Rewards for high performers linked to higher share returns

Companies
that focus on rewarding high performers more than other staff produce returns
to shareholders 17 per cent higher than companies which do not, according to
research by Watson Wyatt.

The
Watson Wyatt Strategic Reward Survey found that those companies which customise
their rewards programmes to motivate top performing employees produced average
five-year shareholder returns of 74 per cent. Those companies that did not
customise their reward programmes in this way produced an average return of
just 57 per cent.

"Motivating
your best performers with better rewards really does work," said Tony
Gilbert, a partner at Watson Wyatt. "Many employers instinctively know
this, but what our research shows is just how large the effect may be. A
well-structured reward programme is a source of competitive advantage."

The
survey of more than 170 leading companies across Europe found it was the higher
performing companies that were the most likely to consider employee rewards as
a means to improve performance.

More
than 75 per cent of high performing companies reported that they view rewards
as a way to engage people in improving performance, compared with 44 per cent
of low performing companies. High and low performing companies are taken as
those in the top third and bottom third respectively for total shareholder
return performance over five years.

Employee
rewards go beyond financial incentives. The survey found that some of the most
successful rewards for motivating top performing employees were non-pay
related, such as tailored jobs, providing the opportunity for promotion and the
acquisition of new skills.

While
employers are generally finding it easier to retain employees in the current
economic climate, 70 per cent of employers still claim to be experiencing some
difficulty in either attracting or retain top performing employees.

The
Watson Wyatt survey found that rewarding top performers more than others is a
good way to ensure they do not leave to join competitors. A total of 2,000 top
performing employees were asked how likely they were to leave their current
employer within the next year. For companies with rewards programmes structured
to differentiate between top and average performers, 24 per cent said they were
moderately likely to leave. This increased to 35 per cent for firms that did
not differentiate.

"A
good reward strategy can be used to increase profitability from two
directions," said Gilbert. "On one hand it drives performance by
motivating those employees most able to make a significant contribution to a
company’s success. On the other it helps to control costs by reducing turnover
of key staff."

By Ben Willmott

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