Are your reward strategies effective?

Woman drawing world map

Sarah Cohen of Lewis Silkin, Emanuela Nespoli of Toffoletto De Luca Tamajo e Soci and Tiffany Downs of FordHarrison give an international perspective on reward strategies and what drives employee engagement.

Reward strategies are key to attracting, motivating and retaining employees. Employee reward is often seen in terms of financial recompense, but this is not the only means of remuneration. Employers, whether in the UK or overseas, increasingly recognise that salary is only one of the many benefits. Their order of importance can, however, vary across jurisdictions.

What drives employee engagement in the UK?

While it is critical to get the reward offering right, it is important not to lose sight of the fact that in the UK, reward is consistently ranked below workplace culture, career prospects and company reputation when assessing what drives the highest levels of employee engagement.

A recent survey by the CIPD highlighted six benefits provided by UK employers most commonly factored into an employee’s perceptions of workplace satisfaction and attraction: paid bereavement leave; pension schemes; training and career development; 25 or more days’ holiday per year; life assurance; and even the quality and scope of Christmas parties. It is also increasingly common to vary an element of base pay based on performance, with the typical fixed/variable ratio being 90%.

UK employers increasingly provide flexible benefits schemes, enabling staff to put together their reward packages in a way that allows them to sacrifice a proportion of base pay for benefits such as extra holiday, employer pension contributions, private health insurance and childcare vouchers. The culture of employee share ownership is also becoming more widespread and is supported by several government-sponsored initiatives in the form of tax-advantaged plans and tax breaks for companies and owners wishing to share equity with their employees.

Key influencers in Italy

Italy is among the countries where salary remains key in attracting and retaining employees; however, new trends are emerging. Among the influencers on employees’ decisions are the employer’s reputation, peer recognition and appraisal. High-level managers are particularly concerned with how their careers and positions are perceived in their specific market and even internationally. A company’s good and sound reputation is, therefore, a clear attraction.

In Italy, employees at all levels often choose their remuneration structure and personal benefits. Employees often request part of their salary to be paid in benefits, which will vary according to level, gender, age and the employee’s place of work. This is more common among multinationals using a predetermined menu of activities, services, or goods to choose from (including personal-care services, medical and social security insurances, and even assistance for family needs such as school allowances and children’s education abroad).

Options for US employees

In the US, employers do not take a one-size-fits-all approach to reward. Depending on the job and family status, the importance of rewards can vary. While monetary compensation remains key, the importance of the fiscal component of compensation varies among employees. As a result, companies are offering options for employees, which make up their total rewards.

Generally, compensation, benefits, recognition and appreciation remain important. Monetary compensation with merit pay increases remains attractive, but incentivised pay tied to performance under “pay for performance” programmes is critical for some. High-performing employees seek the opportunity to earn more based on their efforts and are motivated by variable pay. Some incentive programmes include cash as well as contributions to a non-qualified retirement plan (tax-deferred cash).

Clearly, benefits are also important, especially medical insurance and retirement plans. Unlike in Europe, employers in the US have some discretion in offering medical, life insurance and disability benefits along with retirement plans (defined benefit or defined contribution). Most employees view benefits as critical to accepting a position and remaining with an employer.

For others, advancement opportunities and equity ownership (employee stock ownership) are important. Some may view work-life balance as more important and are motivated by non-monetary rewards (qualitative rather than quantitative), such as job flexibility, increased training and recognition programmes.

Communication is key

Ultimately, reward structures are vital – more vital, however, is that they are communicated in a clear fashion. Employees must be aware of, and understand, the benefits available. Employers that fail to effectively communicate their offerings to employees risk losing talent.

The authors are UK, Italian and US members of Ius Laboris, the world’s largest alliance of law firms offering employers cross-border employment and pensions law advice.

About Sarah Cohen, Emanuela Nespoli and Tiffany Downs

Sarah Cohen is a partner at Lewis Silkin. Emanuela Nespoli is a partner at Toffoletto De Luca Tamajo e Soci. Tiffany Downs is a partner at FordHarrison.
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