A successful pay and total rewards strategy should help attract the best people, to get the best performance from them once they’re on the job and encourage them to stay with you for the long term. They must also have the objective of rewarding high performance (that is also aligned with company performance) over both the short and long term.
Total rewards are about more than just money – it is about motivation and happiness, and it should comprise both economic and non-economic benefits, which will contribute to increased levels of productivity and morale.
The ideal mix to achieve this would include base remuneration, rewards and perks, short-term performance bonuses and long-term loyalty initiatives. But importantly, bonus and reward systems need to match the business.
In some industries, increased labour regulation and costs are continually challenging business to have a margin to reward performance. Profits don’t grow on trees. They have to be made. Business and its employees need to share a mutual responsibility to support increased productivity and in doing so share in its rewards.
One of the most powerful outcomes of a strategically planned remuneration system is that it helps to align your employees’ personal and financial goals with your business goals. In other words, it encourages employees to think and act like stakeholders in your business.
Let’s take a look at some of the types of remuneration and total rewards initiatives including;
- base remuneration;
- short-term incentives (STIs);
- Long-term incentives (LTIs);
- Peer recognition and reward programs;
- Salary packaging & accessing wages in advance;
- Other non-financial benefits;
- Total rewards.
This must be industry competitive. If you pay less than the rest of the market, you will attract a lower quality of employee, which will be reflected in your operating results.
Salary and compensation should be benchmarked at least annually. I am an advocate for doing salary benchmarking at least annually – but not using salary guides published by recruiters. I find the best source of information is using job boards, such as SEEK because you can get a better appreciation of the skills and experiences being sought by prospective employers at different pay brackets.
Short-term incentives are designed to influence immediate behaviour to achieve specific short-term goals – and include sales commissions, periodic bonuses or sharing margin on a business unit performance.
Self-regulating bonus arrangements are ideal in situations where an individual has full control over their portfolio of work (and the revenue attached to it). As it increases, so does the employee’s variable earnings (allowing both the company and individual to share in that success) whilst managing potential resourcing headaches.
The question should be asked now, if reward structures are solely geared to revenue or profit at what cost is this achieved? Is this to the detriment of staff morale, development and customer satisfaction/retention?
Many companies are extending their bonus schemes to cover a wider range of factors, reflecting a broader set of business objectives. This can help avoid the potentially distorting effect of focusing too much on a single measure. In addition to financial and output considerations, bonus schemes increasingly take into account factors such as customer experience, quality, safety, team and individual performance or various HR-related measures. However, some companies operate successful schemes that focus on one particular key objective – most often profits or productivity.
Importantly, ensure there is management discretion in short-term incentives, as there may be other factors to consider that may not have been anticipated – and that flexibility may be required.
Long-term incentives (generally those over a period greater than 1 year) provide employees with a vested interest in increasing the value of the organisation over time. They typically achieve greater mutual outcomes overall (loyalty, trust, alignment and financial benefit) than short-term incentives – but are less common and not always most applicable.
With high performing staff, linking such incentives to long-term outcomes is a win/win for both the business and the employee – the sky is literally the limit for both.
Equity and employee share option plans are the popular type of long-term incentive, but cash-based (or virtual share-type) arrangements can also be designed with similar intentions.
Peer recognition and reward programs
Establishing a structured peer-to-peer reward and recognition program ensures consistency and all employees to have an equal chance to be rewarded and recognised within the business. It ensures consistency and allows full visibility of who is being rewarded, why they are being rewarded and the cost associated with the rewards.
Providers such as Power2Motivate offer valuable solutions to incentivise, recognise and rewards employees.
Salary packaging and accessing wages in advance
Salary packaging by employees receiving less income after-tax after the employer pays benefits to the employee out of pre-tax earnings is still a popular option – mainly for those on middle to high incomes or those working for a charitable organisation.
For charitable organisations, this can have the effect of attracting and retaining staff whilst paying less than the wider market.
We are also seeing an increasing number of Australian employers providing their employees with access to their wages in advance via applications such as Employment Hero’s Instapay feature, following a trend from overseas.
Other non-financial benefits
Other non-financial benefits might include:
- Time off (for a job well done or for achieving milestones);
- Provision of childcare;
- Job sharing;
- Contributions to nominated charities and other corporate citizenship initiatives;
- Study assistance (or other qualifications);
- Flexible working;
- Employee assistance programs; or
- Health and wellbeing programs.
A strong value proposition is not strictly limited to tangible offerings of a financial or non-wage kind. It covers the unique mix of policies, programs, processes and indentured culture of the business. These have the effect of attracting and retaining talent, but also providing a greater balance of financial and non-wage compensation (benefits) to employees – which can result in an improved remuneration control.
Other important aspects of a total rewards strategy include:
- Creating a positive and supportive work environment;
- Recognising and catering to individual differences;
- Matching the right people with the right jobs;
- Using realistic and achievable goals and targets to challenge people; and
- Implementing training, programs for professional development and career advancement.
Other articles that may interest you
10 Tips to Motivate & Retain Employees
Planning a Return to the Workplace – A Guide for Employers
What Can I Do When Employees Refuse To Return To Work?
Why You Need To Hire For Workplace Culture
How Culture Plays a Role in Engaging Millennials
About Employment Innovations
Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.