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What types of employee rewards are most effective? Part 1

Carl Eichstadt and Keith Roxburgh

Employee rewards

We often receive calls from desperate employers that go something like this: "My senior staff are leaving in droves! Please help me with my employee management and employee rewards practices!" When we're faced with a request like this, one of the things we look at are the indirect employee rewards the company gives.

What are 'indirect employee rewards'?

'Indirect employee rewards' are incentives and non-guaranteed bonuses that may be paid depending on:

  • The financial performance of the company,
  • The individual's performance, or
  • A mix of both.

Don't get into an auction for available skills

If you do this, chances are very good that you'll increase the costs of these skills and make these employees out of the reach of your company.

Some years ago, we were consulted about how much members of a particular profession are paid and advised our client against entering into an auction. The whole industry teetered indecisively for about two weeks. One company gave way and paid a 20% premium. The auction started and within a fortnight the premium was up to 40%. The result was that the industry realised it wasn't getting enough value and computerised most of the processes, resulting in massive job losses.

How can we structure pay so everyone wins?

Part of the answer may be in using incentives, which could be quite handsome but will ensure that the professionals who perform get the premium pay and those who don't perform aren't rewarded.

Depending on how handsome the incentive is, we'd even suggest allocating a portion of the incentive to encouraging high value-adding employees to stay at the company.

Frequently-asked question on employee rewards

We've often been asked the following question about designing employee rewards strategies: "Do I need to incentivise all professionals in my company?"

The answer is tricky but we would suggest that you don't.

When dealing with a situation like this, we would always ask the following questions:

1. Does the market pay a premium for the role?

2. If yes, how critical is the role to our business?

3. If it is, how long would it take to train a new person and would the training time mean that a critical project or function wouldn't work?

It may be easier to outsource the function if the role isn't critical to your company's strategy and it also may be more cost effective to computerise or automate the role. If this is the case, don't pay a premium as you're making the value proposition of employing such individuals a burden on your company and in the long run, you're jeopardising employment opportunities for everyone as no-one likes to be held ransom.

Carl Eichstadt is the Managing Director of 360 People. Carl has a Masters in organisational psychology from the University of Cape Town. 

Keith Roxburgh is director and practice head of reward at 360People. He has extensive experience in organisation design and reward and is viewed as a regional expert in reward management.