Lower salary budgets are a fact of life for many companies; research from Towers Watson reveals that on average companies set aside a budget of just 3% for base pay increases, equal to UK inflation. And according to the survey results, companies are trying to make those budgets go further by using pay differentiation.


Pay differentiation is a way of allocating who gets what salary. It’s usually based on geographical location or on merit and performance. It’s against a backdrop of pay differentiation based on merit and performance that the research from Towers Watson is conducted.

What is surprising about the research is that companies that had lower budgets set aside for pay rises (less than 2.5%) offered their high performers pay rises twice as large as their average performing peers.

There is no arguing with the fact that in these economic times cash-strapped employers are looking for ways to reduce their budgets, and performance related pay increases is one way of doing this. And whilst in a recession the employer might gain the upper hand, but the fear of the unknown and the possibilities of redundancies can be disruptive to the working environment.

So how can you create a level playing field for all that reduces staff turnover, improves morale, increases productivity and cuts the days lost to sick leave? The answer is through a universalemployee recognition scheme.

How to ensure that employee recognition schemes work

Companies that focus on giving only their ‘best’ employees pay rises risk creating negative attitudes amongst staff, “I’m never going to be good enough to get a pay rise so I’ll just not bother”. This can lead to a fall in morale, reduced productivity or accusations of favouritism from managers.

Employee recognition schemes, if run properly, turn these negatives into positives. And when we say employee recognition scheme we’re are not talking about just an old-school ‘employee of the month’ type programme which are usually the most unsuccessful of these type of scheme.

A good employee recognition scheme will be consistently fair and will have a clear set of guidelines so that managers can acknowledge equivalent performances, even if they are across different departments with different responsibilities. This way you will avoid accusations of ‘favouritism’ and high fliers seeing rewards as an entitlement.

We work with employers both large and small and in countless different industry sectors. So here are our very best tips for an effective employee recognition programme:

  1. Establish your standards and criteria for being recognised at the outset and make sure it is communicated clearly to both managers and employees.
  2. All employees must be eligible for the programme and must be enrolled in it.
  3. Anyone, and everyone, that performs at or above the required standards must receive praise.
  4. The recognition should occur as close as possible to the actual performance, don’t wait until the end of the quarter to reward an employee.
  5. The scheme should be clearly and consistently communicated with all managers and employees on an on-going basis to remind them of the behaviours, attitudes, values and performance levels that are expected of them and that lead to recognition.


Pay is only one of the factors that motivate employees, so it’s important to recognise that your employees may be motivated by other things in life. However you decide to implement your universal employee recognition scheme it’s important to make sure that the processes and criteria for recognition are fair, and seen to be fair, otherwise your attempts at creating an engaged workforce will always fall short.


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