Fresh bait

Despite the near-extinction of a job for life, employers still see rewarding
‘long service’ as a worthwhile investment. But with the gold watch out of
sight, how do companies win staff loyalty?

Staying with the same company for years with the aim of collecting that gold
watch on retirement is fast becoming an outdated scenario. But while this form
of employee loyalty is rare these days – particularly in markets with skills
shortages – employers continue to reward staff for long service.

Nick Page, adviser at the CIPD, believes long-service awards are
diminishing. He says the emphasis is shifting from companies recognising length
of service, to looking at performance. "Long-service awards are a
reflection of how we value society. These days, we are more focused on short-
and medium-term results."

Long-service awards have always been popular in all areas of industry. But
while retirement might have been the goal for many in the past, these days
companies are recognising employees for a shorter period of service. Fast food
restaurant chain McDonald’s offers awards for ‘long service’ after three, five,
15 and 20 years – and many companies are following suit.

"Ten years in a company is quite rare," says Graham Povey,
managing director of Capital Incentives and Motivation, specialist in incentive
vouchers. He believes employers have been reducing the number of years
employees must work before qualifying for long-service awards to accommodate
the trend of shorter service.

Sandwich shop chain Pret à Manger runs two types of long-service award for
its staff. For five years’ service, staff receive £500 cash – with tax and
national insurance paid by the company – and a gold star (the company’s emblem)
made by Tiffany & Co. They are also entitled to an extra five days’ holiday
allowance and can invite their partner to all Pret events. After 10 years, they
receive £1,000 and another gold star, containing a diamond. Pret claims its
long service scheme does encourage staff to stay with the company.

London Underground still recognises long service at 25 and 40 years.
Employees reaching these milestones are presented with vouchers and a day’s
leave to receive the long-service award. However, the company is considering a
review of its policy this year.

According to John Sylvester, director motivation division at Performance and
Motivation Management (P&MM), whose clients include the AA, British Gas,
Panasonic and IBM, long-service awards are still used to recognise loyal
employees, but he disputes their value as an incentive. "They’re a badge,
a ‘Thank you for your loyalty’," he says. "In pure value terms, they
are questionable."

Stuart Hood, associate director of compensation at Fidelity Investments, a
financial services firm which has reviewed its HR practices with research firm
Watson Wyatt, agrees: "As an incentive I think they’ve been irrelevant for
years. But as a recognition event – a mark of passage – these are perhaps still
important milestones that recognise contribution."

While Povey says the award for 10 years’ service may not equate to a large
gift, he claims employees value the act of recognition of their loyalty more
than the reward itself, particularly when they are praised in front of
colleagues.

With length of service awards a long way down most employees’ list of
priorities when looking for a job, many companies have looked at incorporating
other types of incentive schemes in an effort to boost recruitment and
retention.

Staff incentive schemes such as Save As You Earn (SAYE) enable employees to
save regular set amounts from their salary for an agreed period (typically
three to five years), before being offered the chance to buy company shares at
an agreed price. This type of share plan has become popular and can help retain
staff for longer periods.

In its research The Human Capital Index (European Survey Report 2000) Watson
Wyatt estimates that stock ownership and incentives drive even more value and
together are associated with an increase in market value of 2.6 per cent.

Supermarket chain Tesco operates a share-based profit scheme and SAYE
programme for staff. Both schemes were set up in the early 1980s, and by 2001,
staff turnover had fallen from 75 per cent to 25 per cent. At the end of the
2000/2001 financial year, 85,000 people – half the employees eligible – were
taking part in the SAYE and 120,000 in the profit-share plan.

These types of scheme can act as an effective retention tool, providing
staff with a strong incentive to stay with the company for a significant
period. However, while these schemes may provide a long-term incentive, they
are at the mercy of market conditions and the sum employees make from them can
reduce if the share price goes down. Consequential dissatisfaction with the
scheme will have a detrimental effect on employee motivation and loyalty.

In addition to its long-service awards, Pret à Manger runs a number of
customer service incentive schemes tailored to motivate its younger staff (38
per cent of Pràt employees are under 25). It spends £250,000 on staff parties
twice a year with subsidised Friday night drinks at trendy bars. The Mystery
Shopper System enables employees to share a team bonus every week. Weekly
mystery shopper visits can potentially earn each team member an extra 75p for every
hour they work that week, and outstanding performance can gain them an
additional £50 cash bonus.

The company also runs a career development scheme and offers up to £1,000
for business ideas from employees. In addition, £250 is presented to
individuals who are promoted, which they must distribute to those staff that
have helped them.

As well as presenting vouchers to staff for long service, P&MM’s
Sylvester says many businesses also use them as a regular form of incentive.
P&MM advises clients on motivation techniques and has developed a website
which can be tailored to participating companies. Employees can visit
www.rewardbanking.com and bank the incentive points awarded to them. They can
then choose gifts such as household appliances and travel trips, paying for
them with the points.

"There has certainly been a move towards vouchers," agrees Povey,
who believes there is nothing memorable about cash awards for long service.
"Companies are moving away from the limited choice of gifts in a
catalogue."

Caroline Pearson, director of sales and marketing at Marriott Incentive
Vouchers, which sells vouchers to companies for accommodation at Marriott
hotels, says luxury gifts such as a hotel stay, meals or a round of golf are
popular with staff. Marriott vouchers are not restricted and recipients are
free to choose their preferred dates, which Pearson believes adds to their
value.

In sectors where there is a high turnover of staff or skills are in demand,
it is becoming increasingly common for companies to offer retention bonuses in
addition to long service and other incentives.

According to Fidelity Investment’s Hood, retention bonuses are usually
brought out of the cupboard when a company has a short-term ‘crisis’ to contend
with – such as a takeover, consolidation, restructuring or move to a new
location.

Hood believes retention schemes can be useful when a company requires
particular skills and individuals for a set period, but insists they do not
solve underlying employment issues and lead to long service. "As an
employee, you may postpone a move for a couple of years – if share options are
of significant value – or a year if a bonus is of significant value," Hood
claims, "but you will move."

While a large proportion of companies continue to offer long-service awards
in various guises to reduce staff turnover, whether they are effective as a
motivational tool improving day-to-day performance is questionable.

Rob Davies, a business psychologist and managing director of management
consultancy Interactive Skills, claims the presence of long-service awards at a
company are unlikely to influence an employee’s decision to work for a company
– or to stay if their job has become difficult through deteriorating
relationships with management and colleagues.

Davies views incentives as a short-term fix rather than a long-term
motivation tool and says the reasoning behind them is fundamentally flawed.
"Lots of organisations are keen to retain talented people, but if the only
way to keep them is by financial shackles, then you’re buying the worst bit of
them."

He cites the work of Frederick Herzberg, a management expert who suggests
while financial incentives will lead to only temporary satisfaction,
non-financial factors such as achievement, recognition, responsibility and
personal growth are stronger loyalty motivators.

Research by supermarket chain Asda substantiates this view. It found pay was
not in the top five reasons given by former employees for leaving the company.
Instead, work hours and inflexible working were the main reasons.

To boost retention and motivate staff, companies need to overhaul their HR
practices to suit their staff. This involves improving working conditions,
offering family-friendly schemes such as flexible work hours and improved
career development.

"In terms of incentives, companies can do a lot more by looking at
organised and well-run employee recognition schemes," says Hood. "The
most important thing that keeps people for that length of time would be: an
interesting and diverse career; a company they are proud of; colleagues and
management that recognise and value them and their contribution.

"In my experience, if those things are not present, no amount of money
will keep an unhappy employee."

According to Watson Wyatt’s research, sharing business plans and financial
information with employees and encouraging feedback through surveys and other
programmes can increase the market value of a company by 2.2 per cent.

As well as motivating staff with better communication, the research found
that developing a culture where employees are treated as individuals, encouraged
to grow and maximise their potential, will empower and motivate people.

Duncan Brown, principal at HR consultancy Towers Perrin, claims any
incentive scheme should be regularly reviewed and updated. He warns companies
not to install them on a whim. Instead, they should be thought through and
tailored to each business.

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