Motivation schemes on a limited budget

Employee motivation schemes do not have to cost a lot to be effective.


  • A well-planned employee motivation programme can be cheaper and more effective than a small pay rise or bonus.
  • A motivation programme can help to drive employee behaviour to support a revised business strategy.
  • Publicising employee awards increases recognition among the workforce.

It is not always easy to prove a return on investment in reward programmes, which is why they can be the first target for cuts during an economic downturn.

But such hasty decisions could cost an organisation dear, says Mark Quinn, partner, human capital at Mercer. “Total reward is not easy in tough times,” he says. “But if an employer is looking to drive employee engagement, a motivation scheme is worth considering. It can be one of the most effective ways to impact a workforce at a much lower cost than pay and bonuses.”

As well as being relatively low cost, the other financial benefit of a motivation plan is that it is not a fixed cost, and can be structured to suit an employer’s needs and budget.

Whatever its cost, the perceived value of a motivation scheme tends to be high among employees, particularly when pay rises are low In fact, Mark Childs, managing director of the Total Reward Group, recommends shelving a pay rise altogether if it is only around 1%. “A small pay rise can be fairly derisory,” he says.

“Remember how it backfired on Gordon Brown back in 1999 when, as Chancellor, he awarded pensioners an increase of 75p a week. When budgets are under pressure, it is better to have a pay freeze and use an employee incentive plan to motivate staff.”

A motivation scheme can be used to drive behavioural changes within an organisation. For example, if an employer has revised its business strategy, rewards can be given to employees who demonstrate the desired new behaviour. Quinn says one of his clients, a retail bank, revamped its reward and recognition strategy to help improve its customer service.

“Employees were recognised for going that bit further for customers, and this was then publicised internally to help drive changes in behaviour,” he explains.

Drive productivity

A motivation scheme can also help to drive productivity. There is plenty of evidence to support a link between staff engagement and improvements in organisations’ performance and profitability, as David MacLeod and Nita Clarke found in their report for government, Engaging for success: Enhancing performance through employee engagement, published in July 2009.

Among the evidence they cited was a report by Gallup Consulting, Gallup Q12 meta-analysis 2006, which explored the link between financial performance and staff engagement in more than 23,000 organisations. It found those with engagement scores in the top quartile had 18% higher productivity and 12% higher profitability.

The MacLeod report also included research by Towers Perrin-ISR, The ISR employee engagement report 2006, which covered 664,000 employees in more than 50 organisations and found a significant difference in the financial performance of employers with a highly-engaged workforce compared with those where engagement was lower.

Most notably, the research found that employers with high levels of employee engagement improved their operating income by 19.2% over a year compared with those with low levels of engagement, which saw their operating income decline by 32.7%.

But just allocating money for a motivation scheme will not transform engagement overnight. Schemes must be constructed carefully to maximise effectiveness.

Michael Rose, director of Rewards Consulting, says a motivation scheme must be about recognition. “There is definitely a correlation between being recognised for doing a great piece of work and higher levels of engagement,” he says. “This recognition can be incredibly powerful, so an employer should make sure its scheme does this.”

Rose recommends that employers begin their strategy by researching how employees feel about their workplace. “Understand what is happening well and what is happening badly,” he says. “If an employer knows how its employees feel about their work, it can use the scheme to make improvements.”

Change others’ attitudes

For example, a survey may find employees do not enjoy a particular part of their job. Bringing in rewards for those performing these tasks well can help to change others’ attitudes.

But the rewards off ered must be what employees actually want. The Total Reward Group’s Childs says: “It is all very well rewarding staff by taking them to the opera, but if it is only the managing director who likes opera, it is pretty pointless. Cash or vouchers work well because they give employees a bit more flexibility about how they spend the reward.”

Also, the value of a reward need not be high. Many people will appreciate flowers or a bottle of wine, but some of the most eff ective rewards are free. Mercer’s Quinn says: “A one-off payment and a handwritten letter from the chief executive thanking an employee for their hard work can be hugely motivational.”

But employers must consider employees’ tax positions when selecting rewards. While it may be acceptable to leave an employee with a tax hit on a larger payment, it is best to gross up smaller amounts by using a PAYE settlement agreement, says Childs. This allows the employer to make one lump-sum payment to HM Revenue and Customs to cover all small rewards made to staff , rather than providing P11Ds to everyone who has received a reward.

Once a motivation programme is fi nalised, employers must decide how to promote it. As well as making employees feel even more special about their achievement, publicising the programme can have a ripple effect among other staff and help to raise standards. “Allocate some budget to communications, says Rose. “It doesn’t matter what the reward is, it is the recognition that is really important to the employee.”

Sources: Engaging for success: Enhancing performance through employee engagement, David MacLeod, 2009. Individual sources: (1) The ISR employee engagement report, Towers Perrin-ISR, 2006; (2) Gallup, 2003, cited in the MacLeod report, 2009; (3) Measuring true employee engagement, Right Management, 2006


The right Chemistry for reward creates a buzz

Recruitment specialist Chemistry employs 22 staff at its offices in Binfield, Berkshire. Lorraine Makepeace, head of amazing at Chemistry, says: “We have always had an employee motivation budget, but last year we reviewed it as we wanted to encourage staff to really live our values of being passionate, brave and human.”

The company devised a reward scheme in which employees can award a colleague they see as embodying one of these values, with a card. Every Monday, recipients of cards are celebrated and their names go into the hat for a monthly prize draw, which sees two employees win £100 each.

Each quarter, the three employees with the most cards receive prizes of £750, £500 and £250, respectively. Makepeace says: “It is very motivational, but it doesn’t cost the company a lot to run. If everyone got a bonus, it wouldn’t mean as much.”

Nevertheless, Chemistry’s motivation budget also covers a number of perks for all employees. Makepeace explains: “Once a quarter, we stop work at 2pm and have Friday playtime. Last time, we played rounders at the boss’s house, followed by pizzas and drinks. The buzz is fantastic.” Chemistry also runs family cinema outings and an annual trip, which last year saw employees go ski-ing. The company also holds parties at Christmas and Easter.

Makepeace adds: “Employees are our number one asset. It makes sense to motivate them.”