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Pay vs. Intangibles: Which Rewards Best Motivate, Engage?

Employees not involved in the design of reward programs

In light of the 2008-09 recession and sluggish recovery, employers have become concerned about keeping employees motivated after wage freezes, lost bonuses, increased work demands and downsizing. This has led to a corporate battle cry for “employee engagement,” typically described as high levels of employee involvement, commitment to the organization and job satisfaction.

But most compensation professionals say that their organizations do not necessarily consider how reward programs affect employee engagement, according to a survey report by WorldatWork, Loyola University Chicago and Hay Group, Impact of Rewards Programs on Employee Engagement.

The survey of WorldatWork members—primarily reward professionals—was fielded from Dec. 15, 2009 through Jan. 12, 2010. Among the findings, only 11 percent of respondents indicated that their organization frequently ("often" or "always") involved employees in the design of reward programs—although encouraging employee input and involvement in programs that affect them is a method organizational development specialists suggest to enhance employee engagement and commitment.

“Through our research we have learned that organizations that involve employees in the design, implementation and assessment of reward programs are associated with reward strategies that effectively foster high levels of employee engagement,” said Dow Scott, Ph.D., professor of HR and industrial relations at Loyola University Chicago. “Involving employees in programs that affect them offers a direct way for reward professionals to enhance employee engagement.”

Work/Life Balance, Work Quality and Career Opportunities

Data from the 736 survey respondents also shows that base pay and benefits had a weaker relationship with the organization’s ability to foster high levels of employee engagement and motivation compared to nonfinancial incentives, intangible rewards and quality of leadership.

“Quality of work, career development, organization climate and work/life balance all have a greater perceived impact on employee engagement than financial rewards such as base salaries, benefits and monetary incentives,” said Tom McMullen, North American practice leader for Hay Group, a consulting firm.

“Quality of leadership has a profound impact on employee engagement and motivation,” added Paul Rowson, managing director of WorldatWork's Washington, D.C., office and conference center. “Organizations must think in terms of total rewards and not just financial rewards if they are to enhance employee involvement, commitment, job satisfaction—and performance.”

The majority of respondents represented organizations from the United States (55 percent), Canada (7 percent) and Europe (4 percent).

Another View:

Pay Has Strongest Impact on Retention, Engagement

As the job market picks up and concerns about engagement and retention remain at the forefront, cost pressures still loom. According to Mercer’s 2010 Attraction and Retention Survey, slightly more than two-thirds (67 percent) of North American organizations will be influenced equally by external competitiveness and internal affordability when making pay decisions. However, about one-quarter (24 percent) report that affordability will have a greater impact on pay decisions.

Conducted in April 2010, Mercer’s survey assesses the tactics employers are using to promote employee attraction, retention and engagement. It includes responses from more than 320 employers across all industries throughout the U.S. and Canada.

The survey found that over the previous 18 months, amid limited pay budgets, organizations increased their use of non-cash rewards as a means to enhance employee retention and engagement. Rewards offered more during this time period included:

  • Communicating the value of total rewards to employees (27 percent of respondents)
  • Work/life programs (22 percent).
  • Formalized career paths (21 percent).
  • Special project opportunities (20 percent).

Despite past emphasis on non-cash rewards, for 2010 and beyond organizations plan to focus on money as well as career development to retain and engage the right talent, Mercer found. Leading reward elements perceived to have the strongest impact on employee retention and engagement for 2010 were:

  • Base salary increases (41 percent of respondents).
  • Short- and long-term variable pay (36 percent).
  • Training and career development (35 percent).

Interestingly, approximately one-quarter of organizations report that programs such as work/life initiatives, employee communication campaigns and time-off plans—elements of importance during the previous year and a half—would have less impact on employee retention and engagement going forward.

“Non-cash programs like career-pathing, increased communication to employees and work/life initiatives are important in fostering employee retention and engagement regardless of the economic environment,” said Loree Griffith, a principal with Mercer’s rewards consulting business. “However, as recovery occurs, employers want to revisit pay as a means to staying competitive and retaining top-performing employees.”

Stephen Miller is an online editor/manager for SHRM.

Related Article:

U.S. Rank-and-File Workers Feel Undervalued by Managers, HR News, July 2010

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