Methods Of Rewarding Employees In Multinational Companies

Methods of rewarding employees in multinational companies

Contents

Why are rewards important for a company?

The role of rewards has been increasing in the past years as companies have been trying to adapt to a challenging multi-faced business environment such as talent shortage and thus a tendency of pay level to rise, a changing workforce composition and market developments such as mergers & acquisitions, globalization, reorganization and country specific trends (e.g. privatization, green-field operations). An effective and efficiently designed reward system may bring a company a series of advantages such as alignment of the remuneration and benefit system to the business priorities and plans, critical workforce segments definition and retain of key staff within the company.

Nowadays rewarding systems are a key driver for personnel costs and employee motivation in companies, especially in multinational ones. Through rewards, organizations can motivate employees to improve their work performance and an improved performance of employees makes the organization advance from both a financial and non-financial perspective (Aksakal & Dağdeviren, 2014, p.148)

Studies have shown that a motivated employee can represent a unique source of competitive advantage for companies (Huselid, 1995, p. 637). This idea that human capital can provide a source of sustained competitive advantage was also supported by Barney (1991) who considers that employees usually underperform when their employer does not encourage their motivation and skills. The same line of thinking is also followed by Wright and McMahan (1992) who highlight the importance of human resources in the creation of firm-specific competitive advantage.

In order to capitalize on the competitive advantage represented by the human capital, companies have started paying more attention to rewarding systems and use them in their business strategies in order to retain and motivate valuable competent and loyal personnel.

In order to be effective, rewards should be made contingent upon specific behaviors that are of importance to an organization so that employees learn to behave in ways that get rewarded and avoid behavior that does not get rewarded (Lawler, 1981). According to Kerr (1995), many organizations fail to do that because they reward a certain behavior while hoping for another pattern of behavior. Researchers and HR specialists have found out that a successful reward system should be based on fairness, equity, consistency and transparency. (Armstrong, 2007)

A fair reward system is one in which people are treated justly in accordance with their value to the organization and that employees should not receive less pay than they deserve by comparison with their fellow workers. Equity should reflect the fact that people are rewarded objectively in relation to others within the organization and that equal pay is provided for work of equal value. A consistent approach to rewards means that decisions on pay do not vary arbitrarily and without due cause between different job positions or at different times. They do not deviate from what would be generally regarded as fair and equitable. (Armstrong, ….)

Rewarding systems should give employees a sense of equity when comparing to other colleagues performing the same type of task, which contributes to his/her work satisfaction. Should an employee experience inequity, he/ she will take corrective actions such as decreased job performance or leaving the organization (Greenberg, 1990). Dissatisfaction arising from perceptions of reward inequity can certainly lead to increased employees turnover and reduced motivation (Shields, Scott, Bishop & Goelzer, 2012). Rewards should reflect performance because equal pay for high and medium/low performers acts as a de-motivator (Aguinis, Joo & Gottfredson, 2013, p. 245). The same idea is supported by Baldwin, Bommer and Rubin (2013, p.262) for whom, equal pay for different degrees of performance is killing the passion for star performers.

Transparency is another feature of a functional reward system. Employees should have a voice in the development of reward policies and practices and should have the right to be given explanations of decisions and to comment on how they are made. In order to be efficient, reward systems should be on time, preferably immediately after an exemplary behavior has been displayed.

Deloitte’s survey on Millennials (2015) explored the issue of flexible working and found out that while over 70% of respondents were able to access email and relevant applications from mobile devices, only 43% were allowed to work from home or other locations where they felt most productive. The current level of flexibility is not consistent with the Millennials desires. Approx. 88 percent wish they could enjoy working from home, almost double the proportion that currently do so (43 percent). Measures

Another requirement regarding effective reward systems is that the rewards provided by companies should be relevant and of value to the employees and should be need-fulfilling. This requirement stems from Maslow’s theory of need (Maslow 1954) and expectancy theory (Vroom, 1995). These theories argue that motivation are underpinned by the assumption that behavior is directed towards the satisfaction of needs or goals. These needs represent internal motives or impulses that act as an impulse to action. Specifically, a need can be defined as an internal state that makes certain outcomes appear attractive. An unsatisfied need creates a state of disequilibrium within the individual, which in turn stimulates certain drives. These drives generate a search behavior to find particular goals that, if attained, will satisfy the need and re-establish the equilibrium. This is precisely what drives people’s efforts and actions at work.

Adapting Maslow’s hierarchy of needs, the idea that there are several levels on which rewards can impact employee takes shape. Maslow’s theory also suggests that higher order rewards will be fully motivational only if lower order ones are properly addressed. This insight emphasizes the need to understand employees’ personal perceptions of their rewards and try to fulfill the basic needs such as salary, benefits, need to belong to a group or team before addressing the top ranking rewards such as career growth or career achievement.

Figure 1

The expectancy theory sustains that work behavior is determined by individual expectations of the likely consequences of such behavior. The expectancy theory seeks to explain and predict worker motivation in terms of anticipated actions and rewards. Expectancy theory says that people will undertake an action if they see that the action will lead to an outcome that they value. So if you give a big financial incentive that the participants want, they are likely to do what you ask. Exactly that and no more. One of many dangers is that this can and does lead to cutting corners and even unethical behavior; who cares as long as you achieve the goal? In the longer term this is likely to lead to more problems as the corporate brand is tainted and can even be destroyed completely. For instance, consider Enron and Arthur Andersen.

Rewarding systems should also be cost effective and bring some return on investment for the company but also strategically aligned with the company’s business objectives and performance management.

In order to achieve this goal companies have started focusing on the strategic rewards. This idea is also noted by Brett (2005) who notes that rewarding methods have shifted in the past decade to become more strategic.

Presently, rewarding systems or methods are usually connected to the „new pay system” and „strategic pay” as opposed to the „old pay system”. (Leatherbarrow, 2010, p. 248). The phrase „new pay” was established by Edward Lawler in his book „Strategic Pay” in 1990. Lawler considers that when reward systems are put into place, a company should have a strategic approach towards them and should consider its’ goals, value and culture and the challenges of a more competitive global economy. New pay helps to develop the individual and organizational behaviour that a company needs if its business goals are to be met. Pay policies and practices must flow from the overall strategy and they can help to emphasize important objectives such as customer satisfaction and retention and product or service quality. The new pay does not imply leaving aside the traditional reward practices but rather finding pay methods that can improve the organization’s strategic effectiveness. (Lawler, 1990)

Lawler’s concept of the new pay was developed further by Schuster and Zingheim in “The New Pay” in 1992. They consider that total compensation systems should be designed to reward results and behavior consistent with the key goals of the organization and that the main breakthrough of the “new pay” concept is introducing variable (at risk) pay.

Schuster and Zingheim (1992) state that: „The new pay view provides that organizations effectively use all elements of pay – direct pay (cash compensation) and indirect pay (benefits) to help them form a partnership between the organization and its employees. By means of this partnership, employees can understand the goals of the organization, know where they fit into these goals, become appropriately involved in decisions affecting them and receiving rewards to the extent they have assisted the organization to do so. New pay helps link the financial success of both the organization and its employees”.

The concept of strategic/ new pay looks at wages and benefits as one instrument through which an organization can meet its current business goals, while the “old pay” uses job-evaluated grade structures, payment by time and seniority-based financial rewards and benefits (Leatherbarrow, 2010, p. 249).

The foundation of strategic rewards is an understanding of the needs of the organization and its employees and how they can best be satisfied. It is also about developing the values of the organization on how people should be rewarded and formulating the principles that will govern how these values are enacted (Armstrong & Brown, 2006)

According to Armstrong & Brown (2006), the overall objective of strategic reward is to develop and implement the reward policies, processes and practices required to support the achievement of the organization's business goals and meet the needs of its stakeholders. The specific aims are to:

create total reward processes that are based on beliefs about what the organization values and wants to achieve;

reward people for the value that they create;

support the development of a performance culture;

align reward practices with both business goals and employee values; as Brown (2001) emphasizes, the 'alignment of the reward practices with employee values and needs is every bit as important as alignment with business goals, and critical to the realization of the latter';

reward the right things to convey the right message about what is important in terms of expected behaviors and outcomes;

facilitate the attraction and retention of the skilled and competent people the organization

facilitate the attraction and retention of the skilled and competent people the organization needs, thus aiding the process of talent management and 'winning the war for talent';

help in the process of motivating people and achieving high levels of engagement, positive discretionary behavior and commitment to the organization;

develop a positive employment relationship and psychological contract.

In the words of Brown (2001) strategic reward is any reward ultimately a way of thinking that you can apply to any reward issue arising in your organization, to see how you can create value from it'. Brown (2001) also suggests that effective reward strategies have three components:

They have to have clearly defined goals and a well-defined link to business objectives.

There have to be well-designed pay and reward programs, tailored to the needs of the organization and its people, and consistent and integrated with one another.

There needs to be effective and supportive HR and reward processes in place.

In the end, a good reward strategy is one that works and delivers its promises for both the employees and the company.

An important characteristic of strategic reward is that it is systematic in the sense that it is based on analyses of the organization's internal and external environment, its business needs and the needs of its stakeholders. It is conducted within a framework of articulated beliefs and values, and it is goal-oriented.

When formulating a reward strategy, it is necessary to rethink what is and what is not reward. The strategy needs to encompass all aspects of reward if it is to add real value, enhance employee engagement and commitment to the organization and minimize the loss of the best people. While there is little doubt that the financial aspects of reward remain a key element of the modern working relationship, they are not on their own sufficient to reinforce desired discretionary behavior or support the kind of performance breakthroughs so many organizations seek today. The holistic approach of total reward provides for the integration with reward of a number of HR policies and practices such as employee development, resourcing, life-work balance, recognition schemes, work design and participation. It is about creating a truly and totally rewarding experience for people at work.

Reward strategies in the past have sometimes focused exclusively on business needs and alignment. Yet unless employees see and experience fairness and equity in their rewards, the strategy is unlikely to be delivered in practice.

Armstrong and Murlis (2004) note the importance of direction as an element in a reward strategy: “Reward strategy determines the direction in which reward management innovations and developments should go to support the business strategy, how they should be integrated, the priority that should be given to initiatives and the pace at which they should be implemented”.

A fundamental element of reward strategy reflected in all of these definitions is to support the organization. That is not to say that reward strategy should be only reactive. But the approach taken needs to reflect the culture and aims of the organization. In some cases it can help to drive change. Certainly as part of the HR strategy getting reward ‘right’ can help deliver solutions that help drive strategy. A survey of business leaders concluded “[…] HR must develop a deep understanding of the business – in the same way, and using the same ‘language’, as other managers. The measures it proposes must be tied to business outcomes: the impact on customer service, the reduction in costs, the support of a specific new growth area, the increase in staff loyalty and so on.” (KPMG, 2012a)

Reward strategy is a declaration of intent. It defines what an organization wants to do in the longer term to address critical reward issues and to develop and implement reward policies that will further the achievement of its business goals and meet the needs of its stakeholders. It starts from where the reward practices of the business are now and goes on to describe what they should become. Reward strategy provides a sense of purpose and direction, a pathway that links the needs of the business and its people with the reward policies and practices of the organization and thereby communicates and explains these practices. It constitutes a framework for developing and putting into effect reward policies, practices and processes which ensure that people are rewarded for doing the things that increase the likelihood of the organization's business goals being achieved.

A key aim of reward strategy is to foster the development of a high performance culture, thus helping the organization to achieve its business goals and gain competitive advantage.

The key reward strategy objectives revealed by the 2005 CIPD reward survey are business-related. The most frequently mentioned priority is supporting the goals of the organization (79%), followed by rewarding high performers (64%), recruiting and retaining high performers (62%).

The growing emphasis on employee engagement as critical to organizational performance means that the concept of total reward is exerting more and more influence on strategic reward. (Armstrong, 2004). In addition to financial rewards, companies are more intangible rewards like the work environment and quality of life considerations, the opportunity for advancement and recognition, and flexible working – everything from telecommuting to variable hours. The CIPD 2005 reward survey found that 28 per cent of respondents were using a total reward approach (CIPD, 2005a).

The total reward concept emphasizes the importance of considering all aspects of reward as an integrated and coherent whole. Each of the elements of total reward, namely base pay, pay contingent on performance, competence or contribution, employee benefits and non-financial rewards, which include intrinsic rewards from the employment environment and the work itself, are linked together. A total reward approach is holistic; reliance is not placed on one or two reward mechanisms or levers operating in isolation. Account is taken of all the ways in which people can be rewarded and obtain satisfaction through their work. The aim is to offer a value proposition and maximize the combined impact of a wide range of reward initiatives on motivation, commitment and job engagement. In the view of Sandra O'Neal (1998) total reward encompasses all that employees consider important in the employment relationship. An equally wide definition of total reward is offered by WorldatWork (2000) who state that total rewards are 'all of the employer's available tools that may be used to attract, retain, motivate and satisfy employees'.

As Thompson (2002) suggests: 'Definitions of total reward typically encompass not only traditional, quantifiable elements like salary, variable pay and benefits, but also more intangible non-cash elements such as scope to achieve and exercise responsibility, career opportunities, learning and development, the intrinsic motivation provided by the work itself and the quality of working life provided by the organization.'

At its best, the total reward approach embodies the organizational adoption of a more emotionally intelligent way of working. It requires the use of the key competency levers of self-management, self-awareness, social awareness and relationship management in an organizational context as part of the approach needed to secure leadership excellence in the pursuit of significantly raised performance.

As defined by Manus and Graham (2003), total reward 'includes all types of rewards – indirect as well as direct, and intrinsic as well as extrinsic'. Each aspect of reward, namely base pay, contingent pay, employee benefits and non-financial rewards, which include intrinsic rewards from the work itself, are linked together and treated as an integrated and coherent whole. Total reward combines the impact of the two major categories of reward as defined below and illustrated in Figure 2: transactional rewards — tangible rewards arising from transactions between the employer and employees concerning pay and benefits; and relational rewards – intangible rewards concerned with learning and development and the work experience.

Figure 2 – The components of total reward

A total reward aims to increase the combined impact of a wide range of reward initiatives on motivation, job engagement and organizational commitment as there is more to rewarding people than giving them money. Pfeffer’s (1998) view on total rewards, even if old, is still valid that of creating a fun, challenging, and empowered work environment in which individuals are able to use their abilities to do meaningful jobs for which they are shown appreciation is likely to be a more certain way to enhance motivation and performance. The same idea is also supported by Helen Murlis and Steve Watson: “The monetary values in the reward package still matter but they are not the only factors.” […] Cash is a weak tactic in the overall reward strategy; it is too easily replicated. Intrinsic reward is far more difficult to emulate.”

Therefore, total reward is the combination of financial and non-financial rewards available to employees.

According to Armstrong (2007), the total reward approach comes with a series of benefits:

Greater impact — the combined effect of the different types of rewards will make a deeper and longer-lasting impact on the motivation, commitment and engagement of people.

Enhancing the employment relationship – the employment relationship created by a total reward approach makes the maximum use of relational as well as transactional rewards and will therefore appeal more to people.

Enhancing cost-effectiveness – research shows that many employees undervalue the true cost of their reward package, and that different employees place a different value on the various aspects of the package. Total reward involves more effectively communicating the value of the whole package, and giving employees choices to enhance the perceived value of their own package at no extra cost to the employer.

Flexibility to meet individual needs

Winning the war for talent – The organization can become 'a great place to work' thus attracting and retaining the talented people it needs.

Brown & Armstrong (2007) have produced a model of total rewards based on one originally developed by Duncan Brown. This distinguishes between transactional rewards, which are financial in nature and are essential to recruiting and retaining staff but can be easily copied by competitors, and relational rewards, which are concerned with learning and development and the work experience and are essential to enhancing the value of transactional rewards. The real power, as Thompson states, comes when organizations combine relational and transactional rewards.

The components of total rewards in the vision of Brown and Armstrong (2007) are illustrated in the figure below:

Figure 3 – Components of total rewards

According to the Hay Group Model of Engaged Performance, total reward strategies are vertically integrated with business strategies, but they are also horizontally integrated with other HR strategies to achieve internal consistency.

Figure 4: The Hay Group Engaged Performance® Model

Factors influencing rewards

The internal environment consists of the corporate culture, especially the organization's core values, the business of the organization, its technology, the type of people it employs and its business strategy.

The external environmental and contextual changes present a number of competitive challenges to organizations, such as: competitive pressures, globalization and changes in demographics and employment.

Customers are demanding more as intense international competition is simultaneously driving quality up and cost and prices down. Organizations are reacting to this competition by becoming 'customer-focused', speeding up response times, emphasizing quality and continuous improvement, accelerating the introduction of new technology, operating more flexibly and 'losing cost', and taking advantage of increasingly international supply chains. With customer service assistants available, the pressure for 'off-shoring' activity is intense.

The pressure has therefore been for businesses to become 'lean and mean', downsizing and cutting out layers of management and supervision, which has helped to explain the move to flatter grade structures and broad-bands. They are often reducing permanent staff to a core of essential workers and increasing the use of peripheral workers (sub-contractors and temporary staff). Some are 'outsourcing' work to external service providers and overseas, thus reducing employment costs and enabling the enterprise more easily to increase or reduce the numbers available for work, in response to fluctuations in the level of business activity.

They become 'flexible firms'. The ultimate development of this process is the 'virtual firm', where through the extensive use of information technology a high proportion of marketing and professional staff mainly work from home, only coming into the office on special occasions to occupy their 'hot desks', and spending more time with their customers or clients.

All these factors can influence reward strategy by, for example, introducing more flexibility into the reward system and variations within and between business units, or by requiring greater tailoring of reward practices to suit the particular needs of certain key categories of employees such as knowledge workers or customer service staff, as in some of the job family approaches; or by influencing the grading structures and pay differentials in an organization.

Global competition in mature production and service sectors is increasing. This is assisted by easily transferable technology and reductions in international trade barriers. As Ulrich (1997) has pointed out, globalization requires organizations to move people, ideas, products and information around the world to meet local needs. New and important ingredients must be added to the mix when making strategy: volatile political situations, contentious global trade issues, fluctuating exchange rates and unfamiliar cultures. Attracting key talent has become a key corporate challenge. Firms are being forced to react to these issues in their international resourcing and reward approaches. A survey by Cendant Mobility (2002) showed a majority of organizations with operations in more than one country planning to move more staff between locations, to meet their increasingly global business's needs and to transfer relevant knowledge and skills. Yet a growing number also reported increasing difficulty in actually achieving this, with factors such as the growth of dual career couples and political instability contributing to an apparent greater reluctance to move overseas.

Traditionally, discussions of international reward strategies and practices have tended to focus on an elite of expatriate workers, sourced from headquarter locations and rewarded in isolation from local country staff. Their package is typically established through the balance sheet method, which builds on the basis of their home country package to compensate them for the disruption of being overseas.

As Perkins (2006) explains, achieving an appropriate 'global/local' balance in international staffing and rewards has therefore become a much more strategic, that is important and challenging, issue for HR and reward managers to address. Major organizations have overhauled their policies in recent years to better address their key strategic reward goals of mobility and affordability in this more demanding global context.

Employment patterns and practices have changed significantly in recent years, with some of the most influential trends including:

a rising demand for skills and qualifications, which is particularly marked for managerial and professional workers, knowledge workers, customer service staff, technical and office staff and skilled manual workers;

an apparent growth in job insecurity, more so for men than for women;

historically low levels of unemployment that are serving to create skills shortages in areas way beyond the traditional 'gold-collar' occupations such as IT and financial services work, for example for transport drivers and catering staff;

an increase in the number of part-time and female workers — the expansion of women's work has been almost entirely an expansion of part-time work;

a greater emphasis on flexible working to provide for rapid response;

an associated increase in the number of workers on non-standard contracts (part-time, short-term and the use of self-employed sub-contract workers);

a reduction in career prospects through promotion as a result of the rise of the flatter organization;

a reduction in the power of the trade unions, partly because of legislation, but more significantly in numerical terms for structural reasons, with the decline of large-scale manufacturing and the rise of the service industries;

associated with the decline in the significance of the trade unions, a move towards individualizing the employment relationship with less reliance on collective bargaining.

These trends have all impacted on the nature of reward practices that organizations employ. One of the most important factors helping to explain them, which reward and human resources strategies have to address for the future, is that of demographic change. It is no use having a business strategy the organization does not have enough staff of the right caliber to implement. Yet demographic trends are placing enormous pressures on traditional staff resourcing and reward approaches, which require responses way beyond the simple 'tweaking' of a few market supplements.

Birth rates throughout the developed world have been falling in recent decades, and this has been paralleled by declining mortality rates and increasing longevity.

Just as traditional labor pools are shrinking, traditional reward practices and mindsets have been encouraging a further reduction in employment.

Resourcing and reward strategies that are heavily focused on either recruiting young 'dynamic' staff and getting rid of 'old' employees at a fixed retirement date or before, or the opportunistic poaching of staff with the requisite skills and experience from competitors, are therefore becoming increasingly outdated and undesirable from both an employer and national perspective. One European bank estimates that over the next five years, the traditional pool of high caliber graduates and MBAs, which has historically been its main source of future executive talent, will decline by a fifth, while significantly more employers will be chasing them. No wonder chief executives across Europe rated the attraction and retention of talented staff as their number one concern, according in a recent Conference Board study, and over 80 per cent of UK employers reported recruitment and retention difficulties in the CIPD's annual survey.

Types of rewards systems

All organizations should pay great attention to reward systems because without a reward system people would not perform in any manner consistent with the mission or strategy of the organization. Reward carries strong messages. This idea is supported by Tyson (1995) for whom “Monetary rewards may not motivate in the long term, but they certainly symbolize the value corporations attach to specific behaviors.” There are several types of rewards that companies can use to attract and retain their most valuable employees. There can be monetary (cash) rewards (e.g. salary, bonuses, etc) and non-monetary rewards.

According to Brown (2001), rewards can be classified into transactional (tangible) rewards such as pay/reward (cash bonuses, base pay, profit sharing) and relational (intangible) rewards such as learning & development (training, performance management, career development) and work environment (leadership, work-life balance, employee voice). Some researchers have computed the weighs of the financial and non-financial rewards and it resulted that the most influential rewards are the pay rewards (e.g. cash bonuses, base pay, profit sharing) followed by benefits (such as perks, healthcare, flexiwork), learning & development incentives (e.g. training, performance management, career development) and work environment (e.g. work-life balance) (Dağdeviren, 2008).

According to Armstrong (2007), the elements of a reward system and the interrelationships between them are the following:

Figure 5: Reward system elements and interrelationships

The starting point of the reward system is the business strategy of the organization. This identifies the business drivers and sets out the business goals. The drivers are unique to any organization but will often include items such as high performance, profitability, productivity, innovation, customer service, quality, price/cost leadership and the need to satisfy stakeholders – investors, shareholders, employees and, in local authorities, elected representatives.

Financial rewards

Basic pay/salary

Basic pay (also referred to as base pay) is the contractual salary and may include allowances that are paid regularly and are, in effect, salary. For the vast majority of people, basic pay will always be the largest part of their reward. The two main exceptions are:

senior executives whose reward may incorporate a large potential annual bonus and very significant share plans; and

sales people or traders whose bonus and commission potential may be much greater than their salary.

Base pay is influenced by internal and external relativities. The internal relativities may be measured by some form of job evaluation. External relativities (going rates) are assessed by tracking market rates. Alternatively, levels of pay may be agreed through collective bargaining with trade unions or by reaching individual agreements.

Base pay may be expressed as an annual, weekly or hourly rate. This is sometimes referred to as a time rate system of payment. Contingent pay or allowances as described later may be added to base pay. The rate may be adjusted to reflect increases in the cost of living or market rates by the organization unilaterally or by agreement with a trade union.

Salaries are the most obvious form of reward. They are the regular income received for being employed by an organization. Traditionally, the amount received reflects different levels of responsibilities within the organization as well as the skills, capabilities, or reputation the person brings to the organization. Different industries pay people in similar roles differently because of their ability to afford the costs and their requirements for talent. For example, companies in the oil and gas and pharmaceutical industries pay their people 20 to 50 percent more than individuals with comparable responsibilities in the manufacturing, retail, and social service industries. Pay also differs based on the cost of living in different geographic locations. However, pay is not always consistent with living costs. The rates of pay are determined by the demand and supply of people who want to and are capable of fulfilling responsibilities for an organization. The cost of living often sets minimum and maximum parameters for pay.

Traditionally, many companies offered salaries that were higher than others in the market with the belief they could attract and retain top talent. However, given the changes in the marketplace, few companies that pay above market average for salaries see this as a virtue.

Contingent Pay

Additional financial rewards may be provided that are related to performance, competence, contribution, skill or experience. These are referred to as 'contingent pay'. Contingent payments may be added to base pay, ie 'consolidated'. If such payments are not consolidated (ie paid as cash bonuses) they are described as 'variable pay'. Variable pay can come in many shapes and sizes, but mostly means some form of bonus. Unlike salary which is a fixed cost, variable pay is just that, variable – its payment will be contingent on something and so it may or may not be paid.

Contingent Pay As A Motivator

Many people see contingent pay as the best way to motivate people. But it is simplistic to assume that it is only the extrinsic motivators in the form of pay that create long-term motivation. The total reward concept emphasizes the importance of non-financial rewards as an integral part of a complete package. The intrinsic motivators that can arise from the work itself and the working environment may have a deeper and longer-lasting effect.

Research conducted by Ryan (1983) investigated the relationship of financial, extrinsic forms of motivation and intrinsic rewards. The research found that, in an environment of tight managerial control and limited communication, the two were inversely related, that is the stronger the emphasis placed on financial rewards such as performance pay, the lower the intrinsic motivation to work. Yet in an open, high-communications culture, both intrinsic and extrinsic motivation increased together. Context is key.

When considering contingent pay as a motivator a distinction should be made between financial incentives and financial rewards (Armstrong, 2007). Financial incentives are designed to provide direct motivation. They tell people how much money they will get in the future if they perform well. Financial rewards act as indirect motivators because they provide a tangible means of recognizing achievements, as long as people expect that what they do in the future will produce something worthwhile, as expectancy theory suggests.

A comprehensive study by Brown and Armstrong (….) into the effectiveness of contingent pay as revealed by a number of research projects produced two overall conclusions: 1) contingent pay cannot be endorsed or rejected universally as a principle; and 2) no type of contingent pay is universally successful or unsuccessful. They concluded their analysis of the research findings by stating that 'the research does show that the effectiveness of pay-for-performance schemes is highly context and situation-specific; and it has highlighted the practical problems which many companies have experienced with these schemes'.

Allowances

Allowances are paid in addition to basic pay for special circumstances or features of employment (eg working unsocial hours). They may be determined unilaterally by the organization but they are often the subject of negotiation. The main types of allowances are location allowances, overtime payments, shift payments, working conditions allowances and stand-by or call-out allowances made to those who have to be available to come in to work when required.

Stock/shares

Share plans, by definition, will only be available within private sector companies with shares. Shares are mostly available for the more senior employees, but some companies have ‘all employee share’ plans that allow everyone in the business to become a shareholder, usually by buying shares within a tax approved plan. The types of share plan will vary considerably and are heavily dependent on the relevant tax legislation.

Bonus and Incentive Programs

These programs provide executives, managers, and employees with payment based on their performance for a designated time period. The dollars do not get added to one’s salary but are regarded as part of the total annual compensation. The amount of the payout is often determined by the performance of the company or business unit and by the individual. The program may be based on performance against objectives or a share of a profit pool. Salespeople often receive commissions for selling products or services and bonuses for accomplishing other specific sales objectives.

While the purpose of these programs is to reward people directly for their performance, these programs have become distorted in many companies. Those who have received bonuses over several years have adjusted their lifestyle to include these dollars. If performance is not achieved, there are tremendous pressures for the company to find some way to make bonus payouts regardless. Since bonuses are often tied to personal objectives and these are seldom written or made public, such programs soon become another entitlement, a measure of loyalty and compliance, or an 11-month deferred compensation program (i.e., a portion of pay is withheld until the end of the year).

Market Rate Analysis

Market rate analysis is the process of identifying the rates of pay in the labour market for comparable jobs to inform decisions on levels of pay within the organization and on pay structures. A policy decision may be made on how internal rates of pay should compare with external rates – an organization's market stance.

Non-Financial rewards

People work for money, but they work even more for meaning in their lives. Companies that ignore this fact will have employees that are less loyal and committed. (Pfeffer, 1998) Non-financial rewards do not involve any direct payments and often arise from the work itself, for example achievement, autonomy, recognition, scope to use and develop skills, training, career development opportunities and high-quality leadership.

Effective reward systems are about both the individual elements of reward and the total cost and value. The different parts of reward may be for different purposes but they all cost money to provide, so the organization needs to look at the total as well as the separate elements. There will be some choices about where to spend the organization’s money to best effect in the balance between the different parts of reward. For example, fixed basic pay could be lower but with a high potential bonus or profit share. Or more could be spent on tax-efficient benefits that deliver good value to employees than fully taxable salary.

What is important is that the options and the impact of these choices are considered carefully taking a strategic approach and the rationale is clearly explained to employees.

Reward can be anything from 5 per cent to 75 per cent of total costs. At one end there is the service sector which has little capital employed and where reward is likely to be more than 70 per cent of total costs. At the other extreme, in a sector such as oil and gas, which uses a huge amount of capital, the total cost of reward can be less than 5 per cent of all costs. Whilst employment costs will be of interest to all finance directors and leaders of organizations, where it is by far the most significant cost, it should be given particular attention.

There is a paradox in that product development, marketing and sales are greeted with plaudits when coming up with a new product, process or approach to market. It is the new that can beat the competitors in this fast-changing world. But when HR come up with a new idea it can often be greeted with the question, ‘What do our competitors do?’ This reaction, of course, does not acknowledge the uniqueness of the particular organization’s culture.

Surveys performed by research institutes show that people usually leave jobs because they want to have more opportunities to grow, to change environment, to learn new skills to be more appreciated while the financial component ranks on the 8th place (Manas, Graham p. 4). A survey of World at Work members (Workspan, 2012) found that whilst two-thirds of respondents agreed or strongly agreed that ‘Our compensation function is focused on creating unique/tailored compensation solutions for our business’, 42 per cent said that there needed to be a greater focus on this for the future.

Non-cash rewards are perhaps the only way through which a company can stand out and attract and retain valuable employees.

While the influence of non-monetary factors is widely acknowledged in motivating employees alongside monetary factors, the non-monetary rewards are not as sought after by companies in boosting employee’s motivation (Gratton, 2004).

It has been noticed through studies and surveys that non-financial rewards support the achievement of organizational objectives at low costs and in a rather short timeframe. Non-financial rewards can take various shapes ranging from written praise, public appreciation, declaring the individual “employee of the year/month”, reserved car parking space, cinema tickets, domestic goods, various vouchers etc. (Silverman, 2004)

There are several main reasons for using non-cash awards over cash particularly for recognition and incentive programs. Non-cash awards differentiate a recognition program from pay. I was consulting with an organization that paid recognition awards through payroll. The managers’ dominant view was that the important part of the process was the pay. The great majority of recipients, on the other hand, said that the most memorable and important part was receiving the letter of thanks recognizing what they had done.

It is sometimes said that cash is a motivator for as long as it takes before it is spent. In contrast, every time a non-cash item is used or enjoyed the recipient may remember why and how they earned it.

It may be that the organization can source an award much cheaper than the individual could. This may be because they are buying in bulk or can negotiate a better deal with a supplier or through a third party.

A non-cash award is more personal as it can be tailored to the needs and interests of the recipient, showing a greater amount of thought than a simple cash sum would reflect. We only need to think about the difference between receiving a birthday present of a cheque or a really well-chosen gift.

For a non-cash award to be, in any way, effective as an incentive it needs to be desirable. Where sales incentives use such awards they are typically something special such as an exclusive holiday or a very expensive watch. In a sales environment such awards are built into the budgets so that people who have sold enough will have generated the revenue that pays for the prize as well as their cash bonus. So they are entirely self-financing as you only qualify if you have met the clear financial targets.

Like any other non-cash award these can be talked about in a way that cash cannot. They allow people to demonstrate their achievement, meeting an ego need, often having been won through qualifying in a sales competition.

Non-cash rewards can help reinforce the message as it can be much more memorable and have a disproportionate impact for its cost if used in the right way. Non-cash awards can complement a cash plan. Non-cash awards can also be used to complement or replace a financial incentive. Non-cash can beat cash in a number of ways. A study that offered either cash or non-cash incentives of an equivalent value found that the group who received non-cash awards performed twice as well as the group who received cash. But the cost was the same. Although when asked, those incentivized with non-cash, said they would have preferred cash (Jeffrey, 2004).

Among the non-financial rewards, there are:

Recognition

Maslow (1970) believed that people need both self-respect or self-esteem and the esteem of others (recognition). Recognition has an important complementary role and non-cash reward can enhance reward practices. Recognition was defined as, ‘A process of acknowledging or giving special attention to a high level of accomplishment or performance, such as customer care or support to colleagues, which is not dependent on achievement against a given target or objective. It can be day-to-day, informal, or formal’ (Rose, 2011). Recognition is not based on targets.

Recognition programs are not incentive plans. Incentives seek to change behavior by using the incentive of a carrot. While incentives are an extrinsic motivator, recognition is acknowledging the intrinsic motivation of the individual.

Recognition programs typically seek to recognize behaviors (and maybe achievements) that fulfil overall values, such as excellent customer service, but are difficult to record in terms of objectives even if it was desirable to do so.

Programs to recognize individual top performers have gone in and out of favor in American industry. Employee-of-the-month and spot tangible awards (e.g., movie passes, dinners for two, points for merchandise, and so on) abound as ways to reward individuals who perform above and beyond their current job. These programs are also used to recognize individuals who achieve a certain length of service (e.g. 25 years) or are part of a company’s celebration of a milestone event.

The problems with these programs are more in how they are practiced than in their objective. Some companies use them to reward the non-managerial, nonprofessional staff, and so major segments of the population (the leaders) are excluded. Some companies use them in very limited ways, providing large rewards to the few people who executives believe made major differences. If employees do not understand the award or selection criteria or feel that the award is not achievable or worth the effort, these programs have little impact on behavior. Some managers use these programs to reinforce their stature and perceived power within their unit; others use them to reinforce both results and desired actions in sincere, meaningful ways. The same program can create vastly different environments. In fact, it has been observed that greater value accrues to the people who distribute the awards than to those who receive them.

Juran (2003) says: Recognition is typically non-financial and consists of ‘ceremonial’ actions taken to publicize meritorious performance. Of course, with the emphasis on the message rather than the prize, the cost of recognition is very low compared with a financial incentive. Recognition can make a huge impact for its cost compared with expensive incentive plans. Most organizations would do well to carve out a very small amount from their bonus budget (or an even smaller amount from their pay budget) and spend it on recognition instead.

Hertzberg found that lack of recognition for work done was a very significant factor for negative feelings about the job. It was also most often the only factor present in the situation, compared with others that more commonly appeared in combination. The research found that whereas achievement on its own can be a source of good feelings about the job, recognition is rarely independent of achievement. ‘A feeling that you have achieved and a feeling that you have been recognized are the two most frequent feelings that are associated with an increase in job satisfaction.’ (Hertzberg et al, 1959) Hertzberg also said that the act of recognition, which is not related to a specific sense of achievement, becomes a fairly trivial factor. (Hertzberg, 1968).

There are very many pieces of research across organizations that have found recognition to be a very significant factor, such as:

A survey of 1,500 US employees found that the number one workplace motivator was recognition. Specifically, the top motivator was personal congratulations from the manager for a job well done, which should be immediate and specific (Caudron, 1995).

A survey of companies across eight countries found that praise was ranked as the top motivator of front-line employees, just ahead of money and time off (The Ascent Group, 2009).

The Roffey Park Management Institute (2007) found that the fourth biggest motivator of managers was recognition by others. The third biggest demotivator of managers was a lack of recognition. A lack of effective recognition when people have really put themselves out can cost an organization in many different ways.

Organizations tend to look to ‘solve recognition’ by implementing formal plans shown on the right, but a better place to start is on the left. Encourage local informal recognition.

Recognition can be oral and face to face, and ideally with something to remember, or it may be in writing. The big advantage of it being in writing is that it then provides the memory itself; the recipient can show their family and friends. Non-cash recognition can be very simple and low key and make a significant impact. ”If you want to acknowledge something straight away, it’s easy to get the person a bunch of flowers or take them out for a meal. It’s the little things, but things that are in control of the manager, so that it happens instantaneously and everyone knows why.” (Brown and West 2006)

The 2013 CIPD Reward Management survey gave a list of 71 benefits provided by participating organizations (up from 57 the previous year). Table 13.2 shows the top 10 and bottom three by provision to all employees.

Table: Most and least common benefits provided

One interesting point from this survey is that benefits are mostly provided on a common basis, (single status) to all employees rather than by seniority.

There were only five benefits in the survey where more than 25 per cent of organizations based provision by seniority:

There is no doubt from the data that the majority of employers have a single status approach to benefits other than where there is clear market practice otherwise, and the number with status driven benefits is dropping. This has been the trend for many years – to minimize differences in benefit provision. This reflects the cultural trend in most organizations to try to minimize artificial hierarchy and encourage engagement and involvement.

Promotions, Career Development, and Performance Coaching

A promotion is the most common form of formal recognition. A person who excels in his or her job is promoted by the organization to broader responsibilities and challenges and to higher pay. People naturally seek to climb the ladder of success because it provides greater job satisfaction, higher income, and more stature. In many firms, people who remain in their current roles for more than 3 years are seen as being stuck, and their potential is questioned. Traditional organizations create levels just so people can have a sense of progress in their careers. The problem today is that many firms are delayering their organizations, expanding control, and reducing opportunities for promotion. Furthermore, an increasing number of firms are reducing the number of job levels through the use of broader salary ranges or by setting individual pay targets based on the external market. Finally, as the baby boomers of the 1950s and 1960s progress up the organization, there are fewer opportunities for promotion. The only opportunities appear to be in small companies that are growing and thus expanding their need for specialized and managerial talent. While this gives a competitive advantage to small companies, these firms cannot afford to pay people as much as they may have received in a larger company.

Flexible benefits

Flexible benefits (flex) is a system whereby individual employees can choose different benefits and different levels of benefits within a given menu to meet their lifestyle but at a neutral cost to the employer. It is normally run through an online system allowing an annual selection of benefits for the following 12 months.

The 2013 CIPD Reward Management survey found that just over 20 per cent of the participating organizations operated a flex plan. However, flex was more common in larger organizations:

SME (<250) – 12.4%

Large (250–9,999) – 23.5%

Very large (10,000+) – 44.1%

Flex should be considered by any organization other than the very smallest. Whilst flex was in the past disproportionately expensive for smaller employers, due to the set-up costs, there are now systems that target businesses which were previously too small to make flex a sensible option. An online system requires access to a computer, which would not be available to everyone at work. However, now the expansion of home computers and smartphones mean that even if employees do not have regular access to a PC for their work, they are likely to have access at home.

The decision-making process will differ between organizations, but you will probably have to draft some form of paper and possibly present to the decision making group, such as the board of directors. Notwithstanding the particular approach you take to build and present the business case, I consider below what such a business case might look like. You should be able to deal with every section if you want to be successful.

Some of the main reasons why organizations consider flex:

Maximize the value of benefits – many organizations spend a considerable amount of their pay bill on benefits, but employees do not always recognize or understand their value. Reward statements can help improve this understanding, but flex engages people in having to actually do something.

Control costs – benefits are often administered and accounted for separately. The cost of a benefit may not be particularly visible to managers. Flex can help give more transparency to benefit costs and make decision makers more aware of the costs of benefits. Flex can give a framework to cost benefits.

Reduce costs – this would need to be looked at carefully. Although there may be some direct savings from flex, such as employers’ National Insurance, flex is not really about saving money.

Improve recruitment – flex can give a competitive edge in recruitment. It can be quite powerful to explain the flex choices to a prospective employee. The perceived value can be very high particularly from someone with fixed benefits. It can also say a lot about the sort the organization you are.

Benefits can be a valuable part of the reward package, but only if you are clear on why you have them and you ensure that employees understand how they work, what they cost and their value to them. Flexible benefits are now available even to SMEs and are well worth considering.

Rewards can have a crucial influence on a company’s cash flow and business strategy as it can cost up to 75 per cent of the total costs of the organization and it carries strong messages and it can determine the engagement of people in the business. But this can only be done where it is aligned with the culture and strategy of the business.

Relationship between motivation and reward

Reward systems do not refer only to the actual payment of the employee, it also includes employee benefits, non-financial rewards (e.g. training, development, and environment) that make a company more flexible and success-driven (Armstrong, 2007). After some time of experimentation from 80s to early 2000s, the current rewarding systems focus more on meeting business needs, bringing competitive advantage and increased organizational performance to companies. At the same time, a rewarding system is designed in close connection with the company’s business strategy, organizational structure and culture since a rewarding system can send out powerful messages to current and potential employees about the company’s position towards performance and pay systems. (Ledford Jr., 2014, p.169)

Monetary rewards can have a powerful influence over an employee’s motivation which leads to higher levels of productivity for a company (Herman Aguinis, Harry Joo, Ryan K. Gottfred, 2013) and studies have shown that they are among the most influential incentives with visible. For instance, employees increased their productivity by 30% after the introduction of monetary rewards (Locke, Feren, McCaleb, Shaw and Denny, 1980). Usually, monetary rewards are more appreciated by top valuable performers and help companies retain them. By offering monetary rewards, companies give their employees a sense of belonging to a group, help them improve their social status by offering them the financial means to buy larger houses for their families, to pay for leisure activities or holidays (Aguinis, Joo & Gottfredson, 2013, pp 243).

However, monetary rewards do not always have the envisaged results. Generous amounts of monetary incentives sometimes fail to motivate (Beer & Cannon, 2004) and may even lead to counterproductive outcomes (Harris & Bromiley, 2007) or when they are promised very high amounts of monetary incentives, employees can ‘choke’ or suffer fail due to the growing pressure (Chib, De Martino, Shimojo, & O’Doherty, 2012).

Studies and practical experience have shown that reward has a strong symbolic effect but there is still the question of to what extent money (that can also be translated into incentives, bonuses and performance-related pay) alone motivates and how influential non-cash rewards are.

A safe approach of companies should be to find the right balance between monetary and non-monetary rewards so as to motivate employee and capitalize on the effects of rewards and follow at the same time the business goals and strategy.

The most common reference made when the role of reward as a motivator is raised is that Hertzberg said money is a hygiene factor. That is something that can cause damage if removed, but does not act as a motivator like achievement and recognition. But even with Hertzberg it is not quite that simple. Because Hertzberg also said, ‘[…] money thus earned as a direct reward for outstanding individual performance is a reinforcement of the motivators of recognition and achievement. It is not hygiene as is money given in across-the-board wage increases’ (1968).

Intrinsic and extrinsic motivation

Fundamental to an understanding of the role of reward in motivation are the concepts of intrinsic and extrinsic motivation. Intrinsic motivation is the internal satisfaction the individual has from doing the work. This is about basic job satisfaction; someone taking pride in their work. It builds self-esteem and feelings of competence and self-determination. (Armstrong, 2007)

Extrinsic motivation is the behavior that results from factors external to the individual such as reward and punishment. Any form of financial incentive (e.g. bonuses, performance-related pay) is an extrinsic motivator. Evidence demonstrates that intrinsic motivation is more powerful and sustained than extrinsic motivation that can be short term and lead to unexpected negative consequences.

Daniel Pink (2010) believes that using extrinsic motivators such as pay are ineffective, and he cites significant research to support his view. But he goes on to say, ‘On both sides of the Atlantic, the gap between what science is learning and what business is doing is wide.’

According to the Institute of Leadership and Management (2003) some 94 per cent of organizations offer an annual financial incentive to UK staff. However, they are shown to have little or no effect on commitment and performance for all but 13 per cent of staff.

Research by Jacquart and Armstrong (2013) found that higher pay for executives fails to promote better performance. Instead, it undermines executives’ intrinsic motivation, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions on stakeholders. In particular, the research found that it is not possible to relate incentive payments to executives’ actions in an effective manner. Incentives also encourage unethical behavior. The research concluded that organizations would benefit from using validated methods to hire top executives, reduce compensation, eliminate incentive schemes, and strengthen stockholder governance related to the hiring and compensation of executives.

The particular strategy you employ will be influenced by the belief system on the role of reward. Although reward can have a direct and significant effect in the short term it is unlikely to be a sustained source of motivation. As Pink (2013) says, ‘Money matters a heck of a lot, yet people can think about the work more if they are not thinking about the money.’

PwC (2011) conducted a survey of 100 senior executives that looked at the balance for individuals between intrinsic and extrinsic motivation. They correlated responses on goal-setting and work preferences. They found that goal-setting was important for motivation, regardless of whether people were intrinsically or extrinsically motivated. The process of identifying and setting challenging goals is in itself motivating for many, regardless of whether money is attached to the outcome. The survey found that respondents would take a pay cut of around 50 per cent to do their ideal job; 25 per cent would take a pay cut of 70 per cent or more. Only 5 per cent of respondents would not take any pay cut for their ideal job. The conclusion of the survey was that “[…] incentives do not replace management.’

A 2009 McKinsey Quarterly survey conducted on 1,047 executives, managers, and employees around the world revealed that respondents view three noncash motivators—praise from immediate managers, leadership attention (for example, one-on-one conversations), and the opportunity to lead projects or task forces—are no less or even more effective motivators than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options. The survey’s top three nonfinancial motivators play critical roles in making employees feel that their companies value them, take their well-being seriously, and strive to create opportunities for career growth. The survey found that praise from immediate manager; leadership attention e.g. one on one conversations; chance to lead projects or task force was equal to or more effective in motivating people than cash bonuses; increased base pay and stock or stock options.

Mercer (2011) found that the top three factors influencing motivation and engagement at work were: being treated with respect; work–life balance; the type of work that you do. Base pay came sixth and incentive pay/bonus was last. This was the same relationship for almost every country surveyed. The Civil Service People Survey (2012) in the UK had 300,000 participants. It found that over the past four surveys, analysis has shown consistently that the strongest influences on levels of engagement were: perceptions of leadership and managing change; what work people do; and the quality of managers. It concluded that focusing action on these areas is likely to have the biggest impact in terms of improving engagement. Pay and benefits came fourth or fifth in each of the surveys 2009–2012.

Even where cash is dominant there may be other motivators at work. On the face of it this suggests a motivation environment based entirely on the extrinsic value of money. But it was not as simple as that.

Pay that is well below the market level is likely to lead to more people leaving, so getting salaries close to the market may reduce turnover. But once pay is at around the market level the marginal impact on retention for further increases in salary will have a smaller impact than for those well below the market. So as long as pay is around the market median all the other things about working for the organization will have a greater impact on retention. But pay well below the market is more likely to have an impact on retention.

In this fast-moving world we need to be clear about what is important to people in the organization and use our valuable resources on that, not on something we may think that they want. Towers Watson (2010) found that employers across the world did not recognize the value to employees of three factors that were important to them: convenient work location; holiday/paid time off; and flexible schedule.

Each of these factors relates to the employees’ use of time, which is of growing importance. Time is a very valuable commodity and employees will make employment decisions influenced by the flexibility of time as well as reward and other aspects of working for the organization. Overemphasis on any one part of the employee proposition, such as reward, is likely to be unsuccessful in the long term.

The Millennial generation, those born between 1980 and 1995, will make up 50 per cent of the workforce by 2020. PwC (2013) found that the Millennial generation of workers would choose workplace flexibility, work–life balance and the opportunity for overseas assignments over financial rewards. The survey also found that millennials are more likely to stay in a job if they feel supported and appreciated, are part of a cohesive team and have greater flexibility over where and how much they work. This contrasts with the non-millennial generation, who place greater importance on pay and development opportunities.

Additionally, in terms of job motivation, Deloitte Millennials Survey 2015 highlights that besides elder generations, the Baby Boomers and Gen Xers – who have a higher attachment to financial and promotion recognition, the Millennials salary is as important as the non-financial benefits, incentives, a high tech and open work environment, mentorship and development opportunities. Unlike past generations who were willing to work beyond their contracted hours in the hope of rising to higher-paying positions later on, millennials are largely unwilling to give up a good work–life balance. This generation of workers is not convinced that such early career sacrifices are worth the potential later rewards. The report concludes that many companies will have to completely rethink how they attract and reward their workers, or risking losing the best talent to companies that adapt to meet their needs.

Technology has made huge impact on productivity and the speed of change. Social media and open information will continue to put pressure on organizations that can no longer control their employee brand. The Millennium generation is plugged into networks in a way that was unheard of only a few years ago. They want transparency and clarity and will see through rhetoric. This puts even more emphasis on the need for a strategic aligned approach to reward and requires greater involvement of people in the organization in the changes you plan.

One aspect of reward that can act as a de-motivator relates to employees’ perception of inequity in reward. Of more importance than the individual’s absolute level of reward is the perception of their reward relative to others. So the extent to which employees see their pay as unfair or inequitable is likely to be a greater de-motivator than their perception of their pay against the external market.

Analysis of some of the differences between the best performing employers and the average companies (Workspan, 2013) showed that the best employers excelled in 10 specific drivers of engagement compared with average companies. One of the 10 was ‘paying fairly’ where the best companies clearly put more emphasis.

Research by Kenexa (2013) indicates that employees who believe they are fairly paid are more engaged, less likely to quit, experience less stress at work, feel healthier physically and psychologically and are more satisfied with their personal life.

Reward might help an organization recruit, retain and motivate its best valued and skilled employees. The CIPD 2005 reward management survey covering 477 organizations established that the percentages of respondents adopting different types of reward policies and practices were as follows:

Reward can signal very clearly what the organization considers to be important. Financial incentives can positively increase performance on relatively simple tasks over the short term. But overall very great care needs to be taken in using reward as a motivator. That is not to say it has no role, but for reward to have impact in motivation it has to operate in a context where it is only one part of the motivation mix.

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