Cash is a powerful motivator to drive behaviour, but it’s definitely not the only one. Akankasha Dewan speaks with senior HR leaders about the growing reliance on non-cash rewards to attract and retain talent, and what this means for future C&B practices.
Rapidly changing corporate directives, fewer resources and a smaller workforce are a challenge for most corporate initiatives these days, and is something that can pose difficulties for one of the greatest forces driving corporate performance – an effective rewards strategy.
“With the way life is today and its demands, businesses are tougher and cycles are shorter,” says Joon Tan, vice-president of talent management, global supply chain, at Schneider Electric.
“Therefore, your budget is constrained, and the business risk and volatility is high. So you need to get creative around how you package your offering together. In that sense, the total rewards strategy is important. You can’t just tap on cash rewards to retain and attract talent.”
Increasing value of non-cash rewards
Tan’s comments point to a fundamental alteration in today’s HR motivational toolbox – an increasing reliance on non-cash rewards. These include elements such as flexible working hours, gifts, recognition from superiors, travel allowances and more.
Various studies demonstrate the increasing popularity of such non-cash incentives. A 2013 report by Aberdeen found best-in-class companies (i.e. those with the highest financial and operational results) were more than twice as likely to provide non-cash incentives. The study also highlighted 21% of high-performing organisations utilise these non-cash rewards, as opposed to 10% of all other companies.
But the effectiveness of non-cash rewards is marred by an interesting conundrum surrounding the selection of employee benefits today: even though employees enjoy and appreciate non-cash rewards more than monetary compensation, they still actively demand cash rewards from their companies.
A study by Wichita State University revealed when given a choice between cash, or a cruise or a TV worth the same amount, respondents chose cash 63% of the time. However, when the same research team asked respondents to rate how happy or satisfied they would be to get either the cash, the TV or the cruise, the TV and cruise consistently outscored cash.
Even though employees enjoy and appreciate non-cash rewards more than monetary compensation, they still actively demand cash rewards from their companies.
The results implied employees were more excited by and would actually enjoy non-cash rewards more because of the fun and emotional properties they possessed. From a preliminary reading then, non-cash rewards are a more effective tool in generating greater motivation and driving performance. But when given a choice between a tangible reward and cash, the utility of the cash would lead many to make a less satisfying, practical decision.
The utility value of cash rewards
This study highlighted one of the most baffling contradictions in the C&B industry today. Amid the assortment of incentives offered, which type of rewards should C&B professionals focus on if they wish to cater to their employees’ demands, while not compromising on their motivational levels?
Neha Pareek, business and technical talent leader at IBM global business services for Asia Pacific, GCG and MEA, suggests the focus on non-cash rewards is only recommended once an effective compensation strategy is in place.
“If you pick up any study on compensation or read up any article, you will see a common trend – extrinsic motivators such as money, titles or rewards have, at most, a short-term effect on desired behaviour. Employees are also motivated and driven by the work content, not just the reward,” she says.
“Having said that, if compensation systems are perceived to be unfair, extrinsic rewards can be powerful de-motivators. So it’s important to maintain a balance and also ensure employees are paid fair to begin with.”
C&B CASE STUDY: Schneider Electric
Tan agrees, and adds that salary structures need to essentially fulfil basic needs of employees before anything else. “Pay, at the minimum, has to be competitive to be able to afford someone a decent standard of living.”
Interestingly, this desire for a basic standard of living becomes apparent in the 1999 Wirthlin Worldwide survey as when granted a cash reward, most employees would still use it on necessities rather than luxurious wants.
According to the Wirthlin survey, more than 1,000 people were asked how they spent their last cash reward, cash incentive or cash bonus. Almost 30% said they spent it on bills compared with 9% who used their cash award on a “special personal treat”.
Understanding geographical and generational preferences
Tiffany See, executive director of human resources for APJ at Dell, explains the importance of cash and non-cash offerings also varies depending on the geographical location of the employees in question, and the market in which they work.
“If markets and their inflation levels are stable, compensation ranks third. Our employees tell us having a flexible work schedule that fits with their life ranks first. Second is their desire to learn new things. Compensation follows,” she says.
“Where I see compensation as higher in that stack would be in countries like China because they are still growing pretty quickly. Similarly in India, employees can jump to local companies rather than multinational corporations and get increases in pay. After that, they want to talk about development and learning opportunities. This also holds true for any Southeast Asia market such as Vietnam, Bangladesh, Thailand and Pakistan.”
All three leaders also point out the reward preferences of the employees in question can be determined by looking at their age and seniority level.
“Typically at the more senior level, especially in technical functions such as research and development, having a role where you’re constantly challenged from an intellectual and business standpoint is a big plus for executives,” Tan says.
“For entry level professionals or mid-level, a number of factors come into play, such as your personal motivation – whether you need cash to either settle down or you’re starting a family. All of that becomes important.”
In a nutshell, compensation professionals need to play multiple roles to be effective. They need to be financial analysts, psychologists, coaches, trusted advisors and problem solvers.
– Neha Pareek, business and technical talent leader, IBM global business services
Pareek agrees, and stresses the importance of catering for such demands.
“Trends indicate Gen Y has higher career expectations for pay and promotion than all previous generations,” she says. “They do not want to be hired, they want to be courted.
“Hiring them is harder and retaining them requires more effort than just the pay package. Employees value being valued, and are motivated when their organisations are going the extra mile. All these factors need to be considered when an organisation is deciding on its non-cash rewards package.
“I would say that HR’s role in crafting a benefits strategy is very significant. The key is to look at the entire organisation’s culture and opportunity.”
The changing role of the C&B professional
But fulfilling such a role has, over time, become increasingly difficult. Given the demands of the market, the C&B professional has taken on a wider breadth of responsibilities to remain effective.
“I think it has become a lot more business focused,” observes Alison Crick, director of sales and compensation for APJ at Dell.
“You have to get the right balance between understanding the external market as well as your business requirements, i.e. what are the areas you need to focus on. One size no longer fits all – so there’s a lot of differentiation even within an organisation on how you manage your compensation.”
She explains that within its business, different internal organisations have different needs, that is, how you pay a hardware person may be different from how you pay a software person. Dell has adopted a differentiated approach to its programmes to be more reflective of the market.
“However the underlying pay philosophy or culture aspect remains consistent across all business units – Dell has and always will be a meritocracy and each business unit compensation decision supports this,” Crick says.
Pareek reiterates the need for today’s C&B leaders to be business-focused, adding this need is even more critical considering the added range of responsibilities leaders have to shoulder.
“In a nutshell, compensation professionals need to play multiple roles to be effective. They need to be financial analysts, psychologists, coaches, trusted advisors and problem solvers,” she says.
“To accomplish this, they need to immerse themselves in the company’s business – understanding its strategies, products and services, markets, revenue streams, critical business factors and, of course, employees’ impact on the business, as well as their needs and wants.”
Training for a more holistic role
With C&B professionals playing a bigger role in the business, it becomes natural they rapidly acquire various new skills to provide better control support to their organisations.
“In C&B today, you are expected to be conversant about the business, market dynamics and competitive landscape because you play an important role from a design standpoint, including salary structure, bonus or incentive structure or benefits design. It is a strategic function, if well tapped. No longer are you just the controller or policy marker of the guy who sets the salary range,” Tan says.
She observes, however, there is still room for improvement. While their functional expertise remains in-depth, a C&B professional sometimes lacks the business knowledge required to make a more holistic decision.
“I think C&B professionals in the Asia Pacific region are still fairly tactical. They are good, but sometimes they are not as mature and sophisticated as their Western counterparts in North America or Europe,” she says.
“I think the biggest challenge is they are too inward-looking. A lot of the C&B people I have come across are too focused on the numbers. And they forget compensation surveys are but one tool and one source of the data.”
I think C&B professionals in the Asia Pacific region are still fairly tactical. They are good, but sometimes they are not as mature and sophisticated as their Western counterparts in North America or Europe.
– Joon Tan, vice-president of talent management, global supply chain, Schneider Electric.
At the end of the day, she says, decisions must be made on a broader set of data, including the health of your business, where you stand, industry trends and economic dynamics.
“That’s most lacking. And therefore they are not equipped to speak to business leaders in a way that is compelling to them. Because all you talk about is from your own handbook, and don’t relate to business decisions and contexts back to the business and the employees.”
Leveraging on data to craft C&B structures
The opportunities to learn and grow are, however, readily available. With unlimited access to data, C&B professionals are free to use it to their advantage and leverage on such information to make intelligent decisions. See explains that using data to make decisions is a core element of Dell’s C&B strategy.
She recounts an example when the company was contemplating a car allowance in a mature market for one of its sales employees. However, because her team could not find a significant percentage of companies in the market who were providing car allowances to their sales divisions, she did not go ahead with the decision.
“We have a detailed and structured benchmarking process when crafting our C&B needs every year. We use several salary surveys to basically collate data on what’s happening with the economic indicators of those countries. We match our jobs with comparable jobs in the market and then we look at the salary survey data to triangulate all of this,” she explains.
“Then we come up with a minimum, maximum and mid-point for every single job. And if we find a new job develops, we may have to modify our own compensation structure to include these new jobs that have emerged for Dell. They might have existed in the industry, but not at Dell.
“As Dell has become more focused on solutions, we have had to be flexible and identify these new roles in our internal systems, then leverage all the industry benchmarking data to make sure we’ve got the right salary range for these jobs, too.”
The future of C&B
Looking to the future, she adds it will become more integral for the C&B professional to articulate and communicate C&B philosophies into effective and profitable returns on investment.
However, Pareek warns that too much focus on measuring the effectiveness of such programmes can be detrimental, especially if it takes away focus on providing a balanced rewards offering.
“You cannot over-engineer these things. You cannot over-engineer ROI on these investments. Every time you make an investment on a non-cash reward, you cannot keep on calculating the return on investment on that,” she says.
“I think the focus should be on providing both cash and non-cash rewards to employees as opposed to computing how much of returns a particular non-cash reward is providing. It’s important to maintain a balance between fair cash and non-cash rewards.”