Employees these days are not motivated by money alone. But the right mixture of financial and non-financial rewards can go a long way to produce a much more incentivised, motivated and committed workforce, says Chris Legge

Empirical research has consistently shown that employees are not motivated by money alone.  However, this is very different from the view that money is “way down on the list of employees’ goals”. In fact, it ranks very highly¹. But it’s the intrinsic rewards – such as varied and interesting work, challenging situations and creativity – that are often the true motivators. Although pay, bonus and incentive arrangements are required to satisfy basic employee needs, they are potentially short-term motivators and often do not lead to long lasting changes in employee behaviour.

That said, financial incentives should not be completely discounted. Research in America²,³, suggests that pay for performance can (when implemented properly) be positive and deliver performance improvement, especially when it: 

• Gives financial reward to employees for reasons of both equity and recognition;
• Gives direction to employees by aligning rewards with the organisation’s goals and objectives.  (Pay is probably the most salient communicator of organisational goals)
• Is based on the performance of groups, individual performance and rewarded by honours.

In short, Total Reward programmes, which integrate both financial and non-financial incentives to reward staff, can offer an organisation the building blocks to help incentivise, recognise and motivate employees to deliver improved levels of performance. If we take a simplistic business scenario: achieving competitive advantage in selling products or delivering outstanding customer service is a crucial element in organisational success; similarly, competing for, retaining and incentivising talented employees is equally as important.  Arguably, just maintaining a competitive pay policy is no longer the benchmark as more organisations are now considering leveraging “all of the tools available to the employer to attract, retain and motivate employees”⁴.

Improved performance
Total Reward theory supports the concept that employees will show higher levels of performance and productivity if they feel valued by the organisation.  The relationship between this feeling of value is reciprocated by the organisation through offering relevant financial and non-financial rewards. These should be in line with employees’ needs and wishes, the strategic direction of the business and what the business values from its employees.

Total Reward Elements Table

It also aims to reinforce an organisation as an ‘employer of choice’ by promoting its reward policies and practices as a ‘Total Reward package’ with the focus on meeting the needs and expectations of employees, rather than a collection of HR reward and development policies. It builds upon four basic building blocks of what is seen to be important to employees and is part of the overall motivational mechanism seen in well-performing organisations, i.e. compensation – providing differential compensation to employees based on performance; informal recognition – day to day recognition of performance, most importantly by the immediate manager; honorifics – recognition elements; promotion prospects – advancement and development opportunities⁵.

Total Reward solutions are presented in many forms, with models reflecting three, four and even six key elements in their design, for example: 

• pay, benefits, learning and development and work environment;
• tangible rewards, future growth/opportunity, enabling environment, quality of work, work/life balance and inspiration/values;
• lifestyle package reflecting significant changes, i.e. high disposable income, financial commitment, family, approaching retirement.

The models can potentially utilise a vast array of motivational and reward factors, a selection of which are illustrated in Table 1 above.

Whilst this is not an exhaustive list, it is representative of what organisations use. Each factor on its own can play a part, however, the benefit to employer and employee is in combining relevant factors to offer a comprehensive package that is linked, integrated and provides a menu to help motivate employees.

Inevitably with choice comes ‘what to include’, but more important is how the organisation obtains the maximum value from those choices. For each factor the business should consider what it wishes to receive in return from employees. Many organizations have entered the Total Reward arena with a small focused selection of factors representing only financial and non-financial elements. Each element (or combination of elements) should exist for relevant strategic and operational reasons, as removing or replacing factors at a later stage could undermine the purpose of the Total Reward model.

Total reward statement
Often with the type of ‘transactional’ model, mentioned above, employers provide employees with annual total reward statement, which details what individuals are entitled to and the financial worth of their respective elements beyond basic pay.  Additionally, they can make employees more engaged with the organisation by helping them to understand how much they are getting from the employer, which may make them more inclined to stay on and be more ‘motivated’.

Determining the mix of Total Reward factors may be strategic or tactical depending upon the needs of the business. For example, executive compensation is often more focused on financial values and Total Reward may be replaced by ‘Total Compensation’.  This is in part due to the fact that executives usually have sufficient flexibility in their organisational roles to be able to organise their work, influence their development opportunities, generate interesting and challenging work, and as a result, partly meet their motivational needs.

Hence Total Reward tends to focus on ensuring that the compensation elements, namely salary, benefits, short- and long-term incentives and perquisites are (a) competitive and (b) suitably structured to influence performance and behaviour. Depending upon the requirement, the elements can be used as follows (see Total Reward:  Learn More below); however, executive compensation design must also reflect good governance.

Table 2: Impact of Incentive Elements for Executives

At the tactical level, Total Reward solutions can be designed to operate across a broader spectrum of employee groups and incentives/motivate them accordingly. For example the effective use of voluntary benefits within Total Reward can provide employers/ managers with the opportunity of identifying and recognising individual and/or team performance by providing aspirational non-cash rewards. Worklife provisions, now common practice in many organisations, provide valued flexibility around employment hours and work patterns.

Linking Total Reward to learning and development, relevant career and succession plans for individuals or roles, which in turn are reinforced through pay, progression and incentive mechanisms, present a compelling statement of the employment landscape within the organisation.

Arguably, if a Total Reward model is to contribute to incentivising and motivating employees, this will not be accomplished without good line management and effective performance management activities.  ER Consultants has found that effective business performance centres on the ability and capability of line managers to utilise all the physical and psychological employment dimensions at their disposal, of which Total Reward components feature predominantly. This has been also reflected in the research produced by academic institutions, such as the University of Bath.

In conjunction with HR practitioners and using a well-developed Total Reward scenario, company performance can be improved; conversely, poor management capability cannot be substituted with an excellent Total Reward package and expected to produce results.

Poor management performance = poor employee

performance = poor business delivery.

To illustrate this point, let’s look at ER Consultants’ recent work within a retailing organisation, which centred on assessing how to improve performance and productivity across a number of distribution sites.  The organisation provides a comprehensive Total Reward offering to staff, which is well communicated, understood and respected by employees. However, our analysis uncovered a number of issues for the client, which were preventing further performance improvements. Our recommendations to overcome this situation included: 

• Building the capability of Team Managers by recruiting and training individuals with the right core behavioural competencies to ‘lead’ and ‘manage’ Team Members
• Focus Team Managers on ‘people management’ in addition to performance management through setting performance objectives and performance related pay based on an equal combination of ‘hard’ and ‘soft’ measures.

ER Consultants’ approach to Total Reward centres on ensuring that there is organisation readiness, compensation expertise, employee and system readiness, and our solutions for clients, as in the case above, reflect this (also see ER Consultants’ approach to Total Reward below).

The results
In summary, a well-designed and effectively communicated Total Reward offering should result in:

• Improved recruitment of better-quality staff;
• Reduction in wastage from staff turnover and employment costs;
• Improvements in business performance;
• Establishment as an ‘employer of choice’;
• Reinforcing appropriate behaviours;
• Providing a channel to aid the communication of the ‘employer’s offering’ to its employees;
• Reinforced commitment through allowing employees choice over what they want from their employer;
• The organisation maintaining overall control of the options available to individuals;
• A more motivated and committed workforce.

Finally, if you would like to learn more about Total Reward, why not attend one of our workshops on Strategic Reward. See below for more information on our next event or contact me, chris.legge@erconsultants.co.uk

References :

^1/3/5. The Enthusiastic Employee – How companies profit by giving workers what they want, Wharton School Publishing,

(David Sirota, Louis A. Mischkind, Michael Irwin Meltzer)

². Ultimate Rewards – What really motivates people to achieve, Harvard Business School Press (Steven Kerr)

⁴. WorldatWork – The Professional Association for Compensation, Benefits and Total Rewards

Total Reward:

ER Consultants’Approach
ER Consultants’ approach to Total Reward centres on ensuring that there is organization readiness, compensation expertise, employee readiness and system readiness, and at the same time recognising that:

• No ‘one-size-fits-all’ model;
• The use of financial and non-financial components which are aligned to the Reward Strategy which are in-turn aligned to and support the business strategy;
• Each organisation has different value chains, systems, processes and culture, so any proprietary solution needs to be tailored to and ‘owned’ by the organisation;
• Each element and factor of the model should stand up to scrutiny as a reward or motivational mechanism in its own right;
• What is important and motivating to one employee in an organisation is different to another organisation;
• Suitable management skills exist to support the model;
• You know what your employees would want.