What's happening in total rewards in Europe? 

As organizations are looking to move the needle from an employee experience perspective they are incorporating greater transparency, fairness and equity into their rewards strategies. This can be achieved by reviewing job architecture, pay ranges and performance management processes across the organization, including harmonizing as needed across geographies, to ensure equity, consistency and simplicity.

Post COVID, some extremes in rewards began to emerge across Europe and the UK in terms of inflation and cost of living increases. While this has now largely dissipated, there are still pockets of volatility, especially in Eastern European countries where inflation continues to run higher than in Western Europe. Through 2023 and into 2024, high inflation was linked to the need for higher wages and an increase in activity and disputes from works councils and unions across Europe, especially for hourly paid employees, typically at the front line in retail, hospitality and manufacturing environments. 

With inflation now dropping across the Eurozone, many organizations are examining ways to control costs — yet still remain as market competitive as possible to attract in-demand skills. Maintaining up-to-date market data for key jobs remains a critical tool that leading employers are using to balance cost and competitiveness.

Flexibility is increasingly important with many employees now looking for more control over where they work, when they work and how they work.  This is not a one size fits all approach, as different jobs can be flexible in different ways. Also, as well as looking at how competitive they are with the external market, many organizations are now looking at employee sentiment around rewards elements, including non-cash elements like flexibility, to understand what their employees truly value, in order to increase productivity, retention and attraction of new candidates.

Other intangible elements of the total rewards package like learning and development programs, career path potential, leave allowances, work life balance, and also environmental, social and governance programs are increasingly very important to employees and candidates. How the full offering is packaged and communicated to employees is key, with digital communications channels and a consumer grade experience expected and needed to increase buy-in.

There has been a massive increase in interest in and use of AI in the last 18 months — and there is no doubting its potential impact on the world of human resources and total rewards. Through AI, organizations can improve their employee experience, changing how talent engages with the company.  It will impact how work itself is designed, first through automation and personalization that can save employees time, then through intelligent journeys that make employees more effective. And from a rewards perspective, it is critical to understand this change at the job and work level.

It's important to note that while AI can streamline total rewards processes and enhance fairness and consistency in application, human oversight and ethical considerations remain crucial. Organizations should ensure that AI systems are designed and implemented with transparency, accountability and fairness in mind. These systems should be regularly audited to address any unintended biases or issues that may arise. That is also where the EU AI Act comes into play, and it establishes obligations for providers and users of AI, depending on the level of risk: unacceptable or high risk uses will not be tolerated, and use of AI in the employment space must be rigorously assessed for risk as well as being fully transparent to users.

Mercer’s European Rewards Conference (Budapest, Hungary, October 10-11, 2024) includes speakers and sessions on generative AI in the HR and Rewards space, pay transparency and pay equity, skills powers job architecture, rewards communications and much more!