As we close out 2022, a year where we’ve adjusted to hybrid workplaces as the new norm, tried to understand quiet quitting, navigated ongoing inflation and economic uncertainty, and faced increasing demands for compensation and employee engagement, it’s time to look ahead to see what the next year will hold for organizations and HR teams.
1. HR will have to bridge the divide.
Companies are going to over-index on performance — and risk damaging the employee experience.
We are still dealing with a global pandemic, and on top of that, we now also have inflation and economic uncertainty to contend with. As businesses look for ways to cut costs and increase productivity, organizations have tried various tactics to get more out of their current workforce, including requiring employees to return to the office at least a few days a week or using surveillance software to track employees.
Increasing productivity is easier said than done. Gallup found that highly engaged teams are 18% more productive and 23% more profitable than low engagement teams. However, only 21% of employees are engaged at work globally, with workers in the US and Canada slightly higher at 33%, meaning the majority of employees worldwide are disengaged. Low engagement teams have 18% to 43% higher turnover rates than highly engaged teams, which is costly to the bottom line.
Disengaged employees are leaving companies, but the reasons why they’re leaving and the reasons that executives believe they’re leaving are mismatched. Executives attribute attrition to transactional elements — compensation, poor health, and employees looking for a better job. Meanwhile, employees have reevaluated what they want in a job in the last few years, and it now takes more than money to retain top talent. A Lattice survey of 2,000 US and European employees showed that younger workers are looking for a place to belong. Work flexibility has also risen in importance: Recent Lattice research showed that 59% of Gen Z and millennial employees would consider walking out of a job over a company’s remote work policy. Plus, in light of layoffs and cost-cutting efforts, employees are being asked to do more with less, which is a surefire recipe for burnout.
HR teams have the difficult job of finding the middle ground, working with executives to set realistic goals for the organization while also trying to increase employee engagement and retention in order to achieve those goals. HR teams can create or revisit their employee value proposition (EVP), which is the promise the organization makes to employees and candidates that incorporates company values, compensation strategy, learning and development opportunities, and more. Employees are looking at their work experience in its entirety and are looking for businesses that align with their values. By emphasizing deeper connections, personal growth, flexibility, well-being, and a shared purpose, employers can shift their EVP to be more human-centric to show employees that they are valued as people, not just line items on a spreadsheet.
2. Your managers are not okay.
Manager engagement and retention will be a mission-critical priority for HR and business leaders this year.
It’s clear that employees at all levels have faced challenges these past years, and that is certainly the case for managers, who sit in the wide middle area between C-Suite executives and employees and have to balance the priorities of both. Good managers have a specific set of skills and are more than just advanced individual contributors. They lead, manage, and develop their teams and reports. The past few years of the pandemic and shift to hybrid work have made managerial responsibilities multiply and grow in unexpected ways — not only do they have to champion their employees but they’ve also had to help employees navigate an unsettling economy and potential job insecurity, and managers are reaching a breaking point.
With engagement and retention more important than ever, the brunt of this responsibility falls on the shoulders of managers. Gallup data shows that team engagement depends heavily on the manager, who can account for a 70% difference in engagement rates. Employees want purpose in their jobs, but the “who” that can drive employee engagement is a caring manager. A GoodHire survey of 3,000 American workers showed that bad managers not only impact engagement, but also retention, and 82% of workers would potentially quit their job because of a bad manager. One of the top reasons employees leave their jobs is because they don’t feel valued by their manager.
But managers are also struggling with engagement. According to Gallup’s State of the American Manager Report, 35% of US managers are engaged, and 14% are actively disengaged. With these rates, it’s no wonder that employee engagement rates are also low, as employees who work for engaged employees are 59% more likely to be engaged themselves. And it’s not just that managers are disengaged; they’re also burned out and leaving their jobs. Lattice research also found that middle managers (defined as managers who oversee teams of managers) were the most likely cohort of employees to be actively looking for new work (70% in the UK and 50% in the US).
Microsoft's 2022 Work Trend Index showed that managers felt like they were stuck between managing executive and employee expectations, which often aren’t aligned. Over half of managers surveyed felt that their organization’s leadership was out of touch with employees. But managers felt powerless to create change, with 74% of surveyed managers saying they lacked the resources and influence to make changes for their team.
The role of the manager as a team motivator is more critical than ever, but managers are facing an extraordinary amount of pressure to have their teams deliver while trying to balance heavy workloads, manage people, engage employees, and maintain everyone’s well-being. Most managers do not have the resources or bandwidth to combat burnout when they’re facing it themselves.
Companies need to find ways to support their managers, as they are a crucial part of improving engagement and company culture. That means including managers in the employee experience to get a full picture of how employees are doing, and implementing the right systems and processes to enable managers to succeed. Managers are less likely to know what’s expected of them than the people they manage, and over 40% of managers surveyed say they have competing priorities, so setting clear priorities and expectations can help managers focus on the most impactful business goals instead of trying to do it all. Organizations should provide career development opportunities to help their managers grow, as well as performance management resources (best practices in giving and receiving feedback, conducting one-on-ones, etc.) to help their teams succeed. And there should be a focus on well-being initiatives or programs to help managers combat burnout for themselves and their teams.
Lattice’s 2023 State of People Strategy (SOPS) showed that manager training was the second highest priority for HR leaders in 2022, behind employee engagement. Investing in managers helps invest in the teams they oversee. Bad managers negatively impact engagement and retention and are therefore costly, but good managers give employees a reason to stay and perform to their best ability.
3. Pay transparency is coming, and it’s going to be a mess.
Creating a compensation philosophy is only half the equation; employees want to know where they stand.
California recently passed a pay transparency law requiring all companies with more than 15 employees to list salary ranges for jobs. California joins the growing number of states, including Colorado, Connecticut, Nevada, and Washington, that have passed similar legislation requiring employers to disclose pay. The laws vary from state to state, which may be difficult for job seekers to navigate. Still, pay transparency has benefits, such as helping to counter the gender pay gap, the difference in salary between men and women in the US. Research from 2022 shows women earn $0.82 for every $1 men earn, and the gap is even wider for women of color.
Pay transparency is also in line with what employees want from employers. A Lattice survey on compensation found that 67% of US employees agreed their company should have transparency around pay policies, and over half of respondents think companies should disclose how much everyone is paid.
Companies, on the other hand, are still catching up. Lattice’s 2023 State of People Strategy found that pay transparency within organizations is still low, and even lower at smaller companies.
- 54% of HR leaders said only HR and finance know pay bands.
- 25% of employees know the salary band for their job level, but only 9% know the pay band for the next level up.
With 59% of companies investing in pay transparency, and 21% investing considerable effort in it, companies are making some progress. Pay transparency helps employees have trust in pay equity across the organization and can also increase engagement and retention. For example, if employees see a comparable job listing with a salary that is much higher than theirs, that information may help them negotiate during the next round of performance and compensation cycles. It can also save time during the recruitment process by weeding out candidates who are looking for a role that pays differently.
Compensation transparency can’t happen without proper planning and strategy. Businesses need to be clear on what they are going to disclose and how. To achieve that, People teams need to develop a compensation philosophy that provides clear guidelines, ties back to company values, and explains how salaries, raises, and bonuses are structured. Creating the compensation philosophy is only half the equation; organizations then need to develop a communication plan so all employees know where they stand and what the potential opportunities are for movement within the company.
Keep in mind that compensation goes beyond salary, and a compensation philosophy should factor in a total rewards package, which can include benefits, health and wellness programs, learning and development, and paid time off. These additional items may not show up directly on a paycheck but can still positively impact the employee experience.
4. We're returning to fundamental workforce strategies.
The world of work is moving on from gimmicks like quiet quitting, productivity paranoia, or the hybrid push/pull.
Changes in work norms have led to rebranding of old trends with new terms in an effort to describe the shifts in employee expectations. For example, “quiet quitting” is simply a new term for employee disengagement, and “productivity paranoia” is when leaders are worried their teams aren't working hard enough with hybrid work models, despite 87% of employees reporting they are productive. And even employees recognize that these are just new names for old stories: Recent Lattice research found that 45% of employees reported that they were not very familiar, or not familiar at all, with the phrase quiet quitting — and yet 36% of those same employees self-reported having “quietly quit” in the last year when it was defined as disengaging from their work.
Neither of these trends began during the pandemic, but coining phrases for them highlighted the fact that engagement and productivity have always been organizational priorities, and HR teams have been at the forefront of navigating this new world of work. According to Lattice’s 2023 State of People Strategy, HR leaders expect some, if not all, of their workforce to be remote, and have prioritized employee engagement; manager training; learning and development; diversity, equity, inclusion, and belonging (DEIB) programs; and performance management over talent acquisition.
As employee expectations change and organizations adapt to meet them, we’ll see a shift from The Great Resignation to The Great Recognition. Organizations will recognize that the best employees are engaged employees and that listening to workers’ feedback is not only good for employee growth, but for company growth as well.
5. “Hybrid work” is just "work" now.
Employees who have embraced it will increasingly shape where the new workforce is headed.
For better or worse, a majority of workers have gotten used to remote work and all that it offers: no commute, comfortable work clothes, and more flexible schedules. According to behavioral economics, people avoid loss more than they seek gain, and thus they are not likely to want to give up remote or hybrid work, no matter what the additional in-office perks are. In fact, six in 10 fully remote employees and three in 10 hybrid employees said they are “extremely likely to change companies” if remote flexibility is not an option. Even though a company’s percentage of remote workers varies significantly by industry and organization size (for example, professional services and tech companies will have more remote employees than manufacturing companies), for most employees and employers, hybrid work is not an option anymore, but rather a requirement.
Some of the early concerns with remote work were about how managers and employees needed facetime together for productivity and engagement. However, managers have become comfortable managing their teams remotely, with 45% saying they have enough facetime to effectively manage most employees and situations. Even the 26% of respondents who would prefer more facetime feel they have enough of it to handle major issues. This is consistent across companies whether they are 10% or 90% remote. HR professionals who feel there should be more facetime cited engagement and culture as their top concerns, with productivity ranking second to last.
Employees have realized that they don’t need to go to a physical office to do work and that they want increased flexibility so work can fit into their lives instead of the other way around. Smaller companies can shift to hybrid and remote work models more easily, and traditional businesses will have to follow suit to retain talent. Gen Z not only places greater importance on purpose at work, but will also be the first generation that has not been required to be in the office five days a week. Gen Z’s percentage of the total workforce will only grow over time, and as a result, as an increasing number of hybrid or remote employees move into leadership and manager roles, hybrid strategies will improve and solidify in the long term.
A shift in employee values and demographics, new and hybrid spaces where we physically do work, and an ongoing struggle to maintain employee engagement despite internal and economic pressures have all upended traditional organizational playbooks. HR teams play an increasingly important role in balancing priorities at all levels of the organization, evolving company culture to meet dynamic needs, and driving employee and business success.
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Your employee experience doesn't have to be at odds with your business performance. Check out How to Use Performance Management to Inspire Employee Growth to learn how.
See what HR professionals around the globe had to say about this year's priorities, successes, and challenges in The 2023 State of People Strategy Report.
Fair compensation can improve retention, employee motivation, and overall business performance. Download How to Reward Top Talent With Pay-for-Performance to learn more.