Duncan Brown: Innovative rewards boost engagement and add value

How would you feel if I suggested your performance and reward management strategy for the next 12 months needs to involve a significant hike in pay levels? Career suicide for any reward professional?


A number of research studies published recently suggest this might well be a sensible policy to pursue to enhance the performance and productivity of your employees.

Low-paid staff increasing

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Recession has seen the number of low-paid workers in the UK balloon to more than five million, a larger proportion than in any other Western nation bar the US.

In The Good Jobs Strategy: How the smartest companies invest in employees to lower costs and boost profits, Zeynep Ton, a professor at the MIT Sloan School of Management, explains how many US firms responded to recession by focusing on low prices and costs, resulting in low-paid, minimal benefits ‘bad jobs’ with little training and chaotic work schedules.

Ton shows how even in low-margin sectors such as retail, higher-paying organisations investing in their employees are characterised by greater customer satisfaction and higher profits, as well as, not surprisingly, happier staff. She reminds employers: “The spirit and culture of an organisation, that sparkle in the eye, comes only from fully engaged employees.”

In the Chartered Management Institute’s article of the year, The Fatal Bias, London Business School professor Jules Goddard comes to the same conclusion. He says: “There is a perilous bias within many top management teams towards what is invariably a losing strategy, that of cost-competitiveness”. He argues that “every cap on recruitment or training or benefits costs is just as likely to destroy, as create, value”.

Far too much management attention is devoted to the former rather than the latter, when what most employers need is “bolder investments and higher costs”, he says.

Goddard cites the example of James Dyson, whose “on-shoring of prodigious engineering talent” means he has created innovative products that sell at a significant price and profit premium to his competitors. But, of course, he also manufactures in low-cost locations.

Rewarding innovation

The balance in pay management between cost control and rewarding innovation is even harder to strike in the public sector. Blanket, below-inflation, 1% pay awards were announced by the Chancellor in March. But NHS trade unions are threatening industrial action at the exclusion from this award of 600,000 health workers, who are due to receive a contractual pay increment averaging 3%.

In his first public speech, last month, newly appointed NHS chief executive Simon Stevens referred to the unprecedented challenge of meeting the huge growth in demand for health services within the current financial constraints. He said the answer cannot simply be asking hard-pressed staff to do more of the same for the same pay, but needed to involve major changes, including “the innovation value of new providers, more professional authority for nurses and midwives, redesigned jobs and pay systems”.

Innovative pay and reward methods will, therefore, be vital, as Stevens says, in the NHS and across our economy, to “unleashing the passion and drive of [the million-plus frontline NHS staff] who are devoting their professional lives to caring”.

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