When it comes to rewarding employees, most people automatically think of financial incentives: high salaries, bonuses and generous pension schemes.
But for many small organisations with tight budgets, financial rewards can be challenging, as can performance-related incentives like promotions. This can sometimes present an issue for staff retention, especially if larger organisations or competing SMEs offer high-performers more favourable benefits.
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“Rewarding high performers in a small business can be challenging for a multitude of reasons,” explains Lynn Kennedy, HR director at consultancy Altair, which among others advises small firms in the housing sector. “Whilst employers are keen to retain talent there is often limited opportunity to offer promotion or structured career development. In addition, SMEs often lack the mechanisms to administer reward schemes or incentives internally.”
Professor Tim Vorley, professor of entrepreneurship at the University of Sheffield and vice chair of the Small Business Charter agrees: “Larger businesses can be seen as having the advantage over SMEs in the way they can offer rewards. Alongside having bigger budgets and the scale to fund pay and promotions, many are also getting savvier at diversifying their rewards beyond pay – from buying additional holiday, to childcare vouchers, to corporate packages that can offer everything from cheap cinema tickets, to private health.”
But rewarding staff does not need to be costly or complex. Kennedy suggests simple gestures such as offering one-off leave for special events like a wedding, or helping fund professional study that will benefit both the employer and employee, can help employees feel valued at lower cost than a bonus or promotion.
“The reward itself is something which should make an employee feel truly valued and promote to a positive culture of recognition. This can be in the form of a simple thank you but there are many other ways to recognise high performance,” she says.
Justine Brown, CEO and founder of consultancy Just Global HR Services, agrees that reward is an area that smaller firms can struggle with. Often, HR managers in SMEs have limited experience: not because they lack the skill, but because working with a small, sometimes close-knit group of people can mean they are unlikely to encounter the same situations as their counterparts in larger firms.
However, Brown, who launched her small HR consultancy a year ago, said working in a smaller organisation allows HR managers to adopt a more agile approach to reward that larger firms, which can often be stifled by bureaucracy and policy, might not be able to offer.
She says: “I think the biggest area for SMEs to focus on is the total reward. It’s not just about the salary and the bonus, it’s about your working environment, it’s about the flexibility you offer your staff.
“One of the things we’ve committed to do is being a Living Wage employer. That’s something simple that employers can do. Some of the bigger employers might only pay minimum wage and give out bonuses.”
Just Global HR Services does not specify which hours staff work. Instead, it assesses staff performance based on outcome, rather than “witnessing them being present in the office”.
“We’ve got a part-timer who works 20 hours per week. I don’t dictate which hours the work is done in, I just expect them to deliver 20 hours of productive work. You find that you get more out of people because they are able to fit their work in around other commitments, whether that’s studies or childcare,” says Brown.
I think the biggest area for SMEs to focus on is the total reward. It’s not just about the salary and the bonus, it’s about your working environment, it’s about the flexibility you offer your staff,” – Justine Brown, Just Global HR Services
Vorley says giving staff additional responsibility and autonomy can also act as an incentive, “Where employees are empowered and given autonomy and ownership they tend to be more productive. And when a business is able to find a way to match up what it needs to grow, with the things that employees want to achieve individually, it can be hugely beneficial on both sides. This is a big challenge of course for a business to get right, but often much more manageable in an SME than in a large business.”
Sense of purpose
According to a report by Small Business Britain (formerly known as Peak B), 70% of small firms offer flexible working opportunities and 78% create training opportunities for their staff.
Michelle Ovens, chair of the Small Business Charter and director of Small Business Britain, explains that employees are not only motivated by money and are often encouraged by the sense of “purpose” their role gives them. The opportunity for small businesses to give back to their local communities in ways that larger corporations cannot can be attractive for workers.
She says: “Some people are motivated by ongoing promotion, titles and growing salary over time, but more and more young people, and even older people, are looking for a meaningful life, work life balance, and more than just a pay-cheque. I think small businesses have an advantage over big business here. Small businesses can offer more flexibility without formal processes.
“The opportunity to have a direct impact on the growth of the business and its culture, by contributing ideas and taking on leadership roles that can shape the future of the organisation, is a major plus for many staff – particularly those starting out in their careers.
“However it is also important for small businesses to be realistic and philosophical about the fact that great staff won’t necessarily stay forever. That is OK as long as they plan accordingly and focus on having a strong talent pipeline.”
Lynn Kennedy will be speaking on an upcoming Personnel Today webinar, Small business HR: top tips for people and payroll. Register now.