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Making smart connections: the case for total rewards in addressing employee financial resilience

By Monica Martin | November 15, 2024

Many companies’ efforts to improve employee financial wellbeing have fallen short. How can employers use total rewards to solve this problem and benefit employers and employees alike?
Compensation Strategy & Design|Inclusion-and-Diversity|Employee Experience|Employee Financial Resilience|Health and Benefits|Pay Equity and Pay Transparency|Retirement|Ukupne nagrade |Benessere integrato
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Our recent research spotlights a significant and growing global issue: Financial wellbeing has now become the top challenge employees face. Despite increasing awareness of the challenge and efforts to help employees, organizations continue to report that they aren’t as effective at supporting employee financial wellbeing as they want or need to be.

This is not for lack of trying, as many organizations have implemented programs or vendor point solutions, such as for emergency savings, student loan debt, or financial coaching, as way to bolster employee financial resilience.

However the results of these efforts have been mixed, and most organizations continue to experience poor utilization and a lack of employee understanding and appreciation of the financial wellbeing offering. Further, any ground gained has been worn away by macro headwinds, such as the post-pandemic surge in inflation and rising housing costs. Unfortunately, employees say they’re more financially stressed today than two years ago.

This topic continues to be a business imperative. Data shows a strong correlation between employees’ financial health and their productivity and engagement at work. Supporting employees' financial wellbeing can be a differentiator as companies compete to attract and retain talent. It’s clear that better employee financial wellbeing helps the bottom line. The question is how to develop a financial wellbeing strategy that’s effective and sustainable for the long term.

A complex problem to solve

Financial challenges aren’t uniform across employees. They vary widely based on employee demographics, jobs and geographic locations. Though many employers offer competitive salaries and retirement plans, these programs alone may not effectively address broader financial needs such as the rising cost of housing, emergency savings, debt management and financial literacy.

Moreover, insulating employees against future financial shocks is difficult. At any moment, economic conditions may change drastically, and new financial stresses will emerge. To date, employers haven’t been able to pivot quickly enough to avoid deterioration in the financial health of employees.

Where to start? Measure the financial health of your workforce

It’s crucial to start by thoroughly assessing the current state of employees' financial health. Advanced analytics and diagnostic tools will shed light on the financial wellbeing of your workforce, pinpointing the individuals impacted, including any demographic, socioeconomic, or geographical differences, the severity of their situations and the cause of their financial stress. This necessary step ensures that your solutions are targeted to address key employee priorities for maximum impact.

Integrate pay, benefits, wellbeing and career strategies

Once the current state is understood, review pay, benefits, wellbeing and career strategies to ensure they help employees meet basic needs and foster long-term savings.

Areas where these programs can have a meaningful impact on employees’ financial wellbeing include:

Pay: Getting pay right is challenging, but it’s the lynchpin of a successful financial wellbeing strategy. Organizations often focus too much on market competitiveness and broad trends rather than on customizing pay strategies to the unique needs of their workforce and business. For example, how can pay drive affordability and long-term wealth creation for employees, and, in turn, improve retention and productivity?

Organizations can be more effective in several ways, including:

  • Offering a fair/living wage to meet new compliance requirements in certain geographies (e.g., the EU’s Corporate Sustainability Reporting Directive) and provide financial relief to lower-paid employees who need it most.
  • Being more transparent with pay. By giving employees pay program information, organizations can increase employee appreciation and foster a culture of trust and support where financial wellbeing is viewed as a priority.
  • Ensuring employees are recognized and rewarded for their performance, which can lead to higher motivation, better company performance and more opportunities for employees to build wealth.
  • Introducing flexibility in how pay is delivered. For example, giving employees choice between cash or stock allows employees to tailor their compensation to fit their unique financial circumstances.

Benefits

Connecting pay and benefits strategies is a critical part of supporting employees’ financial resilience. Yet many organizations continue to act in siloes.

Instead, organizations should consider:

  • Taking a “paycheck” approach to design of benefits to properly consider employee affordability challenges. Consider how cost-sharing requirements for benefits can erode employee take-home pay, or how requiring employees to contribute to retirement accounts before receiving employer contributions can be detrimental to their long-term financial health.
  • Reviewing benefit programs for sufficient accessibility, flexibility and choice so that employees can right-size their budgets for their unique insurance and financial needs.
  • Providing adequate protection benefits (e.g., disability programs, critical illness policies, ID theft and other voluntary products) to support a range of life events and enhance employee financial resilience during unexpected financial shocks.
  • Helping employees make good decisions. When employees have multiple options, they sometimes make suboptimal decisions. Organizations have a role to play in helping employees make better choices in balancing their short-term budget restrictions with long-term financial goals. Organizations should prioritize clear and transparent communications about how benefits programs work to boost the effectiveness of the overall pay and benefits offering.

Wellbeing

Beyond core benefits, wellbeing programs play an integral role in employees’ ability to build financial resilience. To bolster the approach, consider the following:

  • Use specialized financial wellbeing solutions (such as those related to debt management, access to emergency funds and support with investment decisions) to complement existing pay and benefits programs (e.g., retirement programs).
  • Build employee financial acumen by giving employees access to proper (unbiased) education and coaching.
  • Be holistic. WTW’s most recent data shows a strong connection between physical, social, emotional and financial wellbeing. For example, when employees face challenges in social, physical or emotional wellbeing, they are at a greater risk of struggling financially. Investing in wellbeing programs that improve overall wellbeing can have downstream positive effects on employee financial wellbeing.

Careers

Effective career strategies can complement or detract from the success of a financial wellbeing strategy, particularly over the long term of an employee’s tenure. Organizations that use careers to bolster employee financial resilience:

  • Create clear career pathways that allow employees to visualize how to grow in the organization, fostering promotions and compensation increases that can boost employee wealth over time.
  • Help employees build and grow their skills by outlining the skills and competencies required at each level, enhancing their employability and potential earnings in the broader job market.

Bringing employee financial wellbeing strategies to life

Beyond programs, organizations should prioritize how they can improve employee financial resilience with more effective engagement and measurement strategies related to their pay, benefits, wellbeing and career offerings.

For example:

  • Communicate the “what” about their programs, but don’t forget to explain the “why.”
  • Connect the dots for employees: Show them how your programs build financial resilience or provide financial flexibility so they see your efforts.
  • Foster a culture of financial wellbeing that encourages open discussions about financial challenges and solutions. This can be supported by collaborating with employee resource groups (ERGs) and training managers and HR professionals to recognize signs of financial stress and guide employees to the appropriate resources.
  • Monitor the organization's financial health to drive program and organizational success and reassess the strategy frequently.
  • Improve preparedness for economic uncertainty: Is your strategy agile? Do you have processes in place to respond to changing conditions quickly?

Each of the above steps can help your organization turn ambition into reality for employees.

Act now

Improving employees’ financial resilience is no longer optional. Our data now shows it’s a business imperative. Nearly 60% of employees globally say that they have poor financial health.

The risks of not getting it right are significant. For example, employees might switch jobs frequently in search of the highest paycheck, creating a drain on productivity and further exacerbating pay-compression challenges that many companies have not yet resolved since the Great Resignation. Coordinating pay, benefits, wellbeing, and career strategies to meet employees' needs for affordability, wealth creation, and financial knowledge is a win-win. It increases employee financial resilience, and in turn provides better outcomes for your business.

Author


Senior Director, Integrated and Global Solutions,
Total Rewards Leader

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