Solution-Focused Employee Rewards Programs

Most organisations react to this question in a non-committal manner. Most of them give an embarrassed cough or make comments such as “my employee turnover is right down”, “employees are still going on annual holidays”.  Both these answers indicate a lack of knowledge or insight into the effectiveness and influence of sustainable employee rewards programs. These comments quite often provoke a smile if it was not for budgets and profits being destroyed in the background. Very few HR and Reward practitioners understand the impact that badly designed reward programs can have on employees and the organisation’s future well-being.

Too often employee relations and reward practitioners are only too happy to settle pay increases, irrespective of affordability or the impact on high performers. If we consider that approximately between 20 and 60% of an organisation’s revenue flies out the door on every pay day, maybe the message will hit home.  Maybe we should be worrying less about the increase percentage, and more about payroll cost as a percentage of revenue/budget.

What do effective employee rewards programs look like?
The following are precursors to an effective reward program:

• A reward structure that is regularly benchmarked against national/SOE/industry specific and/or other organisations of similar size or complexity
• A pay scale / pay structure that is both market related and affordable for the organisation
• A pay progression model that positions new and existing employees on the pay scale, considering factors such as tenure in the same or similar position, performance, criticality and scarceness of skills.
• A carefully constructed pay progression model is the defence mechanism when companies are accused of not complying with equal pay for equal work of equal value legislation.
• Performance incentives that differentiate high performing employees who have delivered above and beyond documented expectations, that has impacted the organisation positively.

Too often we find that Remuneration Committees haven’t been sufficiently exposed to effective employee rewards programs and often lack the knowledge to make informed decisions. There has been considerable discussion regarding the composition of remuneration committees but very little discussion regarding their skills levels and possible solutions. The education of remuneration committees should be mandatory to reduce the risk of associated with ineffective decision making on matters of reward.

Emergence Human Capital can offer solutions to all the challenges relating to Employee Rewards Programs, including:

• Pay benchmarking across all industries and countries in Africa
• Design of pay scales that are market competitive, affordable and industry specific; and ensure fairness.
• Pay progression models that reduce risk and ensure that high performers are adequately and fairly rewarded
• Training of remuneration committees that considers local reward practices and legislation

Pay-for-Performance Programs
Many pay-for-performance / employee recognition systems have design flaws that do not drive performance as the primary concern. Unless the pay structures are not corrected to ensure that high performing employees are rewarded at a higher level than their “laggard” peers, it is unlikely that merit increases will have the desired effect. A premium of 1% for high performing individuals will not improve morale, nor improve the “stay” decision if they are considering the organisation.

High performing employees are often the backbone of an organisation’s performance, and the impact of their departure can often be seen on the impact it has on the bottom line.  This excludes the cost of replacing an employee which can range anything between 80% and over 150% of annual cost of employment, considering costs of replacement, training, and onboarding. A new employee who enters the organisation at the lowest point of the pay scale who turns out to be a high performer would take years, in most cases, to get to the midpoint of the pay scale. What would the impact of this be on future performance and engagement? An across the board, say 5% increase with a further 1% increase for performance is hardly going to motivate that employee to stay with the organisation for any prolonged period.

Pay Equity
Too often in the past female employees have been disadvantaged, particularly regarding pay inequality. Regular pay audits to ensure fairness and non-discrimination should be an essential part of an employer’s duties to ensure that employee rewards programs offer solutions and not a tick-box exercise.

Organisations that become disconnected from external market realities and are focused purely on internal equity run the risk of reaping the rewards of mediocrity when high performers exit to organisations that reward them for their contribution and their market value. This should not be an annual event but an ongoing analysis of the potential risk.

Evaluating your Employee Rewards Programs
Can your company, with hand on heart, say the following:

• We benchmark against the market, particularly critical skills and high performers, on a regular basis.
• Our employee rewards program pays high performers; not just for the work they do, but for above average performance.
• We differentiate increases based on performance and pay scale positioning
• Does your company treat their employees equally for their contributions
• Do you have a list of the critical (business imperative) skills for your organisation? These are the skills that an organisation must have to execute its mandate.

The top performers in a national sports team are always paid more than their counterparts

Employee Engagement
When several organisations are asked whether their employees are engaged, they respond by saying, yes, they are… they come to work every day.

Engaged employees deliver discretionary effort – they go the extra mile! They continue to work beyond closing time to complete a project. They are more likely to stay with the organisation. They take less time off (sick leave) etc. They are what keeps you ahead of your competitors.

• We pay high performers; not just for the work they do, but for above mediocre performance.
• We differentiate increases based on performance and pay scale positioning
• Does your company treat their employees in the same way?
• Do you have a list of the critical (business imperative) skills for your organisation? These are the skills that an organisation must have to execute its mandate.