‘A fair day’s wage for a fair day’s work’, is a motto that dates back to approximately 1830 and is as true now as it was then. The importance of employee reward and what it actually boils down to is summed up in those very words.
If you look at Maslow’s Hierarchy of Needs, which is a motivational theory in psychology, then the first two levels of need that humans have in order to survive include elements of employee reward. On the lowest level the theory shows that humans have basic physiological needs including food, drink, warmth, clothing and shelter. In order to fulfil those needs people need money, their fair day’s wage. The second level of the theory looks at psychological safety needs which includes financial security, for the vast majority of people this comes from employment. Apart from fulfilling these basic psychological needs though around having income what else does employee reward encompass, why is employee reward important and how can employers make sure that they get employee reward right?
What is employee reward?
Employee reward goes beyond an employee’s basic hourly rate of pay or annual salary. The CIPD define it as follows, “The term ‘reward’ generally covers all financial provisions made to employees. It can include cash pay, and the wider benefits package (such as private medical insurance). It can also include wider provisions for employees, with the term ‘total reward’ sometimes used to encompass non-pay benefits, such as flexible working opportunities”. Employee reward therefore is in fact quite a broad concept and if an employee receives bonus or commission payments, some other form of financial incentive or even non-financial benefits then equally that can be classified under employee reward.
Why is employee reward important?
Apart from meeting someone’s psychological needs as we established earlier, employee reward is important for a variety of other reasons. Employee reward is significant in recruitment. If the rate of pay or salary you are offering lags behind your competitors in recruiting for similar roles then you are going to struggle to hire staff who are able to deliver the standards and quality of work you expect unless you can demonstrate that other elements of reward on offer make up for the gap in actual pay. In order to ensure that a business is competitive in the level of pay offered business can carry out salary benchmarking exercises. These can be quite simple or complex but provides a good baseline and indicators of the local job market. Employee reward is also a key factor in retaining employees. The time and cost of recruiting staff is high so once you have staff in place it is important to look after them and keep hold of them and offering an employee reward package that is attractive is essential. Employee reward can also be related to engagement, motivation and productivity particularly when reward is linked to appraisal outcomes or the achievement of specific targets or key performance indicators.
Pitfalls of getting employee reward wrong
Getting employee reward wrong can be extremely harmful to a business. Firstly, from a compliance perspective it is crucial that employers meet their legal obligations to their employees in terms of paying them the statutory minimum wage. Failure to do so can be financially and reputationally damaging for a business. Ensuring that levels of reward are appropriate is also imperative. If you set your reward levels too low you are likely to have high levels of employee turnover and this can be detrimental for productivity, morale and customer satisfaction. If you set your reward levels too high though you could financially destabilise the business and put it in jeopardy as your staffing costs may be unsustainable.
It is important therefore to carefully consider your employee reward offer and aim to achieve an appropriate balance. Staff should feel valued and suitably compensated for their work and employers should ensure that the rewards offered to staff are affordable and do not place the business at undue risk.
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Why not also check out our blog on a similar topic Top 5 Employee Benefits
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