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Remuneration is not just about the money

15 Aug 2016 by  Jean Hanna

Regular audits and review of performance is key for all business functions, including your reward spend. Employee remuneration is a significant proportion of an organisation’s costs; it’s locked in and is almost guaranteed to grow.

Given the considerable investment, it is only prudent to have a clear strategy to manage costs and maximise the investment. Aon Hewitt has been working with our clients to do just this, and we have some interesting insights about focusing your investment to ensure the outcome best fits your organisation.

Engaged employees can make you more profitable

We know that the dollar value of an employee’s pay doesn’t guarantee an organisation will get the best from their employee. However what organisations can do is ascertain what will encourage employees to give their best.

We help clients do this by measuring employee engagement and analysing what will drive greater motivation and commitment. Aon Hewitt’s research shows a clear correlation between employee engagement and an organisation’s financial results.

Organisations with engagement levels of 65%25 or higher posted total shareholder returns 22%25 higher than average

Source: Aon Hewitt Best Employers study 2015
 

Reward needs to be fair and equitable

Employees view their remuneration through many lenses, not just the dollar amount. To remain engaged, they need to believe that their remuneration is fair and equitable. While engaged employees believe they are paid fairly for their contribution, employees who do not believe they are paid fairly and equitably are:

  • more likely to be disengaged

  • less likely to say good things about the organisation

  • less likely to stay with the organisation

  • importantly, less likely to exert discretionary effort in contributing to the business’ success.

Your management team is the key lever for ensuring that employees view their pay as fair and equitable. If a manager can explain how pay is set, it directly correlates with an employee’s perception of fairness of their remuneration. We have seen many organisations successfully improve employees’ understanding of how their pay is set, just by sharing the remuneration strategy and policy and articulating how market intelligence is referenced in setting pay.

Lift the overall level of engagement by ensuring you are rewarding your top performers

Perceptions of equity are greatly impacted by variable pay (incentives, bonuses and commissions). Organisations with the best employee perceptions of pay are those with the greatest participation in incentive plans. The concept of fairness is crucial, and employees need to know they will be rewarded for their contribution if they go above and beyond. This can be clearly communicated and reinforced by openly rewarding those employees.

Perceived value of rewards and benefits doesn’t always correspond to their cost

As the overall value of pay is only one factor in determining employees’ satisfaction with pay, the perceived value of different benefits offered to employees doesn’t automatically correlate to the cost of providing those benefits. The benefits valued by employees often reflect the aspects of the culture they value and why they choose to work for that organisation, and therefore may have a higher perceived value to an employee than the organisation’s financial outlay for that benefit.

I would rather have an increase in base pay than my top 3 benefits
Source: Total Rewards Optimisation study 2015
 

Case study – Motoring and Services industry

Aon Hewitt recently partnered with a client from the Motoring and Services industry to survey their employees and get a thorough understanding of the gap between actual cost and perceived value of benefits provided. In what was good news for the client, the most highly valued benefits were those closely related to their client services and were not the most expensive to provide.

However the return on this investment is not just limited to the actual cost, as the client also achieves an increase in engagement through the strong identification these benefits have with the brand. So strong is employee preference for their top benefit, close to 60% of surveyed employees valued them above an increase in base pay.

Improve your reward ROI 

Organisations have opportunities to maximise their investment in employee remuneration by incorporating a few simple strategies:

  • be clear on how the reward is set

  • in employee communications, reference any market and internal constraints affecting the reward 

  • ensure that investment is on target, and in line with, employee preferences

  • plan to undertake regular audits

  • support managers to be able to communicate the reward strategy 

  • importantly, identify if the benefits offered to employees are relevant or just an expensive distraction from what really matters to them. 

10%25 of an organisation's benefit spend is wasted on items employees don't value
Source: Total Rewards Optimisation studies, Aon Hewitt USA


Aon Hewitt can help evaluate and optimise your organisation’s reward strategy. Contact us for more information.



 

Jean Hanna

Jean is a senior member of the Aon Hewitt Reward team and the market lead for the general market in Australia. Jean has consulted to a wide variety of organisations with a focus on how reward supports and drives business goals and culture

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