Rewards Issues Dominate Top 5 Employer Concerns

The ability of reward programs to attract, motivate and retain talented employees has supplanted health care costs on the list of corporate priorities, according to a recent Deloitte/ISCEBS survey

A shortage of skilled and talented workers has become the most pressing concern among employers, supplanting the perennial leading problem of rising health care costs, according to the 14th annual “Top Five Total Rewards Priorities” survey conducted by Deloitte Consulting and the International Society of Certified Employee Benefit Specialists (ISCEBS).

Nearly three-quarters of the 413 human resources professionals surveyed cited talent as their top concern. Meanwhile, 71% identified cost containment of health care as a top five concern this year, dropping from 80% last year. Other leading issues are the willingness of employees to pay for an increasing portion of benefit plan coverage and to manage their own reward budget (58%), clear alignment of total rewards strategy with business strategy and brand (56%), and demonstrating appropriate return on investment for reward expenditures (42%).

“Clearly, talent management is the top organizational challenge – higher than managing the cost of total rewards, especially health care,” says Tim Phoenix, a Principal in Deloitte’s Human Capital service area and Co-Director of the survey. “We find that HR organizations around the world are becoming increasingly business-driven and strategic, shifting their focus from HR administration and cost reduction to long-term ROI and growth in a way that directly impacts the bottom line.”

Economic Insecurity

Responding to questions from an employee perspective, survey respondents pointed to economic security in retirement and financial growth opportunities before retirement as primary areas of concern.

Forty-two percent of respondents cited the “ability to afford retirement, including post-retirement health care,” as the most important area of concern to them, while “ability to earn additional rewards that allow oneself to stay on top of inflation and advance in real economic terms” was cited by 26%.

A pattern of growing personal concern over these “big ticket” economic items is replacing angst about “my cost of health care benefits,” which has slid from the biggest worry of 20% of survey respondents in 2005, to only 8% in 2008. Even though respondents’ personal concerns were clearly about retirement, when asked to name their top total rewards challenges for their organization, only 2% mentioned “the cost of providing retirement benefits to employees,” and a mere 1% picked “the ability of our employees to retire.”

“This disconnect between what employees need or want and what employers are doing in the area of total rewards can be detrimental to the financial performance of an organization, especially as talent challenges become increasingly acute,” cautions Philip A. Grisafi, CEBS, the current President of ISCEBS. “Employers are still struggling to find that magic formula for controlling costs while retaining and motivating their employees.”

In hopes of striking that balance, survey respondents say companies are abandoning the traditional vertical “corporate ladder” approach and are addressing their long-term workforce needs through a more flexible “lattice” employment model. This new framework can enable workers to customize their careers and move smoothly across a widening range of job options and structures.

Communication, Consumerism, Customization

Consumerism and customization in total rewards strategies is being driven by cost concerns and a convergence of powerful workforce trends. Change is in the works. Overall, 84% of survey respondents (versus 70% a year ago) expect to make changes in the specific elements of their total rewards program or strategy; new differentiation of total rewards by business unit or workforce segment; or new alignment with the employment brand.

Nearly three-fourths (71%) of survey respondents plan to “increase employee communication and education surrounding our reward programs,” and a majority (56%) plan to “redesign some of our reward programs to better align the interest of employees and the organization and promote employee engagement.”

“While cost reduction is an important employer motivation for emphasizing consumerism, the customization of rewards strategies is also being driven by the convergence of powerful workforce trends, such as the shrinking pool of skilled labor, the increasing impact of technology and the evolving expectations of Generations X and Y,” explains Dick Kleinert, a Principal in Deloitte’s Human Capital service area and Co-Director of the survey.

Generation Gap?

When asked whether they have made – or are planning to make – changes to their total rewards programs with generational preferences in mind, nearly one-third of respondents (32%) answered in the affirmative.

Phoenix and Kleinert believe that response will likely rise sharply in future surveys, as employers begin to link their current worries about future talent acquisition with a greater appreciation for the profoundly different attitudes about work and career expectations of Generation Y or Millennial workers (those born after 1980), versus now-retiring Baby Boomers – and even many in Generation X (those born between 1965 and 1980).

Conducted since 1994, this year’s survey was completed online by 413 respondents in December 2007 and January 2008. As in prior years, respondents represent a diverse cross-section of the U.S.-based employer universe by industry and size. A full copy of the report is available at www.deloitte.com/us/2008Top5 or at www.iscebs.org.

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