Motivating the workforce - The ‘total reward’ management tool for enhancing performance - Feb 2008
Whilst cash payment (basic salary and variable pay) is the backbone of any remuneration package, employers are becoming more sophisticated in their attempts to attract, retain and engage staff. There has been a recognition across the past 20 years that cash pay is not the sole employee motivator. Businesses are increasingly judged not only on whether they meet their legal obligations to employees, but on whether they are a socially responsible employer.
Share ownership
Share schemes are useful in encouraging employees, who will ultimately benefit from the business success they're helping to create. From the company’s perspective a share scheme can help the shareholders to transfer ownership to those working in the business (for instance to family) or can enable a management buy-out. Share schemes promote loyalty and can help to retain valued staff as employees normally have to remain with the business to receive the benefit.
Types of share scheme
- Share option is the right to buy a certain number of shares at a fixed price at some time in the future. Employees are generally entitled to exercise their options - buy the shares - after a specified period, known as the vesting period.
- Share award schemes involve giving employees actual shares either free or for less than their market value. The value of shares given to employees is treated as employment income - subject to tax and National Insurance contributions, unless the company opts for an HM Revenue & Customs tax-advantaged (approved) plan.
- Share purchase schemes allow employees to buy shares, save money to buy shares or buy shares for a small deposit, paying the rest at a later date.
Benefits
Flexible benefits schemes are formalised systems that allow employees to vary their pay and benefits package in order to satisfy their personal requirements.
The employee is given a benefit allowance and a list of available benefits and they may ‘flex’ between three or more benefits (such as trading down on a company car and trading up on holiday entitlement). There is usually a limit set on how much of the salary can be used to buy extra benefits and equally there is a baseline of benefits that must be kept.
A number of organisations have to date allowed a limited form of flexibility for just one or two benefits, however in recent years comprehensive flexible benefits schemes have started to become more common in the UK. Although generally welcomed both by employers and employees, flexible benefits schemes have often been avoided because of the cost of introducing and administering them.
Voluntary benefits schemes enable companies to offer extra perks, discounted products and services to the workforce at little or no extra cost to the organisation. These benefits are paid for by the employee, sometimes through payroll. Perks that attract an employer tax break can be offered through a salary sacrifice arrangement. For instance, under a pension salary sacrifice scheme the employee sacrifices part of their pay, in return their employer makes an equivalent contribution to the pension.
Non-financial reward
Despite over half a century’s organisational research that demonstrates that employees are motivated by more than money alone, many organizations continue to rely solely on financial rewards. Under the concept of ‘total reward’, companies adopt a range of mutually supporting financial and non-financial rewards. Non-financial rewards include recognising individuals (giving employees a voice and giving credit for work undertaken), assisting employees develop their skills and career, and providing working conditions that ensure a quality of life (such as flexible working and special leave policies).