Show me the money: What role finance should play in ensuring the motivation of employees
6 min read
14 December 2015
Real Business took a look at the science behind the impact of pay and reward on employee behaviour, as well as what role the FD has in the incentivising process.
When someone mentions the mid-90s classic film Jerry Maguire, the first scene to come to mind will probably be Tom Cruise repeatedly screaming “show me the money” over the phone. But money may not be the straightforward workplace motivator we expect.
We’ve all watched the movie and probably even yelled the line a few times for good measure. To be frank, money would always be part of the job calculation. According to the CIPD, in its “The behavioural science of reward” report, it was found that “money has a powerful effect on behaviour, over and above those arising purely from its value, and including unintended and distorting effects”.
But at the core of its research, the CIPD claimed employers needed to be more aware of how employees reacted to benefits and reward. Indeed, unlike the famous scene in Jerry Maguire suggested, the amount of cash you earn may not be as high up on the list as most expect – especially when it comes to long-term motivation.
“Other benefits, such as healthcare, company cars or gym membership, can form an important and effective part of a reward strategy,” the CIPD said. “Where there is an element of flexibility, they may additionally support diversity and autonomy, but employees may in fact perceive having to make a decision as a cost.
“Avoiding a choice may lead to inertia, retaining a form of benefit that is no longer valued. There is thus a case for minimising the range of benefits offered and simplifying the process of selecting them. It is also worth noting that the subjective value of a benefit to an individual can lessen over time, resulting in a perceived loss, as does the removal of a benefit. Such losses are experienced as greater than the original value of the benefit. We argue employers should refresh the benefits offered, try to avoid offering benefits that may need to be taken away and think carefully about whether removal is necessary.
“Traditionally, there has been wide support for offering pension contributions above the required minimum, in particular because of the benefits seen in staff attraction and retention,” it added.
“Evidence from behavioural science suggests employees tend to significantly undervalue the employers’ contributions except in very late career, suggesting that, like deferred incentives, pensions don’t punch their weight as an element of reward. However, proactively and regularly communicating the value of pension contributions can help counter this.”
Duncan Brown, head of HR consulting at the Institute for Employment Studies, suggested the employee benefits landscape had changed since the recession.
He said: “Some bosses have probably not looked enough at the whole package; some will have over-reacted to cost increases on pensions and done some short-term cost cutting when they should have looked at the whole context and the impact in the longer term. A reward package is part of a transaction, part of an employment relationship and you can quantify those aspects of that – and others you can’t.”
FDs and HR teams are now looking to see if they can get “more bang for their buck and motivate staff more at an equivalent or reduced cost level”, said Brown. He also cited improved communications as key. “Most organisations do a poor job of communicating, despite communications technology getting a lot cheaper and sexier,” he said.
He also implied that senior management needed to “put the hard and the soft sides together – and that implies HR and finance working together.”
FDs should now ask themselves what the aim of the benefits package is, explained Brown. “Is what you offer any better than if you just gave them cash and let them buy their own benefits? FDs need to look at the total package cost. Break it down and look at the philosophy of the organisation. Is it a professional, added-value business or a low-margin, low-cost business? To what extent is the benefits package in line with that?”
He is of the belief that while research concludes that salary, bonus and renumeration packages are at the forefront of any potential candidates mind when considering where to work, “it’s “more down to ‘it’s a cool place to work’, ‘I have a great manger’, ‘brilliant feedback on how I’m doing’, ‘I get loads of development’, or ‘get told when I do a good job’.
“It’s a combination of the financial and non-financial that the most successful organisations are able to leverage to get a really high contribution from their workforce,” Brown said. “There are studies that show a secure package can work, but again, what’s the model? John Lewis gets away with a relatively high-cost reward model that cuts its turnover but means it can deliver good customer service which means people spend a lot of money, so it pays off. But it would put another retailer out of business.”