11/02/2015

By Prof Xavier Beaten, Founder of the Centre for Excellence in Strategic Rewards, Vlerick Business School.

There are three things every business leader should know, and a survey among Compensation & Benefits professionals has shown that less than half of them think they have the skills needed to translate business strategy into reward policies.

1. Non-financial aspects are more important than money
Currently, there is too much focus on financial compensation, when research has actually shown that non-financial aspects such as autonomy, colleagues, the company’s reputation etc., are in fact considered more important. Reward models should be aligned with the corporate strategy (customer intimacy, operational excellence or product leadership). If your strategy focuses on innovation, for example, flexible reward components take centre stage.

2. One-time bonuses work better than an increase in basic salary
When it comes to compensation, employees are not rational. Research has revealed that the impact of a one-time bonus on their performance is five times greater than that of a small increase in their basic salary. The bonus has an entirely different psychological effect than a spread out reward, i.e. a gradual salary increase.

3. Employees do not know what compensation packages include
Research shows that better communication leads to an improved understanding of what the compensation package includes, which, in turn, leads to greater appreciation of fringe benefits in particular. These easily amount to 25% of the total package. Today, communication is often limited to the technical aspects of the salary package. Managers should explain the reasoning behind the compensation philosophy better and substantiate their decisions.

Companies looking to implement sound reward policies still have a lot of work to do. Effective reward managers should look beyond the merely technical aspect of the matter. They need to be able to explain the reward system to their staff, and to establish a link between the corporate context and activities on the one hand, and reward policies on the other. Good Compensation & Benefits Managers have three important roles to fulfil – that of an engineer, a strategist and a salesman.