Even before the pandemic, organizations were increasingly focused on aligning pay and performance with purpose, intermingled with sustainability and corporate responsibility. Then came 2020, and those efforts went into overdrive.

Indeed, with any major disruption comes an opportunity, a chance to reflect, recenter and craft a rewards strategy that’s better suited for today’s rapidly evolving business environment. The fact is that future-focused companies are rewriting the rules on rewards. Are you among those ranks?

The Issue

For the last few years, employers have been under pressure from all stakeholders — including shareholders, regulatory bodies, and employees — to do more to address societal issues such as pay inequality, systemic racism, and gender parity. After all, organizations that have a keen sense of purpose and obligation to stakeholders generally have a stronger connection to their customers and adapt to society’s changing demands. And ultimately, the purpose is what drives long-term profitability.

Add to that mix a historic pandemic, and it’s understandable that organizations collectively are in a crucible of change. And that can be a good thing, particularly in a tight economy, when rewards programs are key to recruitment and retention.

The Intersection of Total Rewards, Purpose, and Business Performance

It only makes sense that organizations that aim to bring to life business practices envisioned by stakeholders will consider all aspects of total rewards. In turn, such a holistic approach creates access, transparency, and opportunity for all employees.

The Importance of Aligning Rewards with Purpose

Check out this data from the leading consultant Mercer’s recent Global Talent Trends Survey:

• Three in four organizations whose CEO is accountable for environmental, social, and governance (ESG) efforts have a growth rate of at least 6 percent.
• One in three employees would rather work for a company that demonstrates responsibility toward all stakeholders.
• Employees who are thriving – prospering in areas of health, wealth, and career – are four times more apt to work for an organization that, in their view, prioritizes equity in compensation and promotion decisions.

Rethinking Areas of Incentive Compensation  

When it comes to incentive compensation, organizations are increasingly rethinking how to pay, when to pay, and for what to pay. For ages, the traditional model has been for top executives to be rewarded based on organizational performance. While that’s still part of the mix, more and more companies are using compensation to make sure ESG and Diversity, Equity, and Inclusion (DEI) goals are met.

Such an executive compensation approach is the wave of the future. Mercer’s 2020 North American Executive Rewards Year-End Survey, for instance, found that while just six percent of employers surveyed had a DEI plank in their bonus plan, 36 percent were mulling instituting one in the future.

Agility is Key

Nowadays, organizations must be able to swiftly pivot, as the business environment is still changing. The integration of financial, ESG, and ESG concerns into executive pay plans helps produce an agile rewards infrastructure. In turn, organizations will gain the ability to better lure, keep, and motivate executives who can thrive during this protracted period of unprecedented disruption.

In summary, now you know how future-focused companies are rewriting the rules on rewards. If you need help, we suggest you enlist the help of Mercer’s executive compensation consultants, who provide top-shelf expertise regarding executive and director pay and benefits, corporate governance, and pay-for-performance alignment. What’s more, such guidance is steeped in industry and market practices and are tailored to your business.

Don’t get left behind here. The business world is changing, and your executive rewards strategy is in the balance.