Economic uncertainty in the U.S. and elsewhere is causing many companies to limit their salary increase budgets. However, employers can find ways to supplement current financial rewards by paying more attention to the nonfinancial rewards they provide to their employees.
“We typically see more emphasis of nonfinancial reward programs when times get tough,” said Tom McMullen, Hay Group’s North American reward practice leader. “But these programs also tend to be sustained as the economy improves.” McMullen defines rewards as anything the employer provides to the employee that has some perceived value. Nonfinancial rewards include career development opportunities, the opportunity to work in an energizing and exciting work environment, the opportunity for meaningful and challenging work, and attractive job designs.
Nonfinancial rewards can create perceptions of the overall fairness of a rewards program. A study of more than 500 professionals conducted by WorldatWork, Hay Group and Dow Scott, a Loyola University Chicago professor of human resources, found that three of the top five concerns regarding reward fairness focus on nonfinancial aspects of the total reward offering, including career development opportunities, nonfinancial recognition, and employee development and training.
“Reward professionals view career development opportunities as the top reward fairness concern because growth opportunities are in high demand by employees,” said McMullen. “At the same time, career development processes are not particularly developed in many organizations, even though career development concerns are the number one retention issue for employees.”
Companies are increasingly aware that nonfinancial rewards play an important part in employee engagement. Research drawing on Hay Group's employee opinion database—representing about 4 million employees worldwide—shows that five of the most common reasons employees leave an organization are linked to nonfinancial issues:
• Lack of career development opportunities.
• Poor work climate.
• Lack of challenging work.
• Direction of the organization.
• Lack of recognition.
Looked at from a more positive angle, addressing these issues can create key retention tools for an employer.
How effective companies will be as they attempt to shore up nonfinancial rewards remains to be seen. “This is still virgin territory for a lot of organizations,” said McMullen. The career development infrastructure in many organizations is often informal and does not provide a clear path for employees. In this environment, an entry-level employee might not know about his career path options for the next five years of his work life. In addition, organizations can struggle to identify and implement best practices for improving the overall work climate. “Organizations still have a lot of work to do in terms of equipping their managers with the tools and data necessary to effectively manage nonfinancial rewards,” McMullen pointed out.
Different Employees, Different Priorities
The relative importance of nonfinancial rewards can vary considerably throughout the employee population, so determine what appeals to which employee groups. For example, the employee population of a business unit that is fast-paced and entrepreneurial might focus on work environment, while employees at a slower-growing business unit might be more interested in career development. “What motivates, retains and energizes a research and development group is likely to be very different than what works for employees in a sales organization,” noted McMullen. “Breaking down the employee population into logical segments can make a lot of sense as the organization determines what engages employees.”
McMullen suggested that organizations involve employees in the design of nonfinancial reward programs. “Our data show that only one out of five organizations involves employees in the design, implementation or evaluation of these programs,” he said. “The rest believe that they know what is best for employees.” Some companies survey employees about the elements of financial rewards and ask them to place a value on them, using a maximum of 100 points. Such a survey approach could easily be adapted for use with nonfinancial rewards. Of course, companies that ask employees to get involved will be under more pressure to come through with changes.
McMullen noted that the most-effective reward programs are not the most elegantly designed but those that are communicated and deployed most effectively. One tip he offered is to emphasize and repeat a few key messages that distill the essence of the program.
Emphasizing Nonfinancial Rewards
Employers that do not emphasize and communicate nonfinancial rewards when bringing in employees are missing out on a key opportunity to differentiate themselves, according to Lynne Sarikas, executive director of the MBA Career Center at Northeastern University in Boston.
Sarikas recommended widening the focus when making an offer away from just base salary. She noted that most employers do not discuss benefits—especially nonfinancial benefits—until they are ready to extend an offer. Even then, companies typically just send information about the benefits package, essentially relying on prospective employees to determine the value of those benefits.
“I think it is a huge missed opportunity,” she said. “You do not want to talk about it too soon, but benefits are worth some additional communication instead of just calling and saying, ‘here is your $75,000 salary offer.’ ” When this happens, people tend to zero in on the salary number instead of looking at the full range of rewards a company offers.
“We try to get the students to expand their thinking to include many of the things they take for granted when considering a job offer,” Sarikas added. But this could take time. “You have to walk them through the offer and help them see the value of all of those things that do not have numbers on them,” she said. “The employer can really sell that in the interview process and then again when they are extending the offer.”
For example, even though no organization can or should make promises regarding career advancement to an individual, the organization can provide examples of those who have prospered with the company. Similarly, companies can sell training opportunities as a signal of the organization’s willingness to invest in employees. “Sometimes this make the difference for people considering multiple offers,” said Sarikas.
Joanne Sammer is a New Jersey-based business and financial writer.