As the recession puts pressure on pay and jobs, reward schemes can play a vital role in keeping employees motivated, says Amanda Wilkinson.
Cost-cutting is currently the number one priority for many organisations affected by the recession. But there is a danger that redundancies, forfeiture of bonuses, and pay and recruitment freezes are damaging employee morale at a time when organisations need a motivated workforce to get them through difficult times.
With pay increases and bonuses no longer an option for many employers, compensation and benefits professionals are having to think long and hard about how to motivate staff who feel insecure about their job security and are being asked to pick up extra work created by redundancies.
Stress inhibits performance
In the short term, some organisations may rely on the fact that their remaining staff will be thankful they have a job and put maximum effort into their work. This may be true for some, but it is not a state of mind that can be relied upon for all employees. Others may distrust their employer because of the cost cutting, and some may be suffering from anxiety and stress, which are natural performance inhibitors.
Colin Evans, UK head of reward services at Hay Group, says: “If you do not motivate and engage people in a recession, there is a danger some of them will find employment elsewhere because they are not sure about their prospects with you.”
And these employees could be the ones employers need most to help them through the downturn. Glenn Thomas, managing director of Jelf Employee Benefits, says: “For your most talented people, no matter what the economic climate, there are always other options, so you need to be mindful of how you motivate those people because that competition is still there.”
Using pay increases wisely
If there is money available for pay increases, employers may decide to use it to help retain this group of employees. But with few funds generally available for pay rises or bonuses, and employees expected to put in extra effort or to make sacrifices, employers will have to work harder to ensure all the other elements of the total reward package are in place to drive employee engagement. Jim Crawley, principal at consultancy Towers Perrin, says: “If employers do want to major on employee engagement, they have to think about maintaining organisational effectiveness [and] doing the things that are going to have a more immediate impact on individuals in the workforce.”
Link between financial performance and engagement
Research by Towers Perrin shows a positive link between drivers of engagement and an organisation’s financial performance. Interestingly, data for the last quarter of 2008 from the Towers Perrin-ISR Normative benchmarks database shows that compensation and benefits – normally a latent driver of engagement – has risen in importance for employees to rank just below learning and development, and leadership. The research also shows a decline in the percentage of employees who feel they are being paid fairly, from 49% at the beginning of last year to 44% in the last quarter of 2008.
Warning bells should start to sound as pay and benefits rank as basic hygiene factors in Maslow’s hierarchy of needs, and if employers get them wrong, they can harm employee motivation levels.
Withdrawing contractual perks
Withdrawing contractual perks or reducing pay without buy-in from employees is, therefore, a bad idea in terms of engagement. An employer could also get into hot water legally if changes are imposed without agreement. Anthony Fincham, head of employment at law firm CMS Cameron McKenna, says that if an employer makes changes to pay or other contractual entitlements unilaterally, it could end up facing a claim for breach of contract or constructive dismissal. “Your options are to get [the change] agreed, in which case it needs to be documented, or terminate and offer staff new employment on [new terms],” he explains.
In addition, if an employer is planning to make 20 or more people redundant in the space of 90 days, it is obliged to consult with their workplace representatives.
Best practice would be to invite employees to volunteer to take on the changes.
KPMG offers staff a four-day week
Professional services firm KPMG, which considers people to be its best assets, adopted this approach earlier this year by inviting staff to register an interest in working a four-day week or taking a sabbatical at 30% of salary, as measures to avoid redundancies. Its approach paid off as it received 85% take-up, well above the threshold of 75% below which it may have had to cut jobs. It will be left to local business areas to decide when to invoke the new terms for individuals.
Duncan Brown, director of HR business development at the Institute for Employment Studies, says: “Instead of having HR work up [redundancies], why not engage the whole workforce in developing alternatives?” Communicating with staff about the state of the organisation and what is expected from them going forward is the first step towards engaging them with the future direction of the business. If they are asked to go the extra mile, it is important to recognise and reward them for it.
Reviewing bonus levels
However, many employers will inevitably review bonus levels and targets if business revenue and profit forecasts are down. Helen Murlis, a director at Hay Group, says: “It is an affordability issue. I have seen organisations doing a pay freeze but still paying the bonus. I think that is a sensible thing to do as they are not adding to consolidated costs, but are giving real variable pay where people have achieved in a tough environment.”
Where there is little flexibility on remuneration, other elements of total reward come to the fore, in particular employee recognition by managers, says Brown.
Reward and recognition schemes
Reward and recognition schemes are a “good pump-primer” to get things going and give managers the tools to recognise good performance, he says. But Nick Holley, director of the HR Centre of Excellence at Henley Business School, says: “A lot of these schemes are very blunt instruments.”
Holley argues that because individuals are motivated by different things, HR should work with frontline managers to help them understand their team, rather than planning schemes that can produce unintended consequences if the metrics are not right.
Delivering a return on investment
However, reward and recognition schemes should, if set up correctly, deliver a return on investment, says Andy Lister, managing director of Grass Roots. “This involves the core principles of communicating with people, educating them, measuring what they do and rewarding them for what they do at the back end for success. If you get things in the right order, then you are only paying reward for successful outcomes.”
Such schemes are designed to encourage staff to adopt the right behaviour and make that extra discretionary effort by using hard target measures, such as lead generation or point of conversion into sales, or softer measures linked to customer satisfaction. Steve Baker, director of sales and marketing at Projectlink Motivation, says: “As it gets harder and harder to compete on price, it is the softer elements, the experience the customer gets when they come to see you and the aftercare, that become more important.”
Any reward should be aspirational and instant. Many employers run schemes alongside each other, enabling staff to collect points from each and exchange them for a reward of their choice, which can include vouchers and experience days.
Say ‘thank you’ with vouchers
Employers can also motivate staff outside of structured schemes, says Martin Cooper, sales and marketing manager at incentive provider Love2reward. “Managers appear to be buying vouchers in and simply saying ‘well done, you have gone the extra mile this month, there you go’,” he says.
Larger employers may be able to use their negotiating power to secure a good deal on vouchers. Catherine Forrest, business incentives manager at House of Fraser, says: “A significant benefit of vouchers and gift cards is the possibility of negotiating a worthwhile discount with the supplier.”
Like vouchers, experience days can be used as part of a structured incentive programme or handed out at a manager’s discretion. They can also be used to give staff a morale-boosting team day out. Paul O’Brien, managing director of Acorne, which provides Virgin Experience Days, explains: “With experience days, you do not have to work these things into a long-term structured reward scheme and leave yourself saddled with something that is difficult to sustain.”
Lift employee morale
If employers don’t want staff to take time out of the office, but need to do something to lift morale, they can call on the services of providers such as the Mobile Feel Good Company, which organises massages and manicures for employees on site.
But whatever incentive employers offer, they should ensure that it is tailored to their employees’ needs. John Sylvester, executive director of P&MM, says: “Travel, luxury experience days and valuable gifts are welcome incentives for more senior employees, but the majority of workers are worrying about their spiraling household costs. Rewards such as supermarket and fuel vouchers allow staff to buy everyday items, but also engage them.”
Employers should also try to keep track of the amount that they are spending on reward and recognition programmes for employees. David Irvine, vice-president of global strategy for Globoforce, explains: “There is tons of money being spent without any co-ordination. If you asked the financial director or head of HR what they are spending on this and what the return on investment is, many would not know.”
He advocates using a single over-arching system that rewards staff for working in line with corporate objectives and values with public displays of recognition.
Employee share schemes
Employers should also not overlook their core benefits package as they seek other ways to motivate staff. One perk that is known for aligning employees’ performance with the needs of the business and its shareholders is share schemes or option awards. However, these can be a double-edged sword. When times are good, a share scheme is often a great motivator, but when the stock market plunges, it can hit employee morale.
While some employers are revising long-term share option schemes for senior executives to take account of the fact that many are underwater, all-employee share schemes give staff the chance to make gains in the long term if they join when the share price is low. With sharesave schemes in particular, there is no risk for employees because if, at the end of the scheme, their options are underwater, they can still take their savings plus a cash bonus. Jill Evans, head of corporate business at Yorkshire Building Society, says: “The theory is that all-employee share schemes create a workforce that is interested in the share price.”
Other perks that may interest employees in these tough times are retail discounts that can be offered through voluntary benefits schemes. But employers must be sure to communicate these because staff can forget they are available.
Organisations should also think about communicating the value of their entire benefits package via total reward statements, for example. This can help employers demonstrate that staff are still valued, even if their pay has been frozen. Figures can be attached to elements such as training courses – a component of total reward that employees can forget about but which helps promote career and personal development, which is a key driver of employee engagement.
Salary sacrifice arrangements
Meanwhile, employers that have not yet fully exploited salary sacrifice arrangements around tax-efficient perks, such as pension contributions, should consider implementing the tax-saving mechanic to refresh their benefits package. This will produce savings for the employer on national insurance (NI) contributions, and a further boost for the employee in the form of tax and NI savings.
Although not strictly motivational, perks such as employee assistance programmes and financial education also offer support for staff in difficult times.
But with costs coming under even greater scrutiny as the recession progresses, employers would do well to remind their managers that the biggest motivator of all is often a simple “thank you”
Case Study: Adecco
Recruitment solutions company Adecco is reviewing its recognition schemes in light of the recession, with the aim of rewarding more employees for demonstrating company values or displaying outstanding performance.
Previously, its schemes focused on rewarding top sales people with tangible rewards such as skiing trips. The company now wants to use its budget to reward a wider group of employees and is consulting staff on how that should be done.
Claire Lawrence, head of HR projects, says: “We are planning campaigns across the group that recognise outstanding performance or behaviour, and anything that reinforces our values and strategic objectives.” Sales targets have also been reviewed in response to changes in budget forecasts. The firm has also consulted with staff about its flexible benefits scheme and introduced supermarket shopping vouchers to better reflect their needs. It has also implemented an employee assistance programme, which it plans to promote as a source of support for managing money.
Case Study: Henry Boot
Henry Boot shares the burden Construction and property company Henry Boot granted a new set of options through its sharesave scheme last November to help motivate staff by giving them a stake in the business.
The aim was also to help people who had taken part in a previous scheme two years ago, but whose options had gone underwater. Deputy company secretary Gordon Hawksley explains: “The new grant gave people the option of starting again and was designed to help motivate employees.” Most staff moved their investment in the first grant, which had an option price of 155p, into the second, with an option price of 77p. Employee participation in the second grant, which is administered by Yorkshire Building Society, was 29%.
However, stock market turmoil has seen the new options also go underwater. “All employees are sticking with it, hoping for the share price to go up long term,” says Hawksley.
If the options are still underwater at the end of the scheme, staff can take their savings plus a bonus.
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