7/26/2010 Pay vs.

Intangibles: Which Rewards B…

Pay vs. Intangibles: Which Rewards Best Motivate,

Engage?
Employees not involved in the design of reward programs

7/20/2010 By Stephen Miller

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.”

Another View:
Pay Has Strongest Impact on Employee 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
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( p Which
) Rewards B… g
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

Quick Links:

SHRM Online Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

SHRM Metro Economic Outlook reports

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