You can’t win the war for talent with compensation alone 

June 01, 2022

Employees’ needs are changing and so are their expectations about work. We’re seeing a shift in the psychological employment contract – the set of basic assumptions that bonds employers and employees together. In the 20th century, the “loyalty contract” dominated; employers provided good pay and benefits in exchange for employee loyalty and commitment, even though work was often repetitive. Over the last 20 years or so, under the “engagement contract,” organizations have emphasized work that is intrinsically motivating and psychologically fulfilling. Now what we’re calling the “lifestyle contract” is emerging. Employees are looking for jobs that meet their holistic needs, both inside and outside of work – and are willing to leave an organization if it puts their desired lifestyle at risk. 

Our latest Global Talent Trends survey, launched in the midst of the Great Resignation, found that employees are leaving their jobs to improve compensation but also to seek a more personalized rewards package, including health care they can afford. Interestingly, employee respondents told us that they will give up a pay increase for one or more of the following: the ability to work anywhere; higher-quality medical care and coverage; additional well-being benefits for the family; the ability to work a fully flexible or compressed work schedule; and time during working hours to further their education/qualifications.

As employers navigate record-low unemployment rates, one thing is clear – they can’t win the war for talent on compensation alone. That’s why strategic planning discussions for 2023 are focused squarely on what employees need today – and why our soon-to-be-released survey on 2023 health and benefit strategies found that over two-thirds of large employers plan to enhance benefits next year.

In this post, Mercer consultants from across our health, wealth and career practices share what they and their clients are talking about now to help attract and retain employees. It’s a long list – you may want to skim the headings for ideas that resonate.

Rethink the Employee Value Proposition

Employees are looking for a work experience that is enriching, efficient, embracing and empathetic. Employers are making work more compelling by:

  • Connecting employees to the company purpose.
  • Making it easy to find information and employer resources.
  • Helping employees feel like they belong and can bring their whole selves to work through diversity, equity and inclusion initiatives.
  • Revisiting their total rewards strategy.

The secret sauce in recruitment and retention is providing competitive compensation and benefits and a differentiated experience of work (flexibility, support for well-being and career navigation) -- and creating staying power through a unique proposition in which work is connected to purpose.

Focus on medical plan affordability – and equity

Health care affordability is of central importance in benefit discussions today, and not just in organizations with low-wage workforces. Employers are pursuing strategies that improve quality and efficiency in care delivery and using those efficiency gains to pass savings to employees through better plan designs and lower contributions. Examples include:

  • Keeping contribution increases lower or flat.
  • Offering low-cost or free medical coverage to free up cash every paycheck.
  • Reducing or dropping copays for primary care or virtual visits to remove cost barriers to basic care.
  • Moving to copay plans with a low or no deductible and tying these to high-performance networks for cost savings through better outcomes.
  • Supporting health equity through stronger, more diverse provider networks, digital access, and expanded care options to address disparities in outcomes (e.g., covering doulas or midwives).
  • Establishing a virtual healthcare strategy.
  • Implementing navigators – digital and otherwise – to help steer people with very personalized messaging.
  • Looking for ways to offer medical benefits to part-time and contract workers.

Ensure behavioral healthcare is accessible to all

In our Health on Demand survey of employees in 13 markets around the world, US workers rated behavioral health benefits very highly – especially millennials and LGBTQ+ individuals. So it’s not surprising that when employers were asked to identify benefit program priorities for the next 3-5 years, improving access to behavioral health care was ranked number one by the nation’s largest employers. Here are some of the actions they are taking to provide greater support for behavioral health:

  • Adopting virtual behavioral healthcare.
  • Enhancing mental health coverage, such as by waiving cost sharing on all telephonic/video mental health services.
  • Contracting with a supplemental network of behavioral healthcare providers.
  • Enhancing EAP services or implementing behavioral health support services like Lyra Health or Spring Health.
  • Training for managers and staff on how to identify, understand and respond to people who are struggling with mental health or substance use issues.

Embrace flexible work

In most organizations, flexible work is transitioning from a pandemic-era quick fix to a permanent strategy that delivers value to both the business and the employee. It’s no longer a perk limited to certain employees, or contingent on a personal situation, life event or manager approval. For many job-seekers today, it’s a priority. And flexibility can take many forms beyond work from home:

  • Adopting time-based flexibility where employees have more options and greater control over their schedules is a way to add flexibility for blue-collar workers who can’t work remotely.
  • Creating more flexible workplaces for employees, especially as remote and hybrid working becomes the dominant mode.
  • Revamping work shift times and lengths -- for example, part-time 9 a.m. – 2 p.m. shifts to attract parents of school-aged children.

Reimagine the work experience for wellness

Employee burnout is at an all-time high, and employers are taking a step back to address the fundamental drivers in the work experience that contribute to burnout. This can lead to changes like:

  • Reducing the number of meetings and/or shortening them.
  • Fundamental redesign of the way work gets done, such as automating certain tasks to free up employees for critical work.
  • Respecting the need for caregivers to block time for lunch or to pick up children after school.
  • A more holistic well-being strategy that considers physical, financial, emotional and social components – at home and at work.

Enhance time-off benefits

Vacation and time-off benefits have become one of the top reasons that employees stay at their jobs. Employers responding to our most recent Global Talent Trend survey ranked vacation and time-off 5th as a reason to stay – way up from 19th in 2020. This shift is part of the broader emphasis on balance, seen in employees’ preference for work that allows time for family, hobbies, work, health and learning. As employers revisit their time-off policies, they are:

  • Considering unlimited PTO or PTO schedules based on role instead of tenure.
  • Providing more flexibility with PTO, parental leave and sick/family leave.
  • Implementing compassionate leaves.
  • Implementing sabbaticals.

Leverage voluntary benefits

By offering a wide range of voluntary plans, employers give workers the ability to select benefits that meet their particular and changing needs each year – whether it’s pet insurance or help with refinancing a student loan. Voluntary benefits are a low-cost or no-cost way to personalize the benefit package and strengthen the connection between employee and employer. You might consider:

  • Marketing/re-marketing existing voluntary benefit coverages to ensure employees are receiving the best rates and plan designs given economic challenges.
  • Evaluating how voluntary benefits can support overall diversity, equity and inclusion initiatives.
  • Expanding voluntary benefits coverage to part-time, seasonal employees as their support and retention to an organization becomes critical to success.

Promote personal wealth

The defined benefit pension plan was very effective at retaining employees but the cost was unsustainable for many employers. While we won’t see a resurgence of these plans even in a tight labor market, some employers are considering a new twist – providing lifetime payments where the dollar amount is not guaranteed. Without involving an insurance company, this type of benefit can be very cost effective and provide great value to participants. Here are some of the other wealth strategies employers are considering:

  • Tackling gender and minority wealth gaps. Increasing defined contribution (e.g., 401(k)) matching contributions. Looking at participant demographics and determining how plan structure (e.g. match, investment options offered, etc.) can be shaped to better support diversity, equity and inclusion initiatives and ensure no group of employees is unintentionally being disadvantaged.
  • Offering a student loan 401(k) match program.
  • Allowing employees to contribute to their HSA and still receive their employer’s matching contribution in the 401(k) plan.

Design benefits around lifestyles

When it comes to retaining talent, taking a standard approach to benefit design is likely to come up short and even strategies tailored by industry or worker type may still be too broad. Employees have become more concerned with the “lifestyle fit” of the company they work for, so it is important to take into account differences in lifestyles. You can even drill down further to segment employees based on the life stage they are in and seek to provide benefits of value to workers in each life stage. Here’s how some employers are incorporating lifestyle fit into their benefits strategies:

  • Instituting simple “quality of life at work” initiatives – no ties, shorts Fridays, no-meeting Fridays, blocking ‘time for yourself’ on calendars when working remotely.
  • Considering lifestyle spending accounts, which can be used for most types of expense or targeted for very specific purposes.
  • Paying for higher education classes.
  • Enhancing day care and other caregiver options.
  • Using perks to create a benefit program defined by its ability to address a broad range of needs and interests.

While there are many levers to try, the attraction and retention challenge does not come with an “easy button.” Some industries face uniquely difficult conditions – health care comes to mind. Some companies aren’t in a position financially to enhance benefits, especially as health benefit costs rise. But not everything on the list above costs money. Our parting advice is to think about what your employees want from their jobs and then get creative. Even if you can’t offer the best benefit package, you can still be a place where people want to work.

Special thanks to the following contributors: Maura Cawley, Mark Chronister, Sander Domaszewicz, Katie East, Alysha Fluno, Lee Gold, Heather Griffin, Melissa Haskins, Katie Hockenmaier, Scott Jarobe, Susan Klinefelter, Alan Loretta, Shomita Maitra, Lauren Mason, Tony Mateja, Bill Mon, Adam Pressman, Tauseef Rahman, Brian Russell, Mike Smith, Melissa Swift, Beth Umland, Tracy Watts.