainability and business continuity.

Why They Join vs. Why They Stay

As HR professionals, we need to appreciate that attraction is not equal to engagement is not equal to retention. There are distinct drivers for each and while one element of rewards might be an important attraction driver, it potentially could lose its sheen when we look at engagement and retention. A quick analysis of the preference of rewards elements considered by employees while joining an organization vs. when they are current employees revealed some interesting insights.

While fixed pay retained its rank as the most preferred element of rewards for attraction and employee retention, variable pay fell a few ranks (from Rank No. 2 in retention to Rank No. 4 in attraction) for an employee when considering joining the organization. Employee at this point intends to maximize his take-home pay and variable pay which is contingent on performance serves a counter objective. Another critical difference is in the perception of retirement benefits, which are ranked almost last in priority by employees when joining an organization. However, once the employee has joined the organization, this benefit quickly climbs up the preference ladder ranking right after compensation and FWA. On the other hand, FWA continues to be a top priority for employees across both situations.

Career advancement opportunities also see a high preference when it comes to joining an organization, whereas drops on the priority list once an employee has joined the firm. Learning opportunities on the other hand remain at the same preference ranking across both – indicating employees are constantly looking to learn more and upskill themselves.

Retirement is a Serious Concern, Not Just for the Baby Boomers!

Would millennials trade pay for more secure retirement benefits in the foreseeable future? The answer is probably ‘No’ and especially given their reputation of fiscal irresponsibility. But, our study results were completely path-breaking in this regard. On an average, 35% of the employees in the age group of 18-30 are seriously concerned about their retirement savings as they believe they are not saving enough towards it. This is in contrast with 25% of the baby boomers being concerned about their retirement corpus.

Not only that, almost 50% of the employees in the age group of 18-30 believe that >90% of their last drawn salary would be sufficient for a comfortable life post retirement. However, the excruciating truth is that the potential post retirement pay replacement ratio (assuming PF and gratuity contributions) for employees in the same age group is only 53% of their last drawn salary.

65% of the employees are even dissatisfied with the current retirement benefits provided by their organizations, which could be on account of low prevalence of alternate retirement saving options such as NPS, etc. or even low understanding of all saving instruments. And all of the above isn’t just lip service. Employees have also indicated a strong preference for higher contribution to retirement benefits, by ranking it as No. 4 (on a scale of 1 to 12 amongst a variety of rewards programs ranging from cash to benefits to learning opportunities), right after fixed pay, incentives and flexible work arrangements across most demographic groups.

This kind of a situation poses a moral obligation for employers to care for the long-term welfare of their employees. They can do so by educating employees on the importance of post-retirement income, arrange for financial planning & counselling sessions, make communication more relevant & lively on such topics especially for the millennials, identify additional instruments to boost the retirement savings amongst others.

Disappointing Correlation Between Employee Perception & Preference vs. Satisfaction

4 rewards elements – retirement, leave, health & wellness and training programs have more than two-thirds of the employees indicating that the current programs provided by their organizations are either at par or ahead of the market. Despite that, these same elements have on average 40% of the employees indicating dissatisfaction with the current state of programs. In the earlier days, it would have been bizarre that market alignment doesn’t guarantee employee satisfaction. However, in the current day context, it is evident that employee satisfaction is contingent on how relevant or personalized the program is to specific employee needs and not how many of the market ‘me-too’ features it has.

One poignant point that we extensively debated while studying these findings was how some of the more popular benefits which are medium-high on employee preferences (such as insurance, leave, health & wellness and flexible work arrangements) are actually the ones with the least levels of employee satisfaction (< 20% of the employees satisfied). One would assume that employers would have deployed all their muscle to first understand what these high preference elements are and then design, implement & communicate these right, knowing the critical role they will play in engaging employees. However, this observation has left us truly befuddled.

Bringing it All Together

Our survey results clearly lay out the need for organizations to recognize that employees are different and so are their preferences. While what we have looked at in this study is segmentation by pre-determined demographics such as age, life-stage, gender, etc., there are many organizations that have gone steps ahead and are getting insights into individuals based on their psychographic profile, attitudes and value drivers and instead ‘reverse-engineering’ hidden or latent demographic groups who express similar needs, wants & preferences. For an example, people traditionally think women want more workplace flexibility, but latent demographic studies show it's actually people with childcare responsibilities, and it doesn't matter if you're male or female. This could help employers improve engagement and workplace satisfaction among male workers.

In catering to employees, leading organizationsare beginning to leverage increasingly sophisticated data algorithms to gain far more accurate insights into individual preferences, motivation and engagement. These insights are helping them optimize their offerings and design segmented programs which are helping employers communicate effectively with employees in order to drive the right behaviors. Such studies through sophisticated tools such as Total Rewards Optimization(TRO) are helping employers even find out the value of rewards spends wasted on low-value or no-value items and what the opportunities for change might be. In conclusion, we as employers must:


Poonam Chopra
Senior Consultant,
Aon Hewitt Consulting

Manasi Jain
Consultant,
Aon Hewitt Consulting

Preeti Jain
Consultant,
Aon Hewitt Consulting

For more information, please write to us at total.rewards@aonhewitt.com
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