Professor of Reward & Sustainability
Reward is undoubtedly an important lever for attracting new talent. However, it is also a crucial tool for keeping your current employees on board and engaging and motivating them on an ongoing basis. Although entrepreneurs make a great deal of effort in this area, a broader, overarching framework – also known as a reward strategy – is often lacking. Many well-intentioned reward initiatives still fail to hit their target as a result. Nonetheless, developing a good reward strategy is not something that is only feasible for large companies. Xavier Baeten, Professor of Reward & Sustainability at Vlerick Business School, explains how to tackle this and also calls for a greater focus on non-financial rewards. Ultimately, after all, recognition and appreciation for your work does not just come down to money.
“A good reward strategy answers three questions. ‘How’ to reward is about your reward mix and the components that form part of this mix. ‘For what’ outlines the underlying criteria that guide rewards. And ‘how much’ to reward is about your market positioning. As an entrepreneur, you have to make clear choices for each of these pillars based on your own strengths and DNA. Preferably, you will also convey and communicate these choices directly from the recruitment phase onwards. It makes no sense to maximise all the reward components; you will go bankrupt if you do. And as far as the financial rewards are concerned, I recommend that you don’t pay too much but that you do focus strongly on fairness.”
Professor Xavier Baeten explains how entrepreneurs can make the most of their reward policy by developing a good reward strategy.
Financial rewards are the most visible and tangible, especially when recruiting, and include the base salary, an additional variable reward (bonus) and additional benefits. But is this also what determines the engagement of your employees and increases their motivation, makes them feel enthusiastic about performing well or energises them? Research by Vlerick among a few thousand employees shows that the non-financial benefits make the biggest difference in this area.
“By this, we mean offering challenges in the job, the pride of your employees and the tangible impact of their position on the company, as well as the recognition they get for what they do. Especially once people are on board, this takes precedence over the financial reward. These non-financial reward instruments include ‘fun’, the configuration of the physical workplace, the feeling of job security, and increasing involvement by giving feedback; but also asking for input, encouraging training and development, flexibility in terms of holidays, working hours and workplace, and community building (e.g. doing something together for a good cause once a year). Finally, also try to make recognition personal and create a surprise effect. As a manager, if you record a personal video message for an employee who has been with the company for 10 years, for example, this can have a major impact.”
In the reward arena, a number of new trends are emerging as a result of changing employee expectations. On the one hand, there is an increasing focus on vitality, which includes physical, mental and financial well-being. The latter can take the form of offering a pension savings plan, hospitalisation insurance, a dental plan or insurance for outpatient medical costs. Nowadays, though, more and more financial planning and financial assistance are also being offered.
On the other hand, it is also becoming increasingly important to personalise reward packages and make them flexible. This will allow each employee to put together a package according to their personal situation and needs. “These days, around 1 in 3 companies offer a flexible reward plan in which specific income such as the end-of-year bonuses and other bonuses can be exchanged for mobility solutions, social and health benefits and multimedia. However, make sure that you keep the options limited to ensure they are genuinely relevant. Too much choice not only results in a lot of administration, but also causes your employees stress.”
As for the criteria for which you reward someone, there are a great many possibilities: technical competencies, behavioural competencies, team performance versus individual performance, job rotation, job level, experience, growth potential… “There are a number of problems with performance-related rewards that can have an impact on employee motivation levels: managers find it difficult to decide and you can’t give everyone an (equally large) salary increase, for example. Think about what is important for your company and tailor your pay policy accordingly. And make sure everything is stated very clearly in your reward strategy. For example, you could decide to make a bonus system dependent on collective performance, with the precondition that teams must present their achievements and that the profitability must also be right in order for the bonus to be paid out.”
When it comes to ‘how much’ you want to reward, it's important to determine who you want to compare yourself to as a company, Xavier stresses. “If you don’t have an overview of the market you’re operating in, you will find yourself on shaky ground and the level of the desired or requested salary could go in any direction. So you need to define a market of comparable companies on the basis of sector, size and geographical location; and on that basis you can then determine salary bands with upper and lower limits in line with the market for various functions or groups of functions. This explicit positioning of your company also helps to create clarity in terms of employee expectations.”
However the real key to satisfaction with financial rewards is not the level of the salary, but the fairness of the rewards offered. The salary itself has little impact on motivation, but conversely can lead to a great deal of frustration. Whether employees feel they are being rewarded fairly depends on three aspects:
“Paying employees above market rate is therefore a fundamentally incorrect strategy which will not gain you anything. The only thing that counts in the area of financial reward is the perceived fairness. Measurement is the key to knowledge. Ensure that line managers have an overview of the salary level and evolution of their team members and where they are positioned in a salary band. This means they will not be operating in a black box and can make well-founded decisions that can also motivate them. Don’t forget that the expectation of a pay rise every year is unrealistic. In addition, the lower limit for an impactful salary increase is 5% (the so-called ‘smallest meaningful pay increase’). As a result, it may be a good decision to allocate a fundamental increase to a smaller group of people. Also think about what and how you communicate: don’t just send an email, but take the time for an annual salary interview where you can clarify things and put them into context, and where the employee can also give input and feedback. Reward doesn't have to be a dull subject.”