Reward and benefits: performance of perks over pay rises for improving employee engagement

Do employees really value a gift voucher or dental insurance over cash incentives? Victoria Furness examines the psychological benefits of offering perks rather than pay rises.

The benefits of having a happy and engaged workforce have been well documented. Engaged employees tend to perform better, take fewer sick days and are less likely to quit, according to the Chartered Institute of Personnel and Development’s 2006 employee engagement survey.

But what’s interesting is that throwing money at employees doesn’t always make them more satisfied. Research from the University of Leuven in Belgium found that, in some cases, paying people more can have the opposite effect, as the type of people that are motivated by cash are less likely to enjoy their job.

“In a way it is paradoxical, as a lot of organisations rely on extrinsic goals to motivate people,” says professor Maarten Vansteenkiste, who conducted the research.

Psychological needs

Where non-cash incentives and benefits have a role to play is in fulfilling what psychologists refer to as our ‘psychological’ needs – such as being recognised and rewarded for a job well done.

“You have to distinguish between the economic transaction of pay – which is why most of us go to work – and the psychological contract, which makes you a dedicated, committed and engaged employee,” says Helen Murlis, a director at HR consultancy the Hay Group. Another problem with using pay alone as an incentive is that it doesn’t always feel like a reward.

Catherine Forrest, business incentives manager at House of Fraser, says: “It usually ends up paying some boring bill or other. By giving specific rewards, such as vouchers, you are ensuring the recipient at least has the choice of spending it on him or herself.”

An employee’s benefits package can also go some way to meeting their psychological needs, whether by providing security (through life insurance, for example) or assistance with work-life balance (through childcare vouchers, for instance).

It can also create a closer bond between employee and employer. For instance, technology company HP involved employees in its sponsorship of the London Film Festival this year with screenings of classic films, free cinema passes and competitions to win festival tickets.

Paul Brown, HR director at HP, UK and Ireland, says: “These programmes enable us to broaden employees’ knowledge of business activity and have some fun at the same time.”

Reward warning

However, a reward or benefits programme can backfire and have a negative psychological impact if it is poorly executed.

The Rank Group saw how damaging this can be first-hand, after one of its benefits providers engaged in overly aggressive sales tactics, leaving some irate employees paying for a benefit they didn’t realise they had signed up for. Mike Morgan, managing director of Rank’s new voluntary benefits provider, Peoplevalue, explains: “It had a negative impact on the psychological relationship between employer and employee, as they saw it as something their employer had recommended.”

Employers that over-promise and under-deliver can expect to face similar short shrift from their workforce.

Good communication

So it’s important employers communicate their programmes effectively, match rewards and benefits to the demographic of their workforce, and clearly distinguish incentive schemes from take-home pay.

In these profit-focused times, it’s vital employers also demonstrate the return on investment of rewards or benefits. Admittedly, measuring something as intangible as ’employee satisfaction’ can be tricky. But a good starting point is to find out what employees think through attitude surveys and focus groups.

Comparing the difference in staff turnover rates before and after implementing a programme should also reveal if it is having any effect on lowering recruitment and retention costs.

The benefits of rewards and perks might not be as easy to identify as increasing pay or even sending an employee on a training course. But in the long term, meeting the psychological needs of employees can improve loyalty, retention, and even mean you don’t have to pay your staff as much as your competitors.

Case study: Norwich Union

In 2006, Norwich Union launched a new incentive programme for 2,000 staff working in its six UK call centres.

One of its core objectives was to create a more flexible reward programme that would offer something to motivate all members of its workforce – from school leavers to workers nearing retirement. Under the previous programme, incentive prizes tended to be big-ticket items, such as a mountain bike or plasma TV. “But if you’re a 17-year-old working to enjoy yourself, would a mountain bike drive you to work harder?” asks Andy Norman, operational support manager (distribution) at Norwich Union.

The finance provider’s new programme is a points-based system from P&MM, known as the ‘Nub’. Instead of receiving a prize, employees receive a number of points if they meet their targets, which they can either spend immediately on the Nub website – on anything from wine to high-street vouchers and holidays – or save towards something bigger.

It also means there’s an opportunity for everyone to receive a reward, not just the top achievers.

“As a business, we benefit more from motivating the majority rather than the minority,” believes Norman, and he says the scheme has been well received by staff.

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