CIPD Voice: Issue 28
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.
- 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.
Charles Cotton: Senior Performance and Reward Adviser
Charles directs the CIPD's performance and reward research agenda. He has recently led research into: how employers can help improve their employees’ understanding of their personal finances; how front line managers make and communicate reward decisions to their employees; how employers manage the risks around reward; how private sector employers can build the business case for workplace pensions; how employees form their attitudes to pay; and how the annual pay review process can become more strategic.
He is also responsible for the CIPD’s public policy reward work and has given evidence to select committees on banking pay, redundancy awards as well as responding to various consultations, such as on pensions, retirement and MPs’ expenses.