Engagement: Stock up on solutions
For many firms, the cupboard is still too bare to offer increased cash rewards to staff. So maybe it’s time to look again at other ways to tailor reward, writes Jane Simms
Date:
09 December 2010
Source:
Guide to reward
Page:
10
During the recession employees were prepared to share their employer’s pain, taking on the chin cost-saving measures such as pay freezes, decimated bonuses and reduced hours. But with the return of confidence and growth – however fragile – they are now feeling it is payback time, particularly as they are likely to have to work longer, harder and more effectively, with fewer resources, for the foreseeable future. The fact that talent is on the move again is a sure sign that payback is not happening as quickly as many would like.
Pay pots in the private sector remain severely depleted, and employers are still understandably cautious. And now the public sector is feeling the squeeze as well. But unless organisations find ways to make their employees feel valued, they will discover that the goodwill, commitment and engagement they built up during the recession will quickly evaporate.
The links between reward, engagement and performance are well established, and recent Hay Group research shows that organisations in the top quartile on engagement measures demonstrate revenue growth of between 2.5 to 4.5 times more than organisations in the bottom quartile. Yet new research from Mercer suggests that employee engagement now is significantly lower than it was before the recession: commitment to the organisation and willingness to recommend it as a good place to work are both down significantly, while the number of employees considering leaving has risen.
And this is at a time when organisations need the best people to help them take advantage of the incipient recovery. No wonder chief executives are asking their reward heads tough questions about the effectiveness of their strategies.
Unfortunately, some of the strategies companies have adopted to try to get the best bang for their reward buck – primarily, increasing performance-related pay and focusing what money they have on key talent and high performers – often alienate as many people as they motivate.
In the downturn many people got the chance to supplement their restricted base pay with higher bonuses in return for better performance – a practice that many organisations have sustained. However, points out Stuart Hyland, head of reward consulting at Hay Group, companies whose performance hurdles remain as high as they were during the recession run the risk of disengaging people who stayed loyal when things were really tough.
“Organisations tread a fine line between getting a better return on their investment in reward and turning staff off,” he warns. “While the need for economy is undeniable, you don’t want to lose the very people who are best placed to help you return to growth.”
However, concentrating your efforts exclusively on such people is equally dangerous. You ignore “middle performers” at your peril, warns Hyland, who points out that even the language you use is important. “If someone has worked their socks off and you call their performance ‘acceptable’, it won’t go down too well,” he says. What’s more, the middle performers typically account for around 70 per cent of employees, so, as he says, if you could improve their collective performance by a fraction you could shift the organisation’s overall performance considerably.
Nevertheless, dividing up the bonus pot to give the majority of people – the middle performers – a very modest bonus is ill advised. “A sum of £500 could be regarded as derisory, and you might get a far better motivational effect by setting fire to the money on a staff barbeque,” he says, only half jokingly. “Organisations have to think more creatively about how to use the money they have.”
And failing to differentiate sufficiently between excellent and average performance is inconsistent with the message that performance really matters, as Christopher Johnson, UK human capital leader at Mercer, points out.
So how do you strike the right balance between driving recession-busting performance from those most likely to deliver it, and keeping those in the engine room motivated?
There are two principal strategies, agree reward consultants: flexible benefits and total rewards.
Flexible benefits, which employees buy from their gross pay, saving their employer national insurance contributions, have long been popular owing to the straightforward cash savings for both sides. But Johnson believes employers will start to use benefits “more smartly” by making them more attractive to employees and targeting them more effectively.
“Different generations do value different things,” he explains. “For example, the young want more control over their lives, want more ‘experiences’ in their career and want things to happen fast. So you need to tap into that.”
However, firms should be wary of assuming that certain segments of their employee base are not interested in certain things. For example, many people under 25 are interested in pensions, maintains Hyland. “You can’t build your reward strategy around stereotypes such as Gen X, Y or Z, because they are only stereotypes. But it is useful to understand them as a starting point for developing a package that is suitable for your own organisation’s employee population and context.”
He cites the example of a call centre operator where take-up rates for a very generous pension package were extremely low. A workforce analysis exercise, however, revealed that most employees were not only extremely young, but many were on visas from abroad. Paring back the pension scheme and introducing a recognition scheme that rewarded top performers with an all-expenses-paid weekend for two in a European capital was both “highly motivational and much cheaper to deliver”.
Understanding what motivates different groups of employees and aligning benefits accordingly is essential if you are to avoid throwing money away, continues Hyland. And simplifying your range of benefits is a critical first step. “It reduces cost, allows you to communicate what you offer more effectively and leads to increasing take-up and, therefore, motivation,” he says.
But while more attractive, better-targeted benefits will help to keep the middle performers, in particular, motivated and engaged – and the perception of having choice and control are in themselves important – the things that motivate employees above anything else are intangible. Areas such as work-life balance, challenge and opportunity in their jobs, flexibility, career paths and clear communications come top of the list.
“Our research shows that, provided a salary is fair and competitive, it is really no more than a hygiene factor,” says Hyland. The secondary importance of pay in a company’s overall “employment brand” is borne out by Hay’s research with Fortune magazine, resulting in the World’s Most Admired Companies index, published earlier in the year, which showed that these top companies pay, on average, 5 per cent less than their competitors.
But while employers have understood for some time that intangible elements of reward can be far more motivational than monetary elements, very few have bothered to do anything about it, says Hyland, “because it was easy to continue to throw money at people”.
They no longer have that luxury: despite their disproportionately motivating effect, many intangible rewards cost relatively little – or nothing – to provide.
“Exceptional performance at [French energy company] Total is rewarded by a hand-signed thank you letter from the chief executive,” says Hyland. “It costs the company nothing, but it carries great prestige, and employees frame them and put them on their desks. It is of far more value to them than an extra £2,000 in their salary.”
Yet there is a telling difference between the views of employers and employees about the most motivating elements of reward, as recent Mercer research demonstrates (see panel, immediately below). This suggests that many companies haven’t even reached first base in terms of understanding what factors will drive their employees to improve their performance.
But however good a company’s total reward strategy, it will not deliver its objectives if it isn’t communicated effectively. And an important element of that communication is fully trained, aware, supportive and engaged managers.
“Managers can no longer take edicts from on high and either pass them down without explanation, or interpret them in their own way,” says Chantal Free, head of reward, talent and communications at Towers Watson. “They need to be fully involved in discussions with HR from the outset in order to ‘own’ the concept of total reward.”
While this all sounds very neat from a corporate perspective, how receptive are employees to being told, “We can’t pay you a bonus this year, but look at what a nice company we are to work for”? Again, employers have to choose their words carefully – and Free advises couching communications around total reward in terms of “the new deal” or “the employee value proposition”.
But shifting to a total reward approach has implications for HR and reward professionals – and particularly for the heads of both functions – as well as for managers. Growing board-level scrutiny of the effectiveness of reward strategies means, as Hyland says, that HR and reward need to “talk a much broader game, and put technical issues in a bigger context”.
Mercer’s Johnson adds that structures get in the way of a more rounded view. “HR has typically been organised in silos, with, for example, learning and development quite separate from reward. But L&D is part of reward,” he says.
Some firms are grasping the nettle. Hyland is helping a big consumer goods company develop its employer brand in order to better “sell” the organisation to existing and potential employees – something he says they would not have thought necessary three or four years ago. And, he says, “The reward lead is running the project.”
It takes more time, thought and effort to design a total reward strategy, which includes pay, benefits and intangible rewards, than it does to simply pay people more. However, a well-thought-through total reward strategy is far more sustainable than a spiralling wage bill. It is to be hoped that in the era of austerity, necessity is proving the mother of invention.
The Royal College of Nursing’s employee assistance programme
During the recession, David Cooper, incoming HR director at the Royal College of Nursing (RCN), conducted a stress audit among its 800 staff and was shocked by the results. High stress levels were reflected in high sickness absence, and so Cooper introduced an employee assistance programme (EAP) to address the problem.
EAPs provide confidential access to trained professionals who can give emotional counselling on issues both inside and outside work, from how to deal with troublesome bosses, through helping with financial or legal worries, to advising on relationship breakdown or caring for elderly dependants.
Cooper’s aim in introducing the EAP was twofold: to reduce sickness absence, and therefore costs; and to improve morale by both helping employees deal with their stress and showing them the organisation cared about them.
The EAP has been well received. “Since we introduced it in April 2008, 43 per cent of our employees, on average, have used it every year, compared with the average take-up among not-for-profit organisations of 15 to 20 per cent of employees,” says Cooper. “Our sickness absence rate has dropped from 3.6 per cent to our current rate of 2.5 per cent over the same period, and continues to fall, and the EAP has played an instrumental role in that.”
Engagement rose from 54 per cent in 2007 to 74 per cent two years later, and Cooper believes the EAP has played a major role in the improvement. The EAP costs the RCN just £12,000 a year.
Dr Wolfgang Seidl, executive director of employee benefits provider The Validium Group, which put in place the EAP for the RCN, says that EAPs cost between £10 and £20 per employee per year, yet have huge perceived value.
“Because they reflect the ‘caring’ face of an organisation they act as a very strong retention tool, but also help build a reputation as an employer of choice,” he says. “This bears out Gallup findings that workplace well-being is inextricably linked to performance.”
Return on investment in EAPs is typically 150-200 per cent in reducing absenteeism alone, he claims. “But EAPs also help to reduce litigation and compliance costs, decrease staff turnover and increase productivity and engagement,” says Seidl. “They also help to reduce presenteeism – essentially, being at work but not functioning properly because of physical or mental health problems – which costs the UK economy twice as much as absenteeism.”
Intangible rewards
- Recognition
- Flexibility/work-life balance
- Climate, culture and values
- Training and development
- Challenging work
- Career paths and opportunities
- Leadership
- Environmental factors
- Fairness and trust
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