The case for discretionary rewards

by 29 Feb 2012

Perhaps you, like me, have been raised in the traditional school of Compensation & Benefits. This school was born out of the historically discretionary, unfair and biased practices which grandpa was subject to. No science or rigour – just the bosses deciding arbitrarily who would share in the blessings of a good year.

Professional organisations needed to move away from those days toward sound and tested remuneration and reward practices which are well researched, objective, consistently applied, benchmarked….. we all know the reasons. So, now we have Comp & Bens experts with spreadsheets doing regression analyses, we have the massive surveys which take a month to complete and a morning to read, and we have organised labour negotiating for days to ensure equity and remove any hint of managerial prerogative.

Of course, we do need structure and science in our compensation design – both fixed and variable pay. Yes, we tweak with the various elements all the time, but this is all necessary. Remuneration and rewards then become entirely predictable, as we seek to drive and pay for performance. KPIs are cascaded, interlinked, and then locked into a system. No surprises – good or bad – by design.

Perhaps, in our sanitisation efforts, we might have missed out on some of the benefits of discretionary awards. These can have a place in our reward mix, even if there are undeniable flaws in methodology and execution. Let’s consider how these might work.

Firstly, you want to de-link discretionary awards from the normal remuneration system, create a separate budget, and use a different mindset in design. Remember, this is not a substitute for your compensation strategy, but a supplement to it. It is not about money, but psychology. It is often retrospective, rather than driving future performance. For a start, have as few rules as possible.

  • Incidental Awards can be useful in supporting a particular drive or project. They can be constructed around a theme, or be introduced just as a once-off for a period of time. Simple movie tickets are a very inexpensive way of recognising extra effort. Vouchers to stores are always appreciated, especially among general staff. They are easy to acquire, can be given to young & old, male & female, countrywide. They have a reasonable memory-life, and no storage problems associated with physical gifts. A great idea when budgets are tight.
  • Sales Incentives frequently involve some of the most imaginative design elements, and clearly are results-inducing, hence the higher price tag. I have seen some outrageous incentives targeted at spouses, to induce support and even pressure on the sales employee. The overseas “conference” is a regular winner, as both partners are pampered.
  • Rarity Value of certain rewards can make them particularly memorable. For instance, a “collector’s item” gift from the CEO can be seen by the ambitious as a status symbol and something to strive for.
  • The Ego boost is the kind of reward which no one would normally do for themselves. For instance, exclusive car dealerships will rent out a Ferrari or Rolls Royce for a weekend. The recipient will use it to visit every friend he has over that weekend, each time retelling and reinforcing why he won the award.
  • A family treat reinforces why the employee is a hero in the home too. Imagine a dinner at a great restaurant for the family, where they are collected by limo. The whole neighbourhood will be talking, and the event remembered for ages.
  • Above-and-beyond awards are ideal when a person has delivered outside of their regular KPIs and the regular rewards associated with them. Catch people doing extraordinary things, and reward them extraordinarily.
  • Training has perhaps wrongly been used as a ‘motivator’ or reward for years, but consider the following. You have a high potential manager, and offer them a relevant one-week program at an international Business School of their choice. The cost is a flight, and a few thousand dollars at Harvard, but there is both direct and indirect payback of enormous value.

Compensation guru Ed Lawler spoke about the perceived value of rewards. Generally, the perceived value of cash is ‘dollar for dollar’, while the perceived value of most fringe benefits is just 70% of the actual cost. All that energy and money we spend in retirement benefits just doesn’t hit home, yet employers insist in believing that their staff will learn to appreciate the broccoli. Lawler’s challenge was for employers to find the reward programs where the perceived value is higher than the cost. I would argue that Discretionary Awards represent your best chance to delight recipients.

Add to the mix the fact that executives just love a little ‘slush fund’ of goodies which they can have access to, and which will make them feel like Santa. If HR can deliver something workable and flexible, they will be seen to deliver value by the people who make a difference.

AON Hewitt confirms that “variable pay programs get the employee’s attention”, and Buck’s Compensation Planning survey of 2011 revealed that 19% of companies intend to shift towards more non-cash recognition. Do you have an alternative to only cash bonuses, or at least a few options?

Of course, most of this does not apply in the public sector, where accountabilities and the remuneration culture are different. But, if your company aspires to the value of ‘Innovation’, for instance, just how innovative is your compensation program? I am not knocking the benchmarked and scientific approach to salary and fringe benefits, but suggesting that there is room for some exciting and off-the-wall practices, which allow you to experiment. Change them frequently, to keep them fresh.

Admittedly, there are risks of “me too”, complaints of favouritism, and the usual moans from the average performers. But, breaking out of the mold is likely to get people talking about what it takes to get recognised around here. Not a bad conversation.

 

About the author

Gary Taylor has worked in HR for 30 years, in National Mutual of Australasia and Unilever, then as HR director at South Africa's largest health insurer Medscheme for 14 years, followed by three years at Wits University. In 2008, he was appointed to start up HR for a new University in Saudi Arabia, where he is now director of the policy office

 

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