The latest CIPD reward management survey finds 68% of employers think that the financial wellbeing of their employees had gotten worse since the start of the pandemic and the associated economic lockdowns. A CIPD webinar also highlighted research showing that between April and September 2020, far more employees reported that their financial security had deteriorated (35%) than said it had improved (14%), with those on furlough (52%) and those who were experiencing a change in caring responsibilities (44%) being more likely to report a worsening.
Since then, there’s been more evidence revealing the negative consequences of coronavirus for in-work poverty. For instance, in February we had reports from both the Trades Union Congress (TUC) and Lane Clark & Peacock (LCP). Research from the TUC showed almost two in five workers said their household suffered a reduction in disposable income since the start of the crisis, while the LCP report found almost two in five employees saying that the pandemic had a negative impact on their personal finances.
In terms of consequences, the LCP report found outside the workplace, two in five employees said financial concerns had impacted how they behaved at home (something picked up by the surveys, which showed an increase in domestic and economic abuse). Inside the workplace, the report found three in 10 workers saying that money worries had affected their work performance as well as their work behaviour.
CIPD research finds that poor financial wellbeing can influence the ability of employees to do their jobs, due to such factors as tiredness,lack of sleep, or being unable to concentrate at work. In financial terms, a study has calculated that the annual cost to the UK of absenteeism and presenteeism due to poor financial wellbeing could be as high as £1.56 billion.
What can employees do to prevent in-work poverty?
However, by acting, employers can improve workplace financial wellbeing. This can benefit the organisation, such as through greater productivity and innovation, as well as employees and their families, through greater financial security.
Before looking at how reward and people professionals can improve employee financial wellbeing, I should point out that we and our employers can’t do this all on our own. For instance, workers need to take some responsibility for how they spend, save and invest their pay packets. Governments need to keep a lid on the costs of living as well as regulating employment practices and financial products to ensure that individuals are protected. The financial services industry also has a role, for instance, in offering products that deliver value for money and using less jargon when communicating to people.
In other words, the positive impact of employers increasing pay will be reduced if employees make uninformed financial decisions; living costs, such as accommodation, rise faster than average pay; or financial products are incomprehensible to the typical worker.
However, those of us working for large employers do have some limited power to sway the behaviours of these stakeholders. For instance, we can use the insights from behavioural science to nudge colleagues into making good financial decisions; we can use our purchasing clout to encourage employee-benefits providers to improve their offering; and we can try to influence the Government when it comes to living costs, such as the provision of affordable housing.
How to create good employee financial wellbeing
However, it’s in the workplace where we can potentially have the largest impact in fostering good employee financial wellbeing. The first step is to recognise that while in-work poverty is a risk for employers and employees, good workplace financial wellness is an opportunity for them.
The next step is to follow up on this awareness. Ideally, we should help create a workplace financial wellbeing strategy, policy and dedicated budget - or at the very least, a policy. In terms of strategy, employee financial welfare doesn’t exist in isolation from the ways in which people are managed, developed and rewarded.
For instance, focusing on employee wellbeing at the expense of financial wellness is only going to be of partial help. To tackle stress effectively, our employee wellbeing programmes need to acknowledge the importance of good employee financial welfare.
Another aspect of workplace financial wellbeing is having meaningful work and fair pay. Regarding the former, this comes about when we look at ways to boost employee productivity in a sustainable manner. This involves reviewing the existing business, employment, and organisational models to find ways of improving performance. In terms of the organisation model, this means assessing how the firm is designed as well as how jobs and work are composed and organised.
One potential consequence of the changes these reviews could bring about is that the increased productivity allows an employer to find the money to improve pay levels and the benefits package. Another is that work itself becomes something that staff find more meaningful and worthwhile, which should help boost their performance and commitment.
Is it fair?
In terms of fairness, this includes being open and transparent with people about the pay and benefits on offer, why they’re being provided, and what’s needed to receive them. For instance, in terms of pay, this could include giving information on how the grading system works, how wage levels and salary increases are decided, and jobs valued.
It could also involve providing details on what the organisation means by fairness, both in terms of what the employee can expect from the organisation but also what the organisation expects in return from its employees. In addition to ensuring reward processes are fair, we should also check that they are by reviewing the outcomes of these processes, such as by analysing remuneration decisions by gender, ethnicity, etc.
Another important part of a strategy is encouraging senior managers to show their commitment to improving financial wellbeing by discussing on a regular basis the financial welfare of employees. Leaders should also support workplace financial wellbeing, such as promoting new initiatives to colleagues, talking about the financial situation facing the organisation, and encouraging staff to be open about their money worries.
Easing of lockdown
As workplaces start to head out of a medical pandemic, there is a risk that some employees facing the prospect that their finances won’t fully recover from the hit they have taken, such as increased debt, inadequate pension savings, fuel or food poverty, etc. To help reduce this risk for workplaces and their workers there are some simple things that we can do:
- Be open and supportive: Staff will only talk with their managers about their financial worries if they know that they are going to be non-judgemental and helpful. To assist line managers when talking to colleagues about their money issues, we might need to provide support in terms of training, toolkits, coaching, and so on.
- Help those who have fallen into financial difficulties: One option is to point to external sources of support, such as the Money Advice Service run by the Money and Pensions Service. If an employee assistance programme is in place, then we should highlight the financial guidance it can provide to staff. Another way to support those facing money difficulties is to offer emergency financial support, such as a financial hardship loan, or early wage access, coupled with appropriate independent financial advice.
- Talk to employees: To get an understanding of the extent of the financial challenges our people face we need to use a variety of mechanisms to engage with them, such as surveys, forums, catchups, polls and webchats. This information should then help inform the response of the organisation in terms of the design or refinement of its workplace financial wellbeing policy, as well as the assessment of its effectiveness.
What can we do to prevent in-work poverty
There are more ideas for people and reward professional to help reduce in-work poverty and promote workplace financial wellbeing in the CIPD reward management survey section on employee financial wellbeing.
The danger is that if employers don’t act, then the financial consequences of the pandemic and the economic lockdowns will increase levels of in-work poverty. However, by recognising that there are steps we can take, reward and people professionals can help their workplaces avoid that risk and increase the levels of financial wellbeing to the benefit of employees and the organisation
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