By Lenja Dahms-Jansen, Partner, and Norma Mazibuko Executive Rewards Consultant, Bowmans South Africa
As a starting point, the aim of a reward strategy is generally the same; to improve organisational performance by providing employees with rewards (that they perceive as valuable) in exchange for desirable behaviour and performance on their part. However, how this outcome can best be achieved is dependent on an organisation’s business strategy and human resources strategy, which are driven by its vision and mission.
Once an organisation has established its business strategy and human resources strategy, it will be able to determine what combination of rewards would work best in its unique environment to attract, motivate, engage, and retain high-performing and high-potential employees who will, in turn, drive the business strategy for optimal results.
The concept of ‘reward’ is commonly understood to mean payments in cash or equity, but it is much wider and more flexible than this. In recent years, the concept of ‘total reward’ has emerged. Total reward comprises five elements, namely remuneration; benefits; well-being; development; and recognition.
The concept of total reward reflects a development in global best practice where employers are increasingly aware of the fact that a ‘holistic’ reward offering is perceived by employees to be of much higher value since it meets various of their material and intrinsic needs. Each element of total reward is summarised below:
- Remuneration: this refers to an employee’s fixed pay in the form of wages or monthly salary, as well as variable pay in the form of commission, bonuses, and short-term and long-term incentive schemes. The purpose of remuneration is to ensure that an employee’s material needs are met. It is accordingly important for employers to ensure that their base salaries and variable remuneration are competitive in the market since this is often the benchmark on which an employee will place reliance in deciding on whether to join or remain with an organisation. Employers should consider remuneration as the primary building block for a successful reward offering. To that end, employers need to ensure that they are effectively benchmarking their fixed remuneration, comparing like-with-like, and are offering equitable incentives by reviewing how they stack up in the market with their on-target percentages for the short- and long-term incentives.
- Benefits: this refers to securing protection for employees when they undergo major life events and generally comprises retirement fund membership, medical aid membership, life and dread disease insurance, and funeral cover. It also extends to affording employees time off (paid or unpaid) for annual leave, sickness, family responsibility, studies, and the birth or adoption of children. Benefits build on remuneration insofar as they ensure that employees can maintain their standards of living (or something close thereto) when major life events occur. In the current challenging economic landscape, both locally and globally, organisations can secure goodwill with their employees through their benefits structures by introducing employee benefits that are relevant to present day challenges; this will, in turn, elevate the organisation’s social impact.
- Well-being: this refers to the satisfaction of an employee’s intrinsic needs such as mental and physical health, work-life balance, and broader social responsibilities. This can take the form of employee wellness offerings (e.g., ICAS); flexible working arrangements so individuals can balance their work with their personal needs and preferences; and community support and outreach programmes offered by or facilitated through an organisation. The Covid-19 lockdown accelerated how organisations think about flexible working arrangements, with some employers introducing hybrid working models and others participating in a trial of the four-day working week. Organisations will need to be responsive to these emerging trends in how their reward offering is structured and delivered.
- Development: this refers to the opportunities for development that are offered to an employee by an organisation. The benefit of this offering is twofold; it ensures that the organisation remains competitive and relevant insofar as it upskills the workforce, and it satisfies employees’ intrinsic needs to feel as if they are progressing within the organisation and developing their skillsets and competencies. Opportunities for development should be realistic and seek to achieve alignment between an organisation’s strategic and operational needs and an employee’s interests and aspirations. Consideration should also be given to factors such as budget, time away from work, and the duration of the studies/courses. Studies have found a positive correlation between employee development and their resultant performance. Investing in employee development has a worthwhile impact on the organisation’s bottom line which, in turn, enables the organisation to fund reward programmes as its financial and non-financial objectives are met.
- Recognition: this is often overlooked by employers, but it can contribute to an immediate uptick in employee morale, motivation, and performance. Employee recognition can be informal and formal. Informal recognition generally assists in driving and enhancing an organisation’s culture by reinforcing and ‘rewarding’ desired behaviour by employees. It can take the form of ‘on the spot’ recognition, where managers give positive and public recognition to employees and teams; team lunches; or token awards (such as trophies and placards) which carry symbolic value to an employee. Formal recognition programmes are generally more structured and cash-based, insofar as they are aimed at rewarding tangible performance instead of driving intangible behaviours. Examples of these include cash bonuses; paid time off; travel opportunities; and gift certificates. On the back of global trends, such as the great resignation and quiet quitting, the impact of recognition cannot be overstated as this provides the organisation with the opportunity of becoming an employer of choice and creating brand ambassadors through employees who are engaged and motivated, at minimal cost to the organisation.
A total reward strategy need not be expensive or complicated, but it should be implemented intentionally to drive the specific performance and results required by an organisation. Where an employer spends time tailoring its total reward strategy to its business strategy and human resources strategy, it will ensure that it is able to leverage a strong employee value proposition that effectively attracts the right kind of employees. It will also be able to secure retention by implementing elements of reward that are perceived as valuable to employees and which serve to motivate and engage them over the short, medium, and long-term. A well-designed and maintained reward strategy will keep organisations at the forefront of good corporate citizenship, beyond compliance and governance.