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Employers Turn to Creative Strategies to Reward Employees

January 28, 2011
Related Topics: Future Workplace, Compensation Design and Communication, Reward (Recognition) and Incentive Programs, Recognition, Featured Article, Benefits
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Neundorfer Inc. is among the Midwest’s leaders for providing innovative, noncash compensation programs.

Already honored as one of the Ohio winners of the 2010 Psychologically Healthy Workplace awards given by the American Psychological Association, the Willoughby, Ohio-based pollution-abatement company provides a wide range of perks to employees. It sells fresh-blended smoothies for a dollar, offers yoga and Pilates classes on-site, has rebuilt its facility to provide more natural light at work stations, and brings in lunch for the employee-run book club.

“None of this is formal and most of these ideas come from our employees,” says owner and CEO Mike Neundorfer, who founded the company 38 years ago. His commitment to employee and environmental health includes providing financial incentives for employees to live within walking distance of the office and giving them an extra half-hour if they walk to lunch at a nearby eatery. Neundorfer says the programs are not part of a formal initiative and adds that two groups of employees have just begun a weight-loss contest.

Another Ohio employer, Webb-Stiles Co. of Valley City, plans to continue enriching its benefits and noncash rewards. Among the benefits that employees of the conveyor systems-maker receive are $3, $5 and $10 copayments at a local pharmacy as part of a high-deductible health care plan. Webb-Stiles also pays most of the $5,000 individual deductible. What’s more, the company pays for defensive driving classes for employees’ dependents.

Along with noncash incentives, such as those used by Neundorfer and Webb-Stiles, employers also are attempting to make up for still-slim revenue and to head off employees looking elsewhere for a bigger payday by turning to variable compensation plans.

An August 2010 survey by consulting firm Hewitt Associates of 1,450 employers shows that salaries are slowly being restored to pre-recession levels and companies will grant modest pay increases in 2011.

The survey—released shortly before the Lincolnshire, Illinois-based Hewitt completed its merger with Chicago-based Aon—also showed that, on average, employers plan to spend 11.6 percent of their payroll budget on performance-based pay for salaried exempt workers in 2011.

Ken Abosch, Aon Hewitt compensation practice leader, says he believes variable pay is where compensation practices are headed in 2011 and beyond.

“Variable pay programs get the employee’s attention because they offer potential additional income and encourage them to focus on what’s important to the organization,” Abosch says. “They can be effective in shaping employees’ behavior and for that reason must focus on critical goals.”

Eric Murray, general manager of Total Rewards for the Timken Co., a Canton, Ohio-based manufacturer of highly engineered bearings, alloy steels, and related components and assemblies, says his company has budgeted between 5 percent and 10 percent of an employee’s base salary for its broad-based variable pay program.

“Our base and variable pay plans are tied to performance and are competitive with the marketplace,” he says.

More organizations are using variable pay as a means of effectively leveraging their salary dollars, says Terry Henley, director of compensation services at Employers Resource Association in Cincinnati, which serves 1,400 member businesses in Ohio, Kentucky and Indiana, including Cincinnati-based jet engine maker GE Aviation, which employs 8,400 people locally.

Companies “recognize they are not differentiating enough in compensation between high performers and average or mediocre performers and cannot afford to allocate an excessive amount of their salary budget to the latter group,” Henley says.

In addition to using variable pay as part of the rewards tool kit, employee referral bonuses will grow in popularity as organizations realize the financial value of hiring candidates referred by a staff member, says Tom Burke, director of compensation consulting at Pittsburgh-based Buck Consultants.

“Social media makes it easier for employees to connect with qualified candidates they can refer,” Burke says. “It’s a way for an organization to reduce recruiting costs while rewarding employees.”

According to Buck’s Compensation Planning for 2011 survey, 37 percent of companies plan to retain top performers by including market pay adjustments, while 19 percent will offer more noncash recognition. Thirteen percent plan to offer larger bonuses, 12 percent of the respondents will offer additional company stock and 13 percent will use retention bonuses. Burke notes that career development opportunities are used by 34 percent of organizations to retain top performers—rewarding them with more responsibility in addition to increased compensation.

Employers may want to consider creating compensation plans that provide salary increases to top performers only, says Aon Hewitt’s Abosch.

“It’s courageous and appropriate for organizations to take care of their best performers, given the fact that the job market may loosen up this year and those individuals are the least expendable,” he says.

Yet rewarding top performers only is a tricky proposition, Abosch says.

“If an employee meets but does not exceed goals and doesn’t receive a raise, he needs other reasons to value his job,” he says.

Employers using such tactics should consider rewarding employees with variable pay opportunities, richer benefits and more noncash compensation.

“Regardless, you are giving them an incentive to improve performance,” he says. “The message is clear—average is no longer good enough.”

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