The Role of Rewards in Building Employee Engagement

No, money probably can’t buy you love. And it won’t alone buy you employee engagement either. But a sense of balance between what employees contribute to an organization and what they get back in return is fundamental to sustaining the extra efforts that come with an engaged workforce. And that means that reward programs are an important component of effective employee engagement strategies.

Hay Group research on the factors that determine employee engagement levels in organizations has highlighted two overriding themes. First, engagement is not only influenced by employees’ current work experiences but also by their view of the future. For employees to commit, especially over the long term, they need to have confidence that their companies are well led, headed in a positive direction, and well positioned to deliver products and services that are aligned with customer needs. Likewise, employees need to have a positive outlook on their own futures within the company, in terms of opportunities to learn, develop, and progress in their careers. Second, engagement is an exchange relationship. If organizations want employees to do and deliver more, it’s essential that employees feel valued as people, that their extra efforts are recognized and appreciated, and that over time there is a balance between what they give to and get back from an organization.

It’s true that numerous studies over the last several decades have suggested that non-monetary rewards and recognition can be much more effective motivators than compensation. It’s not that money doesn’t matter. It’s just that money tends to be a “deficiency need.”  If employees feel that they are significantly underpaid—that their pay does not reflect their contributions to the organization—their motivation is likely to suffer. But when it comes to encouraging employees to pour discretionary effort into their work and deliver superior performance, the chance to make a difference and be recognized for it is likely to provide a much stronger incentive. And that means that in thinking about the impact of rewards on engagement, organizations are well advised to take a total rewards perspective – focusing on both tangible and intangible elements.

That should come as a welcome message. At the present time, organizations are struggling to meet the press from employees to “show me the money.” Hay Group’s global employee opinion norms, comprised of the responses of over 6 million employees to employee surveys conducted worldwide, indicate that at the present time just 47% feel that they are paid fairly for the work they do. And just 44% believe that there is a clear link between their performance and their compensation.

The task of matching tangible rewards to employee contributions has become all the more difficult in recent years. In challenging economic environments, compensation budgets are heavily pressured, meaning that as organizations are needing to ask employees to do and deliver more, their ability to reward those extra efforts financially is particularly constrained.

How are organizations responding? To find out, Hay Group recently conducted a survey in partnership with WorldatWork, a global compensation association. Over 650 reward professionals provided insights into how they see different reward program elements influencing employee engagement.

In terms of financial rewards, short-term incentives and bonus programs, together with benefits and perquisites, are viewed as most impactful, ahead of base salary levels and increases, long-term incentives, and financial recognition programs. Short-term incentives may score highly because of their typically direct and immediate relationship to employee contributions and performance. The value placed on benefits may seem counterintuitive to some. But it may reflect the fact that benefits, generally received most equally by all, are effective mechanisms for signaling the value placed on employees as members of the organization.

Notably, however, reward professionals see the intangible elements of reward programs as more consequential than the tangible components in driving and sustaining engagement. Quality of leadership, the nature of the job, the quality of work environments, career development opportunities, and the ability to achieve a reasonable work-life balance were all rated more highly than any of the financial rewards.  

So, what’s the message for organizations and their reward programs? We offer four key recommendations.

Go beyond compensation and benefits to a total rewards mindset

Understand that rewards extend well past compensation and benefits and build the core organizational messages, such as an employment value proposition or employer brand, around total reward offerings. Develop tools for managers so they can effectively reward employees beyond the confines of compensation and benefits and develop and reinforce communications around total rewards.

Tailor total rewards to workforce segments

 Recognize that different employee groups value different rewards and build managers’ rewards tool kits based on this understanding. Focus on the ways in which managers can use career development, organization and job design, non-financial recognition programs and organizational work climate to reward employees in different roles and different stages of their careers.

Include employees and managers in rewards design and launch

Reward programs are most successful when they effectively balance the needs and wants of the organization and its employees.  However, many organizations do not have a good handle on what their employees value in rewards. Most organizations listen to their customers to learn what they value in products and services. This mindset should also apply to their most important internal customers, the employees. Reward professionals indicate that engagement is enhanced when employees and managers are involved in the design and launch of reward programs, despite the fact that they seldom are in practice.

Communicate the value of what you have

Total rewards statements are powerful tools for communicating rewards offered by the organization. The HR function should be actively involved in helping line managers understand and communicate the value of both tangible and intangible rewards.

With today’s organizations operating in an increasingly lean manner, employees are being asked to do more with less. In high workload environments, employees are generally more influenced by reward programs and policies. Acutely aware of all that they are contributing, employees are inclined to increase the pressure on their organizations to balance returns with inputs. In this context, it is more important than ever to ensure that reward practices and programs are perceived to recognize employee efforts and contributions adequately.