Figures released by the Office for National Statistics in July 2008 only served to confirm what almost every employee already knew: this is the toughest economic climate for a generation.
Average earnings growth, excluding bonuses, fell to 3.8% in May from April’s figure of 3.9% as companies felt the full force of the global credit crunch. Even when bonuses were taken into account it was not enough to alter the overall rate of pay for May, suggesting the days of large cash incentives are long gone. Inflation, meanwhile, hit 4.4% in July, the highest level since records began, and is expected to rise further still in the months ahead.
But this is not only a problem for cash-strapped employees. At a time when businesses need to be as efficient as possible, they can ill-afford to have demotivated and unproductive staff or experience high volumes of employee turnover.
As a result, says John Sylvester, executive director at motivation and benefits specialist P&MM, many companies are now seeking to develop non-financial rewards that can alleviate the financial pressure employees find themselves under.
One way of doing this is to offer staff access to retail discount schemes. These can take various forms – from paper vouchers to virtual banks and pre-pay cards – which employees can then use to purchase discounted goods at a range of high street retailers, petrol stations and supermarkets. “Typically supermarket spend will be between £300 and £700 a month and 5% of that is well worth having [as a benefit],” says Sylvester.
At Cambridgeshire County Council, all employees are provided with a ‘CamCard’ on joining, which gives them discounts in local book stores, restaurants and shops, says Stephen Moir, director of people and policy at Cambridgeshire County Council and president of the Public Sector People Managers Association. The council also offers reduced Bupa membership for staff, preferential rates at gyms and subsidised public transport schemes.
Salary sacrifice schemes
Another option is salary sacrifice schemes. There are a number of government-backed initiatives where staff can choose to have money deducted their gross earnings to pay for services such as childcare, bicycles and public transport. For employees, such initiatives are not subject to tax or National Insurance – so if the benefit costs £1,000 for example, a higher-rate tax payer would save £410 – while employers also gain by not having to pay National Insurance.
“The most cost-effective plan from a monetary point of view is salary sacrifice,” says Sylvia Doyle, director of Reward First People Consulting. “Childcare vouchers can be a huge saving, particularly when you’ve got a couple with children and they both get the benefit.”
Nottingham City Council, for example, offers a tax-free annual bus pass, a plan through which employees can purchase tax-free bicycles and another initiative that allows staff to hire bicycles worth up to £1,000 from local retailers. Eunice Campbell, HR customer services and consultation, estimates 25% of the organisation’s employees already participate in the scheme, run by P&MM.
But according to Darren Laverty, a partner at employee benefit consultancy SecondSight, many organisations could increase morale and make staff feel appreciated simply by making staff more aware of the value of the benefits they already receive. This is most applicable to the company pension scheme, he says, but can also be relevant to other benefits such as private medical insurance or income protection.
He gives the example of one company where communicating benefits more effectively saw staff estimates of their monetary value increase from 60% to 180% of the actual value. “The perceived value is probably about a third of the true monetary value in most companies so if they can get the communication right the company gets a lot more value out of the money it’s already spending,” he says.
Moir believes the public sector is particularly bad at communicating the total value of benefits. “Large private sector organisations regularly provide total reward statements to their workforce so they have a broader understanding of their total worth and value,” he says. “They package that up and present it to the workforce on an annual basis which potentially helps with retention and certainly gives you something very strong and tangible to talk about in terms of recruitment. Personally I think that’s a real failure.”
There are also other ways of rewarding high-achievers and motivating staff that do not necessarily involve freeing up cash. For example, Moir points out that most public service organisations offer attractive learning and development programmes, and also tend to be receptive to the idea of flexible working.
Sylvester recalls working with Land Rover in 2007, when employees were able to undertake a product drive over rough terrain. “That was as much as anything to ensure that staff were acting as brand ambassadors but it was also very motivational,” he says.
Other companies seek to keep morale and motivation up through internal recognition programmes. Communications technology company Siemens Enterprise allows individual managers to reward staff with points that can be spent on retail items or experiences (see case study below) while P&MM also runs its own internal recognition programme, where staff can nominate each other for initiatives that demonstrate the company’s core values, with applications judged by a committee.
“We stop the business once a month for 20 minutes, hand out a few bottles of Champagne, wine and chocolates and do a quick roundup of the business at the same time,” says Sylvester. “It keeps people involved. People like to be part of a successful organisation and they like to be kept informed good or bad.”
With rising prices and the squeeze on wages showing little sign of disappearing, employees are likely to feel the pinch for some time to come. But while an effective benefits and rewards programme cannot fully compensate for the lack of pay rises and the soaring cost of living, it could play a crucial role in keeping your most valued staff on-side. And in the current climate, that could be priceless.
Case study: Siemens Enterprise
When Siemens Enterprise Communications commissioned the Gallup consultancy to run an employee engagement survey in April 2006, it was shocked to find recognition as the area in which it scored lowest.
“We realised we were only spending about £13 per employee per year, which was significantly lower than our competitors, and the reason for that was that we had lots of diverse recognition processes which were just difficult for managers to operate,” says Sally-Anne Borrill, HR manager, compensation and benefits.
Through Capital Incentives, the business developed the Applause programme, which allows managers to directly reward staff who have excelled in any of five key business drivers, with a budget of £40 per employee. Staff receive points in Capital’s online banking system, which can then be redeemed against purchases or experiences from a reward catalogue.
At the end of every quarter, the individual with the best example in each of the five categories is given a further £500 to spend on the system and invited to the annual management conference, where an overall winner is presented with a holiday voucher worth £5,000.
Borrill estimates the whole package costs in the region of £100,000 a year to run and the scheme is already having an impact. In the Gallup survey of March 2008, Siemens Enterprise scored higher than 40% of companies in terms of employee engagement, compared to 14% in the first survey.
Pay rise pressure
Despite the array of non-financial and tax-friendly benefits available to them, many employers still feel under pressure to award big pay rises, a survey by consulting firm Croner Reward reveals.
Having asked bosses to reveal details of pay awards given and the reasons for doing so, Croner found:
the need to retain staff influenced pay decisions, rather than lose staff and go through a costly recruitment process.
some employers are waiting until later on in the year before they decide how much to award
inflation and public sector pay deals are influencing decisions on pay awards
Andrew Walker, business director at Croner Reward, urges employers in all sectors to resist pressure and proceed with caution. “The last thing we need right now is a return to the days of spiralling pay competing with increasing customer costs for goods and services,” he says.