29th January 2009 - www.peoplemanagement.co.uk

As the age of the City bonus comes to an end, clever organisations are learning to offer reward schemes that encourage high-performance behaviour across all areas of their business. Julie Griffiths explains:

City bonuses have come under fire for their role in the banking crisis, with accusations that the reward system encouraged greed and risk-taking. The argument goes that organisations that paid bonuses solely on bottom-line results encouraged employees to chase pound signs at any cost.

After the government’s £37 billion bank rescue package, the Financial Services Authority announced it would visit all UK banks to check that their remuneration policies were not encouraging staff to take unreasonable risks. So how – and this question applies beyond the banking sector – do organisations ensure that their reward strategy encourages the behaviour they want from employees?

Carole Hathaway, head of strategic reward consulting at global consultancy Watson Wyatt, recites the old adage that what gets measured gets done. “If it’s important that people work together in achieving an outcome, then you need to measure it,” she says. The trouble is that behaviour is harder to measure than profit.

“Too many reward plans rely on a single measure, such as financial performance. The more forward-thinking organisations are viewing performance as more complicated than that and they’re looking at not only outputs but also how the job has been done,” says Hathaway.

Jason Taylor, managing director of employee benefits solutions provider Benefex, says that getting reward right is all the more important in a downturn when morale and employee engagement may be low. Organisations that cut staff need to focus on the remaining employees to ensure they are as productive as possible.

This means linking reward to business objectives, he says, so that staff know what is expected of them and why.

“Most schemes don’t do this,” he says. “Those that do will get the most out of it.”

He says the trick is to align reward with the business plan and then review it frequently. No organisation would write its business plan then leave it on a shelf for five years without updating it and the same should be true of the reward scheme.

“At times like this, the business objectives are changing rapidly. And when the business objectives change, so too should the reward,” says Taylor.

This ensures all employees are working to a common goal. Part of that is asking staff how they want their benefits, as this also changes. Good pension contributions may have been important to an employee a year ago but now, in an economic downturn, they may opt for vouchers to redeem against their groceries.

Taylor says that organisations can influence staff behaviour by choosing the right types of benefits. If employees feel the company cares about them, they feel valued, he says.

The benefits that a company refuses to offer can also send a strong message to staff, he says. “A company may say that they won’t allow you to sell your holiday back to them – you can buy extra days, but you can’t sell them – because they want you to take the time off to recharge.”

Rewards that appear to be cost-neutral to the organisation, at least from the employees’ perspective, can affect the business culture by shifting attention away from financial gain.

Sheila Sheldon, director of European operations at global employee reward and recognition provider Michael C Fina, says reward doesn’t need to be about big bonuses. Staff value other things.

“It could be an extra day’s holiday or a car parking space outside the office for a month. It’s a positive message where you are saying we want to reward you and make you feel valued by giving you something. And the beauty of it is that the monetary value is not mentioned,” she says.

Reward schemes in which the right behaviours are recognised can be extremely cost effective. Sheldon cites an organisation that runs a suggestion scheme to improve the core business. An employee spotted that all printers were set to a default colour setting and suggested changing it to black. Given there were 3,500 printers in the building, the saving was huge and the employee’s reward was a proportion of it. “The chief executive of that organisation adores the scheme because it doesn’t cost the company anything,” she says.

Engaging employees in choosing who should be rewarded can be another effective way of encouraging the right behaviours. Schemes in which staff nominate each other for excelling can be a good way to ensure the right people are recognised, says Sheldon. “You may be able to pull the wool over your boss’s eyes, but you can’t do it with your peer group,” she says. Savvy businesses will link it to the company’s core values to stop employees abusing the system by voting for each other, she adds.

But Colin Evans, head of reward at global management consulting firm Hay Group, warns against organisations rewarding behaviour at the expense of all else.

“Any extreme focus on one aspect of performance becomes a bit dangerous,” he says. “If you make it all about behaviours, then you lose the focus on financial results. It needs to be balanced.”

There is nothing wrong with using bonuses as part of a reward scheme so long as the criteria are measured. The City may have given financial bonuses a bad press, but there is nothing wrong with bonuses so long as the criteria on which they are judged are considered and measured, says Evans.

“Bonuses can be an effective way of focusing employees’ minds on short-term goals, which can be changed according to business needs,” he explains. “If a company opts to scrap its bonus system, it is liable to find it has to raise its salaries to retain staff and that is a fixed cost.”

The thing to remember, he adds, is that reward is only one part of how a company ought to be thinking about its development. Organisational culture has a big part to play. The public sector, for example, has an ethos that values doing a good job because it’s satisfying in itself.

“The focus is on performance, not reward,” says Evans. “If you start by thinking about reward, you are starting in the wrong place.”

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