The key challenge for employers and reward professionals can be summed up by a stark and simple fact: pay doesn’t motivate.

The issue: What’s my motivation?
It may be the reason we get out of bed and go to the office, but it certainly doesn’t put a smile on our faces or make us come to work with a cheerful whistle in the morning.

Hay Group research shows that employees’ performance and productivity can be boosted by up to 30% if organisations create a positive climate which engages staff. If engaged performance holds the key to a 30% leap in productivity, what’s the secret?

Employers need to stop thinking about pay, that’s a given and focus on how they can use reward to motivate their staff and release that all important 30%.

What is reward?
‘Reward’ covers a host of tools aimed at making the workforce more productive, by engendering greater job, and even life, satisfaction.

There are broadly two elements to reward:

• The classic benefits offered as packages to staff, e.g. company car, paid holiday, medical insurance, mobile phone, company discounts, luncheon vouchers, gym membership, etc.
• Intangible rewards, designed to stimulate employees and encourage better performance: company culture, team spirit, leadership/management style, career development, working environment and practices, etc.

These lists are far from exhaustive, as reward is subjective, it is different for every organisation and individual. To fully engage the workforce, companies must take a holistic view of reward, balancing tangible benefits with ‘softer’ elements.

However, firms cannot pick and choose at will. As we will see, the imperative is to tailor reward portfolios to suit a whole host of critical factors.

Solutions: ERM, flexible benefits, total reward
Employee relationship management:
Organisations must understand what makes them and their workforce tick, culturally and individually, if they are to deliver effective reward. Some of this will be obvious; other aspects may need deeper investigation.

We all know about customer relationship management. In a similar way, companies need to listen to staff when designing reward offerings, what we might call ‘employee relationship management’ (ERM) as an organisation’s reward system is a clear reflection of its values and priorities.

ERM involves auditing the workforce, usually with an employee survey, to gauge the rewards they prefer, then where possible designing or adapting the organisation’s reward system in accordance.

For instance, a creative agency may have a predominantly young workforce, and opt for ‘duvet days’ and leisure facilities (games room, gym membership); whereas a public sector body, possibly with a higher proportion of parents seeking security, stability and flexibility, might offer pensions, childcare facilities and flexible working arrangements.

Flexible benefits:
Flexible benefits can play a key role in finding the right reward mix. Flexible systems allow employees a degree of choice over their reward package, for example, offering the option to take a cash allowance instead of using a company car, buy or sell holiday, choosing between childcare vouchers and medical insurance, and so on.

Flexible systems bring advantages for both employer and employee. They offer a greater range of benefits to staff, allowing them to adapt their package to suit their lifestyle. For employers, flexible benefits can optimise value where payroll costs are concerned, as well as helping to tailor reward to best suit company objectives.

Suits you?
It is essential that firms strike a balance between what the workforce wants and what the business is there to achieve. As we have already seen, intangible rewards can help create the culture required to get the job done. On the other side of the coin, a poorly adapted reward system could prove damaging to a company’s business objectives, or even counteract its central philosophy.

Take the example of the pensions organisation which conducted a staff survey on reward policy, only to find that almost half of the workforce preferred to forgo the contributory pension offered, and take it in cash! How could a pensions organisation possibly let half of its workforce dispense entirely with their pension arrangements?

Total reward:
Though many faceted, reward is not a free for all. It needs to be aligned with organisational strategy and values. When constructing a reward system, the ultimate goal should be what is known as ‘total reward’ – a holistic, balanced approach to rewarding and motivating the workforce, taking into account corporate objectives, processes and procedures and culture, along with the lifestyle choices made by staff.

Further information:
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Mark Thompson is Associate Director at management consultancy Hay Group.