It is possible to create a reward strategy that will support your efforts to create a cohesive and motivated workforce that committed to your firm goals and ambitions. Tom Marks and Peter Lawson show you how.

Human beings are essentially aspirational by nature. To achieve what we aspire to, is a great motivator of human behaviour. Some of our aspirations are more easily achieved than others. It is easier to change hair colour than it is to change our body shape or weight. Some of our aspirations are just plain difficult to achieve. For example, changing the way we think and behave on a permanent basis is practically impossible.

Furthermore, we are seldom in a position to say that we have achieved all that we aspire to. Aspiring to things is like having a constant mobile itch – we scratch it to get relief only for it to reappear somewhere else almost immediately. Aspiration is part of the human condition. And, of course, as we change, so do our aspirations. 

Little wonder then that it should inhabit the organisations in which we work. Indeed, organisations themselves are aspirational. When market imperative is added to human aspiration, a heady cocktail is produced, the effects of which are difficult to control. Businesses codify their aspirations in elegant statements of visions, values and missions. They develop overarching business strategies which are cascaded down the organisation to spawn detailed business plans peppered with critical success factors, and sophisticated functional and other operational plans.

Often, this plethora of planning and preparation gets mixed up with the miasma of human ambition and aspiration. Just as an individual finds it difficult to stick to a diet and to deliver the outcome of shedding weight, organisations find it difficult to deliver their plans. They fail to meet their aspiration of increased market share, better quality, improved customer service or higher productivity. So how can CEOs meet these organisational and employee aspirations?

Extrinsic versus intrinsic rewards

Academic studies1 have found that reward, in all its forms, affects the relationship between the employee and the employer, and therefore, the performance of the organisation. Using pay system reform to support and reinforce change efforts is an important ally that CEOs have. But it’s often undervalued or overlooked. Perhaps they have discounted this option because they adhere to the view that pay system changes are not effective or because they are counterproductive in support of implementing business strategies and plans.

Perhaps they have been seduced by the arguments of the Human Relations2 movement – that work relationships are more important in determining employee motivation, satisfaction and productivity, whilst the terms and conditions under which work is carried out are less important. The Human Relations movements ideas were supported by Herzberg’s3 argument that intrinsic (i.e. job design, content, flexible working, etc) sources of motivation are more important than extrinsic (i.e. pay, recognition systems, etc) sources (see Figure 1).

Extrinsic factors, according to Herzberg, have no positive motivational value; intrinsic sources are the true motivators. However, to achieve real organisational growth, you need to have both. So managers should try to create conditions where extrinsic rewards are congruent and consistent with intrinsic rewards.

These views support ER Consultants experience gained in both the public and private sector. Aligning pay systems with strategic imperatives are an important, if not, critical way in which employees feel part of and able to affect the performance of the organisation. Through a culture of engagement and
trust, employees will utilise their discretionary effort for the benefit of the organisation. But how, as CEO, do you utilise your reward agenda to create a cohesive workforce that is motivated and committed to your ambitions and goals for the organisation?  How do you reinforce the trust your employees have in you and the organisation? The answer is to combine extrinsic and intrinsic rewards into a powerful combination called Total Reward.

The Total Reward  concept

The concept of Total Reward is at the outset a simple one. The combination of extrinsic financial ‘drivers’ with intrinsic ‘motivators’ forms a powerful combination with a focus on ‘value’ for both the organisation and the employees. This is achieved through aligning strategic and performance imperatives of the organisation to the reward elements available to, and controlled by, the employees. It is the mix of these extrinsic and intrinsic elements that together aid the creation of a culture of engagement and trust with employees.

ER Consultants recently helped a leading UK insurance company to achieve just that. The firm is using Total Reward as a key change intervention to drive a major programme to reinvigorate the business. By aligning the reward strategy with the business strategy and overall objectives of the organisation, the firm acknowledges that people are the key to driving through the proposed changes.  We challenged their thinking and helped them to focus and develop their reward strategy. The strategy – for a transparent, simple and coherent set of universally applied reward practices – was communicated and delivered through a Total Reward concept. The reward elements were viewed in their entirety rather than individual elements with a focus on ‘value’.

Figure 1: Balancing extrinsic and intrinsic rewards

The results?

Utilising a Total Reward approach in this way helps to create an environment that reinforces the position of the employee as central to the modus operandi of the organisation. By linking the reward elements together and in-line with the business objectives of the organisation, reward becomes a pivotal intervention to build, maintain and sustain motivation, commitment and influence behaviour. More often, it is an increase in motivation and commitment of employees that gives an organisation its competitive advantage. For the concept of Total Reward to be successful, it relies on top-down communication from the CEO in the form of a Reward Strategy document or philosophy. Without this level of communication the concept will be lost on employees. Trust in the top-team and the new intervention can be built through involving employees in the design and development of the key Total Reward elements.

We have seen in recent years an increase in the number of organisations operating ‘flexible’ or ‘cafeteria’ benefit schemes. These schemes allow employees to choose which level of benefits they want, giving them the benefits they need, thus increasing their level of perceived control. Total Reward takes this a step further, but essentially keeps the level of control with the employee albeit within the confines of what the business considers affordable and appropriate.

If introduced effectively, a Total Reward statement can be provided to each employee detailing the total financial elements of an individual’s package – base pay, variable pay, benefits, pension, shares and stock options for instance. These statements are used as a transparent communication channel between the employer and employee, reinforcing the psychological contract in a coherent fashion that is tailored to each individual. And that’s exactly what we helped this insurance firm, as well as other clients, to achieve.

Total Reward enhances and formulises the link between what an organisation gives to its employees and what it expects from them. Having a motivated and committed workforce means that as the leader you can do and create much more value for all your stakeholders. With a culture of engagement and trust, your organisation will able to change without the usual barriers. It will be flexible, agile and able to attain performance to the highest levels. It will also benefit from a happy and contented workforce who believe the organisation is doing the best that it can for its employees, who in return will do what they can to make the organisation more successful and make you look good in the process. As a result of all this, your organisation will become an ‘employer of choice’ not only amongst its peer group, but also in the wider marketplace.

ER Consultants doesn’t have a prescribed approach to Total Reward. Our approach is to work with clients at a strategic level through a methodology that gets to the heart of what is important to each organisation. We feel that real benefits are derived from working with an organisation to develop, design and implement its own Total Reward philosophy and practice. Remember it’s not our scheme – you need to implement and operate it. After all, your most important assets are your employees, aren’t they?