With reward and bonuses hitting headlines, now is the time to reconsider how your reward system works and make it more effective than ever.
The recession has brought the issue of bonuses and salaries into sharp focus. Whilst the majority of the attention has been focused on the financial sector and bonuses being given to perceived ‘fat cat’ bankers, other business sectors should not assume that they will remain untouched from the fallout of the economic situation. A few months into 2010, we are slowly seeing a shift towards greater transparency when it comes to rewards. Instead of treating this as a threat, businesses should treat it as an opportunity, as it allows them to increase compliance levels, whilst helping to create a more motivated workforce.
In 2010 as in other years before, it will remain vitally important for businesses to retain their best employees and continue to reward good performance. According to research from IRS Employment Review, 80% of employers are operating an incentive and rewards scheme, with the aim of motivating employees and keeping engagement and productivity levels high. However, there can be negative effects of such schemes.
In the financial sector, for example, bonus payments have made up a substantial part of the income of bankers and have risen from £5bn to £15bn over the past three years, as banks looked to ensure their future success. However, with banks being blamed as the cause of the recent economic troubles, critics are questioning whether such bonus pay-outs are deserved. Goldman Sachs received highly negative media coverage for employee bonuses, despite turning a substantial profit and not being supported by Government cash injections. While both the UK Financial Services Authority (FSA) and the US Treasury Department have issued new guidelines on remuneration polices. The ongoing pressure from the media to keep bonuses ‘real’ will filter through to all business sectors, and every organisation should act accordingly.
Transparency and value
The media pressure and potential attention from regulatory bodies should therefore encourage companies in every sector to hone in on their rewards strategies, and make sure that they are doing the best they can to correlate them to business performance. In today’s economic climate, reward strategies need to change in order to demonstrate transparency and real value, rather than simply being used as a tool for the recruitment and retention of staff. While many businesses already carry out performance management and reward schemes for all their employees, businesses should link the two directly and explicitly to show greater corporate social responsibility externally, and to incentivise staff internally.
This year, we should therefore start to see businesses trying to adapt to the inevitably increased scrutiny from both internal and external sources regarding rewards systems. Organisations must ensure that they are able to demonstrate a stronger link between performance and reward than has been the case in the past. By aligning the two, organisations can develop remuneration policies that are consistent with compliance and risk management. This means having in place a fail-safe system whereby if any employee or external body questions a reward, the business will have the facts and figures behind them to explain why such a decision was made.
Linking to performance
Companies can learn from those other businesses which operate solely on a base salary + commission basis such as recruitment, where rewards are tightly and openly linked to performance. In a non-commission based industry, such transparent systems that stretch right from the lowest levels up to executives and C-level staff can prove significantly more successful in terms of ongoing performance than rewarding top talent alone. In addition, the information that is gathered in this process about each individual’s performance, can then be used as a performance management tool in its own right. This will assist HR departments and businesses as a whole with the identification of areas where employees are excelling or struggling, so helping to plan personalised training for them and providing educated feedback regarding what they might need to do to progress their careers.
Businesses who succeed in taking advantage of the media focus on bonuses in order to develop effective and justifiable remuneration policies in 2010 will find it to be a good year. Not only will business processes such as performance management and rewards systems in place become more integrated for added efficiency, but your employees will be better motivated and so more productive as they know that they will be well – and fairly – rewarded for their work.
Richard Doherty is Group Vice President of Solutions at Jobpartners
