Reward strategy: How to Get the Right Compensation Package to Attract and Retain Employees
How does your organisation reward a job well done? Acknowledgement in a company newsletter? A simple thank you?
Some companies think that a competitive salary is enough recognition alone. But your employees don’t, and if you don’t have a robust reward strategy in place you’ll struggle to retain your best talent for the long term.
What is a reward strategy?
Effective reward strategies for employees encourage positive behaviours and foster increased loyalty to the organisation. The primary aim of a reward strategy is to motivate employees to perform better in order to achieve the business’ goals, so it’s important that it aligns with the company’s overall mission and values.
There’s no one-size-fits-all approach to reward strategy, but to achieve the best outcomes it should combine both monetary and non-monetary rewards, incentives and benefits.
When well implemented, reward strategies can have a significant impact on employee satisfaction, wellbeing and staff retention.
How pay and bonuses impact employees
Your employees depend on their salary for every aspect of their life, from ensuring they can pay the bills to doing the things they enjoy.
A person’s salary is clearly important and may well be a motivating factor in taking a job or leaving one, but it doesn’t necessarily increase job satisfaction. A report on pay and rewards by BDO UK found that:
- Higher pay only increased job satisfaction for employees who are ‘extrinsically motivated’. The study also showed that younger people place a higher value on pay than older workers.
- Knowing that their salary is in line with their peers and that the remuneration decision process is fair increased an employee’s job satisfaction.
- Salary plays an important role in employee wellbeing, but not the most important, with workplace stress and work-life balance shown to be equally, if not more, important.
When it comes to bonuses, the BDO report found that bonus schemes are associated with greater job satisfaction, but that only larger bonuses (25%+ of salary) have a significant effect.
Non-monetary rewards, such as flexible working, company ownership schemes and a company culture of recognition are particularly effective for improving satisfaction, retention and productivity.
Recognition is a crucial factor in determining employee retention, while people are more productive and happier when they are thanked for their hard work. This recognition could be achieved with monetary rewards, for example eVouchers or gift cards, or rewards that celebrate success, such as awards and certificates.
BDO’s study also showed that flexible working is associated with higher job satisfaction, employee retention and wellbeing.
Workers who have an ownership stake — or the right to participate in decision making — are less likely to leave, enjoy increased job satisfaction and demonstrate more loyalty to the business. This is especially the case when employee ownership is combined with performance-related rewards and a strong remuneration package.
Why is a strong reward strategy important for your business?
Employee loyalty isn’t what it once was.
While in the past it wasn’t unusual for someone to spend decades with the same company, a recent Gallup report dubbed millennials the ‘job-hopping generation’, with 21% of the cohort changing jobs within the previous 12 months — that’s three times more than non-millennials. What’s more, only half of this age group strongly agreed that they planned to work for the same company in 12 months time.
When you combine this with the current job climate and many people leaving their jobs as part of The Great Resignation, it’s clear that businesses have to do more to retain their top talent, and a reward strategy is integral to this effort.
There are a number of great benefits of reward strategies:
1. Attract (and retain) new talent
Your industry’s top talent is looking for a great remuneration package, but they’re also looking for more than that, and they want to know they’ll be rewarded when they deliver fantastic results.
Make it clear in job descriptions how you’ll reward them for helping to achieve the business’ goals. You should also provide a more detailed overview of your reward strategy during later stages of the recruitment process.
As the BDO study demonstrated, your reward strategy will also be key to improving employee retention, and when staff turnover is reduced you’ll spend less money on recruitment and training, and see better outcomes from employees who have been in the job for longer.
2. Improved employee wellbeing
Employee wellbeing combines mental, physical and financial health, as well as job satisfaction. A reward strategy can address multiple elements of wellbeing, with monetary rewards helping their money to go further, while positive recognition goes a long way to improving job satisfaction and happiness in the workplace.
On the other hand, ignoring an employee’s hard work is going to leave them disengaged and less inclined to go the extra mile in the future.
3. Increased productivity
Studies have shown that happy employees are 13% more productive, and with recognition so key to employee wellbeing, you can draw a clear link between rewards and increased worker output.
Research by Deloitte also found that recognition highly correlates with employee engagement, and as a result improved job performance. Productivity was shown to be 14% higher than in organisations that don’t reward positive behaviours, while a 15% increase in engagement resulted in a 2% increase in profit margins.
4. Foster more loyalty and a long-term approach
When your employees know their hard work is recognised, appreciated and rewarded it breeds loyalty. This has a positive impact on retention as well as your reputation, with your staff speaking about and selling the company to others, whether that’s clients or potential new hires.
A well thought-through rewards strategy also encourages employees to adopt a long-term outlook. A strong rewards and recognition programme isn’t about ad hoc freebies for single pieces of work, but acknowledging consistent results over a period of time that align with the business’ goals and mission.
5. Encourage proactivity
Your staff are best placed to identify issues with systems and processes, but unless they’re incentivised to come forward with suggestions of how to improve things, most people will choose to remain quiet.
By rewarding great ideas that an employee spontaneously brings forward you’ll encourage a culture of proactivity and creativity.
This links directly to the Expectancy Theory, which defines employee motivation as the outcome of Valence (desire for a reward), Expectancy (the likelihood of receiving the reward) and Instrumentality (the belief their action will lead to the reward).
How to develop a reward strategy
As mentioned above, a successful reward strategy needs to include more than monetary bonuses. When developing your strategy you need to consider different forms of recognition for different employees, and understand that not everyone is motivated by the same things.
The first step is to identify what type of rewards people within the organisation will respond well to, and the circumstances that lead to those rewards being received. For example, reward vouchers offering retail discounts might work for Employee of the Month awards, or perhaps experiences like film rewards would be preferable.
Next, training has to be provided to line managers in order for them to identify when an employee is eligible for a reward based on results, behaviour or any set of criteria you put in place. Remember, this needs to be consistent for every department to avoid causing issues between employees in different teams.
Once the reward strategy is in place, you need to regularly evaluate the programme to ensure it’s working as planned and delivering results. If you’re implementing a rewards strategy for the first time, it’s likely you’ll need to make tweaks to various elements. For example, reducing or increasing the threshold for when rewards should be given. This should be done in consultation with managers and employees.
At Sodexo Engage we’ve been helping organisations maximise employee performance, improve retention and support wellbeing for over 60 years. Our decades of expertise and team of people-orientated experts will work with you to identify the business’ priorities and work collaboratively to develop a reward strategy that delivers exceptional results.
The key benefits and features of our solution includes:
- eVouchers and gift cards that offer bulk discounts for a huge network of leading retail brands.
- Reward your employees in a way that works for them with voucher cheques that allow them to choose where they want to spend the money, and Employee Recognition cards that can be spent anywhere they want.
- Celebration packages that make it easy to recognise achievements and special milestones, including long service awards and certificates for outstanding performance.
We process almost 500,000 reward product requests every single month, and our dedicated customer service agents and Account Managers are on hand to help with any questions you have.
Are you ready to work with Sodexo on building your rewards strategy? Get in touch with our experts to find out more about how we can enhance employee satisfaction with our Employee Rewards platform.