Reward programmes offer organisations a competitive edge*

By Steven Dicker who can be contacted at www.watsonwyatt.com/europe/ 

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1. Introduction

Most members of the business community believe that people are an essential part of sustaining an organisation’s long-term competitive advantage. Therefore the ability to attract, motivate and retain the best people will be a key influence on an organisation’s future success. Both financial and non-financial rewards drive attraction, motivation and retention. They should be used as a primary source to gain competitive advantage.

Wyatt Watson surveyed employers and employees across Europe to help establish a picture of strategic reward practices that leading organisations adopt; and to gain an understanding of what motivates and engages top performing employees. Responses came in from more than 170 companies and 2,000 employees and the results provide compelling evidence of the link between a company’s employee rewards programme and its long-term financial success.

The following six key findings demonstrate that link:

# Reward strategy linked to business strategy delivers higher Total Shareholder Return

# Employee involvement in reward design results in higher Total Shareholder Return

# Top performing employees drive the business – rewards need to engage and motivate those employees

# Differentiation of rewards results in superior financial performance

# Rewards can increase profitability

# Communication is an essential element in reward delivery.

2. Companies that link reward strategy to business strategy deliver higher Total Shareholder Return.

By definition, a reward is something given in return for something valuable. Ideally, employees should be rewarded when they effectively support and help achieve an organisation’s stated goals. To build support for the business mission and values, and drive continued high performance, employers must ensure that their employees are ‘facing’ in the right direction. Only with an effective reward strategy can companies ensure that the efforts of their workforce are aligned with the business strategy.

According to Watson Wyatt's research, high performing companies are more likely to link reward strategy to the organisation’s overall business strategy. For the purposes of the survey, high performing companies are defined as those in the top third of surveyed companies, on a five-year Total Shareholder Return measure. Low performers are those in the bottom third.

Higher performing companies (75%) are differentiated from lower performing companies (44%) by their view that rewards are a way of engaging employees in improving performance. It is not surprising then that high performing companies are also reporting that their reward strategy is effective in motivating good performers.

3. Differentiation of rewards results in superior financial performance

If rewards are to positively impact on the future financial success of an organisation by motivating employees to perform, companies must differentiate their rewards. Organisations that customise their rewards programmes to motivate top performers achieve nearly 20% higher five-year average Total Shareholder Return than companies that do not (Figure 3). Those companies are also less likely to experience turnover among their key employees.

Understanding top-performing employees’ opinions is critical, as employers need them most to remain competitive. For this reason, we questioned the top-performing employees in participating organisations to discover their preferences.

The results reveal that different age groups have different preferences. Younger workers, for instance, are more concerned about developing new skills. And those in the 30-50 bands opt for above average base pay and opportunities for promotion.

>> ALL RESPONDENTS:

1. Tailoring jobs to match individuals’ abilities and interests

2. Base pay above market average

3. Opportunities to learn new skills in current job

4. Opportunities for promotion

5. Flexible work schedules

>> UNDER 30S:

1. Opportunities to learn new skills in current job

2. Flexible work schedules

3. Work at home

4. Tailoring jobs to match individuals’ abilities and interests

5. Opportunities for promotion

>> 30-50 YR OLDS:

1. Base pay above market average

2. Opportunities for promotion

3. Tailoring jobs to match individuals’ abilities and interests

4. Opportunities to learn new skills in current job

5. Flexible work schedules

>> 50+ YRS:

1. Tailoring jobs to match individuals’ abilities and interests

2. Opportunities for promotion

3. Retirement plans

4. Base pay above market average

5. Opportunities to learn new skills in current job

In summary, a well-structured reward strategy aligned to business goals; tailored to the needs of those employees most likely to influence the business; and which truly differentiates, can have a significant impact on business performance. With employees properly engaged, motivated and rewarded, business will most certainly be looking up!