Motivating incentives

Empirical research has consistently shown that employees are not motivated by money alone. However, this is very different from the view that money is “way down on the list of employees’ goals”. In fact, it ranks very highly. But it’s the intrinsic rewards – such as varied and interesting work, challenging situations and creativity – that are often the true motivators. Although pay, bonus and incentive arrangements are required to satisfy basic employee needs, they are potentially short-term motivators and often do not lead to long lasting changes in employee behaviour

That said, financial incentives should not be completely discounted. Research suggests that pay for performance can (when implemented properly) be positive and deliver performance improvement, especially when it:

• Gives financial reward to employees for reasons of both equity and recognition.
• Gives direction to employees by aligning rewards with the organization’s goals and objectives. (Pay is probably the most salient communicator of organisational goals.)
• Is based on the performance of groups, individual performance and rewarded by honours.

In short, total reward programmes, which integrate both financial and non-financial incentives to reward staff, can offer an organization the building blocks to help incentivize, recognize and motivate employees to deliver improved levels of performance.

While achieving competitive advantage in selling products or delivering outstanding customer service is the crucial element in the success of many businesses, it can be argued that, similarly, competing for, retaining and incentivizing talented employees is equally as important. And in today’s business environment just maintaining a competitive pay policy is no longer the benchmark – as a report by the Professional Association for Compensation points out, more organizations are now considering leveraging "all of the tools available to the employer to attract, retain and motivate employees".

Improved performance

Total reward theory supports the concept that employees will show higher levels of performance and productivity if they feel valued by the organization. The relationship between this feeling of value is reciprocated by the organization through offering relevant financial and non-financial rewards. These should be in line with employees’ needs and wishes, the strategic direction of the business and what the business values from its employees.

It also aims to reinforce an organisation as an ‘employer of choice’ by promoting its reward policies and practices as a ‘total reward package’ with the focus on meeting the needs and expectations of employees, rather than a collection of HR reward and development policies. It builds upon four basic building blocks of what is seen to be important to employees, and is part of the overall motivational mechanism seen in well-performing organisations. In their book, The Enthusiastic Employee, David Sirota, Louis A. Mischkind and Michael Irwin Meltzer from Sirota Consulting have defined these building blocks as:

• Compensation: providing differential compensation to employees based on performance.
• Informal recognition: day to day recognition of performance, most importantly by the immediate manager.
• Honorifics: recognition elements.
• Promotion prospects: advancement and development opportunities.

Total reward solutions are presented in many forms, with models that range from reflecting three, four and even six key elements in their design. For example a simpler model might look at pay, benefits, learning and development, and the work environment, while a slightly more ambitious program might touch on tangible rewards, future growth and opportunity, enabling the work environment, the quality of work, work/life balance, and inspiration and values. The models can potentially utilise a vast array of motivational and reward factors.

Whilst this is not an exhaustive list, it is representative of what organisations use. Each factor on its own can play a part, however, the benefit to employer and employee is in combining relevant factors to offer a comprehensive package that is linked, integrated and provides a menu to help motivate employees.

Inevitably with options comes the question of ‘what to include’, but more important is how the organisation obtains the maximum value from those choices. For each factor the business should consider what it wishes to receive in return from employees. Many organisations have entered the total reward arena with a small focused selection of factors representing only financial and non-financial elements. Each element (or combination of elements) should exist for relevant strategic and operational reasons, as removing or replacing factors at a later stage could undermine the purpose of the whole model.

Total reward statement

Often with the type of ‘transactional’ model, mentioned above, employers provide employees with annual total reward statement, which details what individuals are entitled to and the financial worth of their respective elements beyond basic pay. Additionally, they can make employees more engaged with the organisation by helping them to understand how much they are getting from the employer, which may make them more inclined to stay on and be more ‘motivated’.

Determining the mix of total reward factors may be strategic or tactical depending upon the needs of the business. For example, executive compensation is often more focused on financial values and total reward may be replaced by ‘total compensation’. This is in part due to the fact that executives usually have sufficient flexibility in their organizational roles to be able to organize their work, influence their development opportunities, generate interesting and challenging work, and as a result, partly meet their motivational needs.

Hence total reward tends to focus on ensuring that the compensation elements, namely salary, benefits, short- and long-term incentives and perquisites are (a) competitive, and (b) suitably structured to influence performance and behaviour. Depending upon the requirement, the elements can be used; however, executive compensation design must also reflect good governance.

At the tactical level, total reward solutions can be designed to operate across a broader spectrum of employee groups and incentivize and motivate them accordingly. For example the effective use of voluntary benefits within Total Reward can provide employers and managers with the opportunity of identifying and recognising individual or team performance by providing aspirational non-cash rewards. Work-life provisions, now common practice in many organizations, provide valued flexibility around employment hours and work patterns.

Linking total reward to learning and development, relevant career advancement and succession plans for individuals or roles, which in turn are reinforced through pay, progression and incentive mechanisms, present a compelling statement of the employment landscape within the organisation.

Arguably, if a total reward model is to contribute to incentivizing and motivating employees, this will not be accomplished without good line management and effective performance management activities. ER Consultants has found that effective business performance centres on the ability and capability of line managers to utilize all the physical and psychological employment dimensions at their disposal, of which total reward components feature predominantly. This has been also reflected in the research produced by academic institutions.

In conjunction with HR practitioners and using a well-developed total reward scenario, company performance can be improved; conversely, poor management capability cannot be substituted with an excellent total reward package and expected to produce results. The rule of thumb that stands in almost all cases is: poor management performance = poor employee performance = poor business delivery.

The results

In summary, a well-designed and effectively communicated Total Reward offering should result in:

• Improved recruitment of better-quality staff.
• Reduction in wastage from staff turnover and employment costs.
• Improvements in business performance.
• Establishment as an ‘employer of choice’.
• Reinforcing appropriate behaviours.
• Providing a channel to aid the communication of the ‘employer’s offering’ to its employees.
• Reinforced commitment through allowing employees choice over what they want from their employer.
• The organization maintaining overall control of the options available to individuals.
• A more motivated and committed workforce.

Total reward: ER Consultants’ approach

ER Consultants’ approach to Total Reward centres on ensuring that there is organization readiness, compensation expertise, employee readiness and system readiness, and at the same time recognizing that:

• No ‘one-size-fits-all’ model.
• The use of financial and non-financial components which are aligned to the reward strategy must in-turn be aligned to, and support, the business strategy.
• Each organization has different value chains, systems, processes and culture, so any proprietary solution needs to be tailored to and ‘owned’ by the organisation.
• Each element and factor of the model should stand up to scrutiny as a reward or motivational mechanism in its own right.
• What is important and motivating to one employee in an organization is different to another organization.
• Suitable management skills exist to support the model.
• You know what your employees would want.

“Total reward programmes, which integrate both financial and non-financial incentives to reward staff, can offer an organization the building blocks to help incentivize, recognize and motivate employees to deliver improved levels of performance”

Chris Legge, is a Principal within the Change Team at ER Consultants - experts in facilitating business effectiveness.