Having played an undeniably significant role in the attraction and retention of staff, cash rewards have always been vital elements of HR leaders’ toolkits. But with bosses today increasingly having to consider the ROI of these rewards, they often have to choose between providing bonuses or one-time pay increases for staff.
Akankasha Dewan explores which types of cash rewards work better, and the best ways of employing them to cut down turnover rates.
Over the years, countless surveys have been conducted in an effort to determine what factors about work are most important to employees. But if there’s anything that we’ve learnt, it is that money will always make the world go round.
According to Resource Solutions’ Asia Talent Insights 2014, 43% of Singaporean professionals cited income as the most important factor when applying for a job.
Cash is still, and will perhaps always, remain king
Career progression opportunities, benefits and work-life balance followed the list of those polled, which included 29% Singaporeans.
Just two out of 10 respondents said salary was the least of their concerns when looking for employment opportunities.
The trend also echoed this year too.
Hudson’s recent survey found that a higher salary is the top priority for Singapore job seekers in 2015, voted by three-quarters of respondents. Better benefits feature right after, at 67%.
Surveying 519 professionals and hiring managers across Singapore, the report found that work-life balance, including flexible work arrangements, features only fourth in job seekers’ list of priorities (64%).
“I think cash is very important at all levels of employees regardless if one is at entry level or at the very senior level of the organisation,” says Carlo Felicia, the total rewards director for Asia Pacific at BD.
“Compensation is fundamental because it provides everyone their livelihood so employers need to ensure that they provide competitive packages so their employees remain satisfied with their remuneration packages.
“If they do not, then they run the risk of associates leaving because other companies will offer better opportunities.”
Eliza Ng, director of human resources at Fuji Xerox, agrees with the possibility of a higher turnover rate if low salary packages are offered, especially among the younger generations.
“For generations Y and Z, most young people at the junior level are comparatively ‘short-sighted’ and they prefer to gain ‘quick money’.
“They will easily jump to other organisations, which can offer higher salary packages regardless of career paths/prospects, training opportunities, etc.”
Despite this, both Felicia and Ng reveal non-cash benefits such as career development and training opportunities are also critical experiential factors which staff expect from their bosses – something which the increasing prevalence of holistic rewards strategies point to today.
We all know cash or non-cash benefits are important, but now it is all about how to leverage the best of each to boost employee engagement scores to optimal levels.
Instead, companies now need to look at, as Ng explains, “what the staff need/want and how to balance the organisational cost and manage the staff’s expectations”.
Bonuses or pay rises?
It is precisely because of the need to tread this delicate balance that employers are increasingly turning to one-off bonuses at the expense of annual pay rises when attempting to maximise on their cash offerings.
A 2014 survey from human resources services firm Aon Hewitt found that companies were spending a record share of their payroll on performance-based bonuses, signalling a shift away from longer-term salary increases.
The 1,064 companies polled, in industries such as energy, consumer products, banking and accounting, devoted an average of 12.7% of their 2014 payrolls to so-called variable pay, which includes things such as bonuses paid out when employees or companies meet specific goals. The figures apply to salaried workers exempt from overtime pay.
More than 90% of those companies offered a variable pay programme, as opposed to 78% of the companies polled in a 2005 survey. That year, variable pay accounted for 11.4% of payroll.
Of course, companies have long rewarded top executives and rainmakers with bountiful bonuses – and that continues to be true – but compensation experts say the prevalence and types of one-time rewards and perks have spread further down the ranks than ever before.
“Offering a bonus plan instead of increasing salary can avoid the increment of fixed costs (including salary and other costs of which the amount depends on salary such as pension, life insurance, etc) , which is important to maintain the competitiveness in the market,” Ng says.
“If the KPIs of the bonus plan is related to the organisation’s revenue/profits, it can help to promote the concept of profit-sharing and thus build the corporate image.”
But as with any strategy, bonus programmes bring with them, their own share of weaknesses.
According to the 2013 Global Bonus Survey by eFinancialCareers, 46% of finance professionals in Singapore were looking to switch careers that year.
This was despite the fact that 42% of Singaporean employees in the finance sector saw an increase in their 2013 bonus as compared to their bonuses in 2012.
The survey, which polled more than 2,650 finance professionals in the UK, US, Hong Kong, Singapore and Australia, reported the percentage of finance staff planning on leaving their current roles was higher in Singapore than in the UK (38%) and US (35%).
One of the possible drawbacks of using monetary benefits to retain staff, Ng explains, is that increased salary levels are easily forgotten by the staff within a short period of time.
“There will be a lack of appreciation and the employee will no longer regard it as recognition or motivation,” she says.
On the other hand, the satisfactory increment rate can also increase the morale and loyalty of the organisation’s workforce.
“It is a ‘guaranteed’ income in the staff’s point of view. Generally, most of the staff will choose the employer who can offer the higher ‘guaranteed’ package,” Ng says.
What to offer whom?
But meeting expectations of staff is, undoubtedly key, as dissatisfaction with compensation offerings can lead to a massive rise in turnover rates.
Unhappy with their annual bonuses for 2014, a survey of more than 10,000 white-collar employees by Zhaopin.com revealed that 40% of employees in China are looking to find a new job.
With bonuses falling below expectations, the overall satisfaction level of employees stood at 2.23, out of a maximum of five.
Only around 16% of white-collar employees had received their annual bonus, despite about 40% of them being promised one.
With such high stakes, it becomes imperative for bosses to make the right decision when choosing the type of monetary rewards to offer to well-performing staff.
But how can they make such a decision fairly?
“We see a significant differentiation depending on an individual’s position in the hierarchy; obviously we are dealing with people and as such we are talking about personal preferences and perceptions,” says Sia Li Chiang, compensation and benefits manager for human resources at JT International Trading.
“However, as a general statement, those individuals who spend a majority of their income covering their daily and monthly expenses tend to prefer a pay rise as the impact is immediate, whereas individuals with a marginally higher disposable income will often prefer the bonus. We have the option to use both tools and will make a choice as to which is the most appropriate depending on the situation.”
Accordingly, Ng reveals that at Fuji Xerox, both types of rewards are offered to staff.
“Which one will be offered to the staff will be on a ‘case-by-case’ basis. It is because each staff have differing existing remuneration packages and each one will have different expectations, hence, it is not appropriate to say which one, bonuses or pay rises, works better in engaging and retaining employees.”
Existing remuneration packages is one factor, she adds, which HR leaders should take into consideration when deciding on which type of reward to offer. Others include the capabilities of the employee in question, including his or her academic background, working experience and professional qualifications.
Sia concludes by saying the most important element is essentially deciding on what the company is “trying to achieve via the reward, and which is the most appropriate tool to ensure the individual being rewarded will continue to perform at that level”.
Ensuring a fair and standard assessment process
Felicia warns, however, of not underestimating the significance of providing equitable and well-deserving rewards.
“I would say that both have a positive impact in terms of engaging and retaining employees. They should both be used in tandem to have maximum and complementary effect. I think the most important element is that employees feel the pay rise or bonus they receive is fair based on their performance,” Felicia says.
A critical factor to achieving this sense of fairness and equity, he explains, is employee communication.
“Managers must be able to communicate clearly to the associate what they are receiving and why, that is, relate it back to the employee’s performance, competencies, etc,” he says.
Felicia adds the total rewards function must also educate and make employees aware of the chosen compensation and benefits process.
“We need to conduct C&B 101 sessions to show employees that our respective organisations conduct salary surveys, review job descriptions, create competitive salary ranges, etc, so that they appreciate the amount of data and analysis that goes into determining remuneration packages. Only when employees are aware and appreciate our C&B programmes will they ultimately be satisfied.”
Wilfred Chan, director of compensation and benefits for Asia Pacific at AECOM, expands on the importance of focusing on how well the employee in question is meeting his or her targets when deciding on their reward strategies.
“Leaders need to focus on the pay for performance aspect. If the company or the person is performing, we really need to provide those to the most deserving. Don’t ever reward poor performance and if anything, use the pay cycle as an opportunity to withhold adjustments to those with low performance,” he says.
“Back up the decision with data, using metrics such as personal performance, external and internal relativity.”
All interviewees agree that rewarding poor performance can, undoubtedly, result in disastrous consequences.
“HR leaders should ensure there is differentiation between rewards for solid or core performers versus the high performers,” Felicia says.
“There is nothing that would demotivate a star performer more than getting the same pay rise, salary or incentives as an average performer does.”
To avoid such a situation, Felicia advises that HR leaders need to invest their limited rewards budget to those who make a significant positive impact and that they should get a proportionate amount based on their contribution
“If we do not do this, we risk our high performers leaving for other organisations who can and do recognise and reward their contributions exceptionally.”
Ng isolates a few elements which can ensure such drawbacks can be minimised. These include, firstly, fairness in defining and identifying high-performing employees.
Second, proper justification, such as concrete and proven evidence should be provided when assessing candidates for higher rewards.
There should also be consistency in rewarding a certain type of performance.
Leveraging on communication
To maintain these frameworks, Chan reminds us of the importance of effective and clear communication between HR leaders and employees.
“Again, as we are dealing with human beings, there will always be some subjectivity involved in the process, as such it is important that your compensation and benefits framework is communicated and implemented based on transparency and merit,” he says.
But complete transparency and effective communication in the rewards arena can only come about, Felicia concludes, if a holistic approach is adopted towards structures of a rewards package.
“Employees look first at the compensation package and then at the other equally important factors in order to decide whether they want to join, stay or leave a company,” he says.
“Employees want to see what they can learn, what they can contribute, what impact they will have from the work they do and the satisfaction they can derive from a job well done.
“Thus, we need to work closely with other HR functions and senior leaders of our organisation to develop a culture and work environment that clearly defines and delivers the value proposition that our employees will find compelling enough to be worth their time and effort to work there,” he says.