Jumping For The Jellybeans - Frederick Herzberg

Frederick Herzberg explain the two-factor theory and job enrichment movement objectives in his own words (BBC documentary, 1973).

Can Be Bonuses Really Regarded As The Dark Side of Reward?

A growing number of management and reward practitioners have recently unrelentingly expressed their concern over the effectiveness of financial bonuses, insofar as strongly recommending employers to review their reward practices so as to completely efface these from their total reward systems. Bonuses are depicted as the evil of reward and their maintenance and new introduction into reward systems as a drama of Shakespearean proportions.

The global financial crisis arisen in 2008-2009 accounted for bonuses attracting the media and public interest, and consequently widespread criticism, in that suspected of having actually played an active role in triggering the global financial crisis. Bonuses received thus a very bad press, severely tarnishing their reputation, which has ever since been virtually impossible to restore.

The quality and effectiveness of everything, notwithstanding, depends upon the use individuals made of what is available to them. Medicines, for instance, are developed to heal people but their excessive or wrong use can ultimately cause lethal consequences to individuals. It is in general hardly believable that things may produce just one type of outcome: good or bad. Every item and service is developed to attain a specific objective and serve a specific cause, but their practical success and effectiveness essentially depends on their use. Change management, corporate culture, reward practices and every other policy and practice introduced by employers into their organizations aim at producing a specific effect; which is not in reality invariably attained. Whether the introduction of new practices ends in a dismal failure this is habitually due to their inappropriate use or execution. Bonus schemes make no exception, they are introduced by employers to reward the contribution made by their employees to organizational success; whether managers misuse them, nonetheless, employers not only seriously risk not obtaining the intended results but, what is worse, producing counterproductive, undesirable effects.

It is not sheer coincidence that bonuses dire troubles come from the banking and financial sector, where the implementation of a combination of very poor reward practices and weak risk control systems has for years essentially prevailed. The problem was not indeed represented by bonuses of their own, but rather by the mechanism bonus schemes were operated. Bankers received their bonuses before the result obtained by their transactions was known, cash bonuses, rather than afterwards, deferred bonuses. The significance of bonuses was embedded in literally any financial sector company’s corporate culture (bonus culture) and bonuses shortly become the only means used by the employers of this sector to attract and retain talented professionals.

The banking sector does not indeed represents the only case of bonus schemes misuse. Some multinational companies have in fact worked hard to add insult to injury, implementing practices essentially rewarding their CEOs and Directors for failure, offering them staggering amount of money, in the form of lump sums, despite the disastrous effects their management activity has produced.

In all of these cases the real problem was never represented by the type of programme introduced by employers, but rather by the method this was executed and by the lack of effective control systems. Notwithstanding, many reward practitioners started to vigorously demonize bonuses and tried to come up with new innovative ideas about how to replace them; more often than not, confusing performance management with performance-related pay practices. Innovative performance management processes definitely help managers to establish a closer link with their direct reports so as to impact and improve their performance and fasten and ease their professional growth and development, but left open the problem of how to reward employees outperforming their colleagues.

It is completely understandable that reward and HR practitioners may feel the urge to develop new approaches and methods for employers to reward their employees’ commendable efforts and behaviour, provided that these new approaches are then properly used by managers and not prove to be nothing else than the reinvention of the wheel.

Reward practitioners keen interest in the development of new approaches may also be justified by the pressure put on them by employers, which increasingly aim at recognizing employee contribution without necessarily, exclusively resorting to cash supplements. Gaining and maintaining competitive edge has traditionally proved to be a genuine feat for employers, cost containment has been thus invariably regarded by these as an effective approach enabling them to stay afloat in their market also during gloomy economic periods and when the business is not performing sufficiently well.

New solutions and approaches to replace bonus schemes are of course welcomed by employers; reward practitioners should, nonetheless, carefully analyse those emerged from “best practice” so as to eventually further develop and adapt these to their specific business circumstances and assure that the “best fit” approach is relentlessly adopted within their organizations. Yet, reward managers and specialists should invariably ensure that new methodologies, once introduced, are constantly reviewed and properly executed by the organization management so as to enable employers to attain their intended objectives.

The decision whether to remove from, maintain in or introduce into an organization’s total reward system bonus schemes should be made on the basis of the message the employer ultimately aims at conveying by means of these pay arrangements, and should be consistent with the organization’s culture and reward philosophy.

As mentioned earlier, performance management practices enable managers to work closely with their reports, provide them constant and honest feedback, coach them, and discuss and agree with them training needs, development and career prospects, but do not help employers to provide employees a tangible reward for their efforts and outstanding contribution to organizational success. It is hardly believable that a banker who has successfully concluded a transaction for a large amount of money might find genuine fulfilment and satisfaction in sincere feedback and training opportunities. A radical change of culture would clearly be necessary within all of the organizations of the financial and banking sector, but there is no certainty, lawmakers’ action notwithstanding, that this change of culture will be even endeavoured by all of the employers. Post-Brexit, for instance, the UK banks will no more be subject to the EU legislation and might thus bring pressure to bear on the UK Financial Service Authority (FSA) to ease the rules contained in the FSA Remuneration Code, developed also taking heed of the EU relevant Directives, so as to enable them to attract and retain talented bankers and financial professionals from across the European territory (especially in response to the statements released by many international banks, which have unveiled plans to move their HQs from the City to other European financial centres, by reason of the Brexit).

Taking it as axiomatic that bonus schemes have to be, first and foremost, correctly and properly managed and executed, these can be regarded as a good fit for an organization whether their introduction or maintenance is consistent with the business culture and truly enables the employer to pursue its intended strategy. Whether, for instance, an organization reward philosophy aims at fostering high levels of productivity and performance, it is highly likely that a properly managed and executed bonus scheme would effectually support the employer in the attainment of the desired results.

Bankers, CEOs and executives directors do not indeed represent the only cases bonus schemes are misused. These pay arrangements besmirched reputation is in fact also severely affected by the wanton fashion these are habitually executed by managers, who do not consider bonuses as a means to an end, but rather as an administrative burden. To avert difficult situations and conversations with their reports, a large number of managers use bonuses also to reward employees whose level of performance is everything but commendable and worthwhile. This is clearly by no means the reason why employers introduce these pay arrangements into their organizations and is not the message employers are expected these programmes to convey either.

In spite of their unsavoury reputation, whether consistent with business culture and properly executed, bonus programmes can indeed effectually help employers pursue their intended strategy. Employers aiming at introducing this type of scheme should never forget and neglect that bonus programmes are a form of performance-related pay, as such they should hence be implemented in those cases in which performance and results can be assessed and evaluated. This does not entail that performance should be necessarily quantitatively measured; the attainment of a particular outcome, the successful and active contribution to a project, the introduction of innovative processes, practices and approaches to work can be all definitely regarded as assessable tasks.

Rather than recommending employers to remove from their reward systems bonus schemes, reward practitioners should help managers to come up with new, appropriate ways to agree with their reports objectives and targets enabling them to easily or relatively easily assess their direct reports’ performance and contribution to organizational success, and encourage innovation. Whether managers are offered the right solutions to appraise individual performance, they will gain the confidence necessary to properly and effectively manage and operate these programmes.

The real compelling reason for employers introducing bonus schemes is establishing a clear line of sight between pay and performance, that is, between effective contribution to organizational success and the contributor’s financial reward package. Albeit of financial nature, the lump sums paid by employers to meritorious, praiseworthy employees also represent a form of recognition, a way of saying thank you to employees and let them understand that their effort and commitment do not go unnoticed. The adoption of this approach essentially enables employers to foster meritocracy in the workplace; this objective, notwithstanding, can be practically achieved only whether the implementation of these schemes is underpinned by equity tenets as opposed to equality principles.

Employers may aim at introducing different types of programmes to express their gratitude and appreciation to their meritorious employees but they should invariably ensure that the message these get across is crystal clear and consistent with the business culture, and reward strategy and philosophy.

Bonuses do not indeed represent the dark side of reward, provided that these are consistent with organizational culture, are properly executed and are introduced under the right circumstances. Reward practitioners should relentlessly strive to come up with genuine innovative ideas so as to support their organizations in adopting the correct approach to reward and introducing the most suitable pay arrangements, safe in the knowledge that each solution identified must suit the real organizational needs and circumstances.

Reward specialists should also carefully take heed of the approach to reward the organization has decided to adopt: performance-related, contribution-related or competency-related pay, and ensure that the scheme they plan to introduce is consistent with this. Reward practitioners should also scrupulously consider whether the introduction of the new approach requires a cultural change and eventually implement the required change project prior to the introduction of the new scheme.

Longo, R., (2017), Can Be Bonuses Really Regarded As The Dark Side of Reward?; Milan: HR Professionals.

Performance Management As A Process

The emergent need for a new approach to performance management

Performance management as a system is typically formed by two phases, to wit: an initial phase when managers communicate to their direct reports the objectives they are expected these to meet, and a final phase when individual performance is assessed and appraised. Whether employees attain the objectives set by their managers, they receive the payment of a lump sum. To implement such schemes organizations clearly incur huge costs; nonetheless, employers are sorely keen and eager to introduce these programmes in a bid to attract and retain talented individuals, and hopefully motivate employees to go the extra mile and exercise discretionary efforts.

Managed in this fashion, nonetheless, these systems have more often than not failed to fulfil their promise. Individuals started soon to develop and express an increasing interest in the amount of money they were expected to receive by virtue of such programmes rather than in the reasons behind the payment of these sums, and the promise they had essentially to honour so as to be entitled to their payment. Yet, these types of financial incentives were soon taken by individuals for granted instead of being perceived as additional amounts of money paid by their employer for a well-founded reason.

Reward professionals have ever since felt the urge to come up with new, innovative approaches to reward management aiming at enabling managers to focus on individual performance, learning needs, and potential rather than on the financial implications associated with these. The efforts are typically concentrated on developing programmes which lay emphasis on individual behaviour, approach to work, results obtained, the way these are achieved and career prospects so as to keep these aspects clearly separate from any discussion concerned with the expectations, in terms of financial reward, individuals may establish in relation to these. As such, performance management started to be regarded as a process, constantly underway, enabling managers and individuals to create and maintain a continuous two-way communication channel by means of which managers can coach, support and demand improvements to their reports. The adoption of such an approach does neither imply the completion of any form nor any specific pattern to conform to, but rather the manager capability and willingness to genuinely contribute to their reports growth and development.

In a separate occasion, managers and employees meet to talk about bonuses and financial incentives at large. This is the meeting, broadly referred to as performance appraisal or performance review, managers typically dislike the most by reason of the role of judge they are essentially called to play. These types of meetings prove to be pleasant and straightforward when managers can give their reports good news, whereas managers feel sorely uncomfortable and ill at ease whether, during meetings, they have to inform their reports that they will not receive the expected amount of money, if any. The fact managers overrate their reports’ performance, to avert being awkward or anxious in these circumstances, does not clearly represent by any means the most appropriate and righteous remedy for these problems.

Whether managers establish and maintain an open constant two-way communication process with their reports, the discussion about the financial reward aspect should actually represents somewhat of a formality. In those instances in which employees do not show the improvements agreed with their managers, do not yield the results managers are expected from these and do not exhibit the desired behaviour, these should not be indeed surprised whether they do not receive the payment of any lump sum or the partial payment of the pre-set amount. In such cases, the discussion should eventually be confined to the individuals’ learning needs, provided that the employees’ unsatisfactory performance is actually due to their incapacity to properly perform their tasks.

Employee performance unquestionably represents one of the trickiest duties manager are prompted to perform in their role. Notwithstanding, averting to properly managing individual performance or considering as a bad practice paying individuals, at the end of each financial or calendar year, a sum of money contingent upon their performance does not definitely represent the best approach to manage employee performance, but rather a way to deliberately overlook this particularly significant management task. The payment of a lump sum, to the individuals who really deserve and merit it, is intended to thank employees for their contribution to organizational success and to make them understand that they can greatly benefit from their organization fortune, and not only suffer the pains of their employer misfortune.

Bonuses and contingent pay at large have been lately considered somewhat of the evil of the financial and business world. Nonetheless, the actual problem with bonuses is not represented by the payment of a sum, albeit at times very large, of money, but rather by the circumstances under which these are paid, to wit: how and why employers pay bonuses to their employees.

The problem with bankers bonuses and the alleged global financial crisis it triggered, for instance, a subject which aroused a lot of media and public interest in the late 2000s, was by no means caused by the huge amounts of money financial institutions were paying to their bankers, but rather by the mechanism through which these bonuses were granted. Payments were in fact made before the final outcome of the bankers’ transactions was actually known (Balancing base and variable pay - Banking Vs other industries). It can be argued that this is the same reason why also the bonuses received by the CEOs and executive directors of some companies provoke in some instances sharp criticism from the public opinion. Executives are at times essentially rewarded for failure and receive staggering amount of money, in the form of financial incentives, despite their decisions have strongly contributed to jeopardize rather than secure the stability and solidity of their organization.

The need to align reward practices with organizational culture

The lump sums paid by employers to their staff must be invariably associated with and ultimately justified by the attainment of the scope for which these are actually granted, that is, reward individuals for their performance, behaviour, achievements, skills, competencies or expertise. Bonuses are typically offered to individuals exclusively taking heed of the results these have obtained in the previous year and can be thus essentially regarded as retrospective (Longo, 2014). Their scope is clearly also that of encouraging future performance, these are in fact broadly known as pay which needs to be re-earned to be repeated, but these programmes typically hardly emphasize the importance of what an individual, in terms of learning and development, may need to gain in order to repeat and sustain his/her performance over time.

Reward management practices, similarly with all the other practices developed and executed within an organization, should invariably strongly support corporate culture and help employers to foster internal consistency and integrity. Financial incentives should hence sustain and reinforce the message the employer aims at conveying and must be consistent with the reward management strategy and philosophy pursued by the business. Whereas, for instance, an organization’s culture aims at fostering the expansion of individual competencies and the way employees use these to ensure an increasingly sustained, satisfactory performance, it would clearly be sorely inappropriate offering individuals generous bonuses whether these have achieved good results, but have not made any effort to expand their competencies. Similarly, it would openly appear inconsistent paying bonuses to employees who have expanded their competencies and gained new skills, but have not effectually used these to yield tangible results, whether the company reward management practices are inspired by an organizational culture fostering high performance and individual growth.

First and foremost, performance management should support the organizational culture and invariably foster integrity within a business. Clearly communicating from the outset why performance management is introduced and operated within an organization and what it aims at encouraging and promoting is hence of paramount importance. Inasmuch as money talks, it might be argued that when money is offered to individuals as a form of contingent pay, money even screams. Clarity, equity and consistency should be hence invariably regarded as mandatory prerequisites of every performance management process.

The reason why performance management programmes do not invariably fulfil their promise is habitually due to the circumstance that these are more often than not designed and developed as over-complex and abstruse schemes or systems, which make at times it even impossible for employees to get through the maze of bureaucracy they entail.

Performance management as a process

The paramount prerequisite of performance management is that it should not be regarded as a system, but rather as a process and its mechanism, in adherence to the tenet “keep it simple,” should be as straightforward and manageable as possible. Reward managers should resist the temptation to develop elaborate flow charts and diagrams, and to adopt complex formulae for the calculation of financial incentives.

Performance management should be considered as a process incessantly unfolding and flowing over time rather than as a once-a-year administrative burden; an activity constantly underway based on establishing and maintaining an open communication channel between employees and managers.

Managers should establish a direct, open communication channel with their direct reports from the very first. The term communication has to be interpreted extensively; it in fact encompasses the establishment of a close relationship between managers and employees, which implies in turn managers tutoring and coaching individuals.

An effective and continuous communication between managers and employees enables managers to be constantly aware of the approaches adopted by their reports to attain their objectives, influence individual behaviour and eventually suggest employees the most suitable approach to perform their activities and achieve their objectives. This constant contact between managers and employees would also enable the former to relatively easily identify the learning needs of the latter and pinpoint the potential these have to grow, work without supervision and assume power.

This approach does not place any administrative burden upon managers, but these should take this undertaking very seriously. The success of the overall process in fact sorely depends on this activity, which should be permanently underway.

The directors of each organizational function clearly need to be aware of the level of performance attained and of the potential shown by the individuals forming their teams. According to the functional composition and size, directors may not necessarily need to receive a constant update about their reports staff, at least not about all of them. Managers may hence provide them a report, or talk to them, about their staff periodically, with the frequency which best suits the function needs. Also this activity is indeed particularly significant in that it enables the company managers and directors to identify the individuals who have the features, traits, expertise, skills and knowledge to grow and play an increasing significant role in the organization; never mind the propaedeutic significance it acquires for the annual meeting during which managers and directors make the final decisions about the managers’ reports bonuses.

The benefits of involving the company directors in this important decision-making process are twofold and by no means exclusively associated with their grade in the organizational hierarchy. Since directors hold meetings to talk about their staff bonuses with all of the managers of their function, these are able to establish a norm within the function and avert that the different managers may propose sensibly different amounts of money for people having essentially equally contributed to the organizational success. To avert the implementation of performance management miserably failing, it is crucially important to ensure that pay decisions are exclusively equity-driven and firmly prevent that these might be affected by bias or other non-merit-related considerations. The risk being to convey an utterly wrong message whose detrimental consequences may prove to be irreversible.

The other reason why each functional director should assume complete control over the decisions made about individual incentives is budget-related. This aspect is in many important respects linked to the previous one; directors must clearly respect the guidelines provided by the employer and, for difficult it might prove to be, remain within their budget. To ensure and secure internal equity within each function, the budget constraint should be considered from the outset. It is likely that at the end of the meetings held with managers, directors may be obliged to further review their financial incentives proposal to remain within budget.

Once the company directors put forward their proposals to HR, these should be submitted to an internal committee to be finally validated. Reward committees may be composed of reward managers, experts, external consultants and some of the organization non-director executives. It is preferable to not appoint any company executive-director as member of these committees in that these may be prone to ruthlessly sustain their initial proposals, irrespective of the inconsistencies these might generate at organizational level.

Whereas the role played by the company directors in the decisions of bonuses at functional level is essentially aimed at ensuring equity and consistency within their function, their exclusion from these committees is aimed at securing consistency and equity within the overall business. These committees’ most significant objective is in fact that to assure that bonuses reflect organizational culture, are granted to individuals who unquestionably deserve them and are distributed equitably and fairly according to the guidelines provided for by the employer.

To ease managers and directors task, HR should prepare and issue guidelines briefly outlining the attributes, qualities and aspects managers and directors should consider the most when making their decisions and providing some indications of how to rate these. Some bonus bands may also be created in order to establish a minimum and maximum incentive amount, for instance, in connection with each grade, role or jobs within the same level of a career-family or job-family structure.

Paying incentives

One of the most detrimental practical implications of the concept of performance management as a system is the payment of incentives according to a specific and more often than not over-complex calculation method. HR typically formulates a document outlining in great detail the overall system and gives it as much visibility as it can.

The description of the mechanism regulating a performance management system typically also contains the indication, for each employee, of the basic amount of money offered by the employee and of the formula to be used for the calculation of the incentive. This may depend on the role or grade but this amount is habitually openly disclosed. The basic amount used to calculate the incentives of the employees filling management and key role positions is more often than not individually negotiated with the employees concerned and usually agreed in writing. On the basis of the performance appraisal meeting outcome, each individual is thus able to calculate the amount of the bonus that this will receive.

In many countries this approach might represent a serious problem and pose a significant threat to employers. The basic amount set for the calculation of financial incentives in fact with the passing of the years may legally bind employers to the payment of broadly equal sums of money in the future, albeit employees do no longer perform as these used to in the past. An individual might perform at an average level but, according to the changed circumstances, the amount of money this would receive by virtue of the basic sum previously used to calculate his/her incentive may prove to be disproportionate to award his/her current real level of performance and contribution.

The introduction of a structured and detailed system clearly accounts for employees establishing expectations, which with the passing of time employers may find it particularly difficult to disregard and not fulfil (Legal risks emerging when introducing and varying a bonus scheme). By reason of the legal constraints existing in many countries, employers having introduced a performance management system may experience severe hardships in a bid to withdraw their incentives scheme, especially whether these have not been carefully and thoroughly formulated. Notwithstanding, the attempt may be well-worth the efforts.

Performance management as a process focusing on individual performance and development should not entail any performance appraisal meeting and should enable thus employers to avert many legal risks to arise and, more importantly, to annually pay individuals the amount these really merit and deserve, regardless of any consistent or unreasonable previous promise. This approach clearly also enables employers to more promptly adapt their incentives budget to the real business financial circumstances.

 Performance management as a process should be intended as an approach exclusively focused on the individual work experience and the results, by means of the close support provided by managers also in terms of coaching, learning and development, an individual can potentially obtain. The financial aspect, nonetheless, does not indeed represent a negligible part of the process. Employers should care for their employees’ growth and development, but should on no account neglect to recognize employees for their contribution and effort so that the establishment of a relationship between managers and employees should inform the manager decisions not only as to what concerns career prospects, promotions and learning needs, but also in terms of financial incentives, and pay and grade increases.

Before the payment of an incentive, managers should individually meet employees. In this occasion, which is essentially part itself of the performance management process, managers inform employees that to recognize their efforts and contribution the employer will shortly pay them a given sum of money. Despite no mechanism and no formula have been unveiled for the calculation of these incentives, it is glaringly obvious that employees communicate amongst themselves so that it is likely that they will soon learn about the amount of cash received by the others. This occurrence should not cause any employers’ concern, provided that these have made their bonus payment decisions according to the tenets of equity (as opposed to equality), fairness and individual merit. In contrast, the circumstance that individuals have received a bonus for their actual contribution and value serves the employer cause in that it helps this to get across the message that individuals are rewarded and recognized for their real value and contribution, or for having exhibited the behaviour and gained the skills desired by the employer.

Over the years, also this approach may indeed cause individuals to establish expectations about the payment of an annual incentive; nonetheless, do not existing a calculation formula, an outline of the system mechanism and let alone a formal written document, the reason why employees establish expectations might be harder to explain; especially whether the amount of money paid to individuals varies from year to year and employees may at times receive no incentive at all.

The benefits of performance management as a process, nonetheless, are not clearly exclusively legally-related. The real benefit of performance management as a process is that it enables managers and employees to focus on the job activities and the skills required to effectually perform these. The circumstance an employee may not receive any bonus or a small amount of money will not be clearly positively perceived by individuals. Nonetheless, the relationship established between managers and employees should enable managers to confidently and openly discuss the topic. Yet, differently from what it happens with a formal performance management system, the adoption of this approach enables managers to eventually recognize individual effort and determination to succeed and obtain the expected results, albeit these are not indeed yielded in practice.

A traditional approach to incentives calculation can be still considered applicable and appropriate in all of those cases in which results can be objectively quantitatively assessed and measured, as for instance is the case of sales staff. In these cases the calculation of bonuses by means of a simple formula would be fairly straightforward. Nonetheless, this does not entail that performance management has not to be managed as a process rather than as a system also in these cases.

Managers need to be close to their direct reports and closely support them in the attainment of their objectives so that these can gain the experience and capability necessary to be accomplished in all the activities these are called and may be potentially called to perform in the future. This has clearly to be done with discretion; without limiting individual creativity and inventiveness, encouraging individuals to come up with new, innovative approaches and methodologies to perform their tasks and attain dramatic results.

The constructive establishment of a good relationship between managers and employees will help the latter to focus on the way the activities are performed and on the identification of new, effectual approaches to work enabling them to increasingly yield positive results. The financial aspect is clearly also important, but cannot be considered per se and in isolation; in contrast, it needs to be invariably linked to the reason why organizations pay financial incentives to their employees. Employers should invariably establish a clear line of sight between incentives and objectives, regardless of which these are, and never miss the opportunity to emphasize the significance of this link and to foster the pillars underpinning their organization’s corporate culture, which is in turn of paramount importance for the pursuance of the overall business strategy.

Longo, R., (2016), Performance Management As A Process; Milan: HR Professionals.

Reward: Attraction vs Retention

Reward definitely is one of the most fascinating HR topics destined to top and firmly remain high on the business leaders’ agenda, especially on that of financial institutions boards.

The growing interest in reward management, however, is not purely scientific or rhetoric-based; employers are habitually extremely pragmatic and what interest them the most is their organization gaining competitive edge and being successful in the market they compete in. Reward is presently regarded as an essential aspect of modern management in that it is believed that appropriate reward management practices can effectually help employers to attain their intended objectives and ultimately pursue their intended strategies.
 

One of the main reasons, arguably the main reason, employers are increasingly directing their attention to reward is associated with its alleged motivating effect. Nonetheless, it can be hardly contended that the motivational aspect may be considered as a distinctive reward feature. This subject has indeed caused controversy over time and the findings of the numerous investigations conducted over the years do not sustain this theory either.

Individuals are different one another; yet, individual preference and wants are also highly likely to change with the passing of time. The exogenous environment and the constant technological advances clearly play a fundamental role in this sense as well as the national and global economic and financial circumstances. A growing significant role is also played by the demographic aspect by reason of the ageing population phenomenon.

Individual wants and expectations are indeed influenced by several factors and can thus be considered as ever-changing and in many respects as increasingly dynamic; notwithstanding, the value proposition offered by employers must invariably aim at meeting as far as possible these needs. To this extent it should be essentially adopted the same approach and mechanism used in marketing according to which businesses should introduce in the market the goods and services which consumers want to buy and not those which the firm can more easily offer. Similarly, employers should offer their employees not the reward packages they prefer to offer or are most comfortable to offer, but rather the reward packages their employees would like and are thus expected to receive.

Financial rewards are, by common consent, considered more effective to attract talents and more in general individuals from the external environment, rather than to motivate and engage individuals. Nonetheless, it is also fairly widespread the conviction that this magnetic effect is due to vanish into thin air fairly soon. This essentially means that whether an employer needs to recruit individuals from the external environment to fill some new or vacant roles, this can successfully have recourse to financial reward as an appropriate leverage to attract and lure quality people, safe in the knowledge that this will not be enough to retain these hereinafter. To avert the occurrence of such a situation, HR and reward specialists before recruiting a talented individual from the exogenous environment, in addition to the identification of the most appropriate reward package that should be offered to the most suitable candidate, should also develop a clear plan of action enabling the organization to retain this.

Employers necessarily have to be far-sighted. These are indeed aware that to attract skilled individuals they should offer these appealing financial reward packages, which they are habitually willing to offer, but it also needs to be clear from the outset the plan of action aiming at retaining these and receiving their best contribution over time to the pursuance of the business strategy.

This is clearly not an exclusive reward matter. Whether, for instance, the person does not fit the organization’s culture or has misunderstood the content of his/her role, there will not be reward package worth to retain the individual. Under such circumstances, it would be better to recognize the recruitment error, bear the waste of money associated with it and with the induction process and start back seeking for the genuinely perfect match for the company and the position.

The circumstance employers should develop for high-flyers an appropriate reward package enabling them to both attract and retain these, does not entail that reward specialists should prepare for each of these individuals a precise progressive salary increase plan. The effect of money would not in any case be long-lasting and, unless there would not be the employer willingness to cover individuals with cash, which sooner or later would prove to be in any case insufficient, the retention objective has to be clearly pursued having recourse to other means. Inasmuch as there is a wider consent amongst reward practitioners and academics upon the effectiveness of financial reward to attract individuals from the exogenous environment, there also is a rather widespread agreement on considering non-financial rewards effective and, in any case, much more effective than financial rewards to motivate and engage people. Engaged and motivated people are clearly more likely to genuinely and spontaneously go the extra mile, exhibit discretionary behaviour and contribute to organizational success.

Employers and reward professionals in order to retain quality individuals should not therefore insist on the financial components of reward, but should rather identify and develop appropriate and sound non-financial, intrinsic forms of reward and recognition. Are indeed these components of the overall reward package which influence in practice individual behaviour and prompt employees to work with dedication. Non-financial rewards also contribute to induce individuals to develop a feeling of involvement and participation on the organizational success and to increase in turn their sense of citizenship.

All in all, it clearly emerges that total reward approaches are the most, or rather, the only suitable approaches employers and reward managers can have recourse to in order to retain and keep employees motivated. Albeit the role of money may become of secondary importance in order to motivate people during the employment relationship, money will invariably continue to talk. The importance of financial reward, by extension, needs to never be neglected or overlooked by employers. Individuals will invariably associate with money a relevant degree of importance and, even though they might not constantly think about financial rewards when performing their day-to-day activities, they could anyway perceive a pay increase as something they deserve or need. To this extent two elements play a particularly remarkable role: the fairness of pay decisions and the individual general financial circumstances.

Despite employers may be happy with their financial reward package and their daily activities, these could feel to be treated unfairly by their employer whether this should grant unjustified and unsustainable pay increases to some individuals. The knock-on effect produced by such circumstance can be extremely detrimental for the business and risks seriously and irreversibly jeopardising the relationship of trust established between the employer and its employees.

Internal fairness clearly represents a critical factor, but the external labour market and the pressure coming from it have to be duly taken into consideration, too.

It is important to clearly communicate and explain employees the worth of their overall reward package composition taking also into consideration, for instance, benefits and deferred benefits. Some employers may offer more generous pay, whereas offering very poor benefits and pension contributions. It is crucially important that these aspects are constantly and clearly communicated to staff and to external candidates when offering a job.

Financial rewards are also destined to invariably represent a reason for individual concern as long as these have not reached somewhat of a financial comfort zone. As long as individuals will be struggling to pay their monthly bills (utilities, mortgage instalments, children school fees, public transport season tickets, etc.) it is hardly imaginable that these may ever pay lip service to the importance of their financial reward package. This circumstance can at times also give rise to undesirable family tensions, which can in turn unconsciously affect employee performance and behaviour at work. 

Despite money may not act as a powerful motivator, its hygiene effect definitely still counts and has to be properly and constantly taken into consideration by employers and reward managers.

Considering financial and non-financial rewards separately, it could be concluded that financial rewards would be the winners of the attraction contest, whereas non-financial rewards would be the winners of the retention tournament. However, both of them clearly play a significant role in both competitions. The synergetic, multiplicative effect produced by financial and non-financial rewards used in combination can effectually enable employers to attain in practice their intended objectives, namely to attract and retain quality individuals. Total rewards approaches are key in this sense. This does not clearly mean that attracting and retaining quality individuals is a straightforward task. People wants and preferences are subject to change over time. Yet, many other employers strive to recruit high-flyers and quality individuals.

Using fairness, consistency and integrity definitely is of paramount importance, but genuinely considering and taking heed of the employees’ wants and expectations assumes a greater significance, too. First and foremost, employers need to know their employees and their needs; this clearly represents the starting point, but whether neglected any employer action and initiative risk proving to be a massive waste of energies and resources. It would be like filling stores shelves with products that the manufacturers considers outstanding, but which customers do not like so that these remains and are destined to remain unsold in the shelves.

Extract from:

Longo, R., (2014), Rhetoric and Practice of Strategic Reward Management; Milan: HR Professionals.