Simon Richardson: How to motivate staff without providing a pay increase

Simon Richardson

Reward managers of a certain age could be forgiven for looking back nostalgically to the certainty of their role in the ‘80s and ‘90s where their main objective was to produce ever-increasing reward packages while times were good, and deliver a generous pay off when times were bad. Although the reward managers had to work long hours to maintain this cycle, their oversight of generous benefits and annual pay increases helped to motivate and retain key employees. Even if the annual pay increase only kept up with inflation, the prospect of an increasing salary could be seen as an intrinsic motivation in itself, as well as a way of boosting pension contributions.

These days, the reward manager’s role is just as demanding, but far more ambiguous. Identifying ways of motivating employees is not as straightforward as the provision of financial packages during the rollercoaster days of the end of the last century. There are many contradictory messages in the current UK and global economy which cloud the issue of employee pay rises. Employees in FTSE 100 companies might expect to catch up with chief executive officer (CEO) pay, which has quadrupled in the last 20 years while employee pay has typically increased by only 50% over past 20 years.

Recently, inflation frequently outstrips pay increases, many pensions in the private sector have devalued, and unemployment levels are at record lows in the UK: all these factors might point to the employees making their way to the reward manager with their cap in hand. However, the response of the business may point towards the dissipation of the initial economic buoyancy felt after the Brexit vote, as well as outsourcing surplus labour requirements abroad. So, on balance, perhaps today’s reward managers cannot expect to justify immersing themselves in the annual pay review merry-go-round of budgets for high performers and tough measures for those falling out of favour.

So, where should our modern-day reward professional look for inspiration in the current economic world of mixed messages? Perhaps they need to take the longer-term view and consider some commercially-minded measures that achieve a balance between corporate conservatism and employee motivation. One solution might be to explore the option of employee profit-sharing schemes to counter executive excess, citing examples of other countries, such as Mexico, where organisations by law have to share proceeds with employees.

Perhaps reward managers of a certain age might recall MP Nigel Lawson’s tax-deductible profit-related pay of the late ‘90s. Such an initiative might put an onus on the reward manager to communicate the success (or otherwise) of the business to the employees. Transparency of commercial performance of the business could be reflected in the communication of employment costs. Employees are less likely to seek a pay increase if they understand their total reward package both in terms of actual costs and wider benefits. Their perception of their overall compensation package might look quite different with benefits added, such as a final salary pension, and set out how their learning and development opportunities might be quantified.

In addition, for multinationals, providing total reward statements (TRS) for all employees globally may well facilitate more opportunities for international assignments within a low-cost global mobility programme, supporting the flow of talent management across borders.

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So while the modern reward manager may not spend as much time poring over the intricacies of the annual pay review, there are still a number of other less obvious options to increase the transparency of the reward package, which could not only enrich the working lives of their employees both financially and professionally but also be acceptably sustainable to the business.

Simon Richardson is senior lecturer in human resource management at Westminster Business School