7A Basset Court, Loake Close, Grange Park, Northampton, NN4 5EZ

Making Sense of Reward Management Your guide to Reward

Management from Gravitas HR

1 | M a k i n g S e n s e O f R e w a r d M a n a g e m e n t | g r a v i t a s h r . c o . u k

MAKING SENSE OF REWARD

MANAGEMENT

Thank you for downloading this Gravitas HR eBook. In this eBook we will be sharing our expert

knowledge on Reward Management.

If you like this eBook, and would like to get in touch please visit us online at:

http://www.gravitashr.co.uk or call on 01604 763 494. Alternatively, connect with us on Twitter

at @gravitashr or on LinkedIn: https://www.linkedin.com/company/2949905

Full contact details, and more about Gravitas HR can be found at the end of this eBook.

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Table of Contents

What Is Reward Management? ....................................................................................................... 3

The Remuneration Package – Retain the Employees You Deserve .............................................. 4

What Salary Should We Pay? ......................................................................................................... 5

Salary Sacrifice – Tax Efficiency, Not Just for the Rich .................................................................. 6

Cash or Benefits – What Motivates Your Employees? .................................................................... 7

Flexible Benefits – Hassle or Benefit? ............................................................................................. 8

Total Reward – Showing the True Cost of Employment ................................................................. 9

Reward Strategy – The People Driver ........................................................................................... 10

Management Bonus Schemes – The Overarching Principles ....................................................... 11

Board Level Remuneration – Smoke and Mirrors ......................................................................... 12

Incentive Plans and Team Dynamics – A Peer Alignment Strategy ............................................. 13

Commission Plans – Do They Work for the Company? ................................................................ 14

Commission Plans – New Business Versus Add-on Sales ........................................................... 15

Company Cars – Not Quite Dead Yet............................................................................................ 16

Grey Fleet – The Company Car Alternative .................................................................................. 17

Cash Allowances – What Will Yours Buy? .................................................................................... 18

Management Grading – Structure Can Seriously Influence Your Wealth ..................................... 19

About Gravitas HR Solutions ......................................................................................................... 20

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What Is Reward Management?

Reward Management is concerned with how employees are rewarded in accordance with their

value to an employer. It concerns both financial and non-financial rewards and includes the

strategies, policies and processes used by companies to develop and maintain their reward

systems.

Typical elements of any reward system include pay rates, bonus plans, sales incentive schemes,

company car benefits and medical schemes. The primary objective of most reward systems is to

attract and retain the best possible employees for the business. This is achieved through

promoting internal equity and external competitiveness. Strong employers tend to have clarity

and definition around their reward systems.

Employee reward is important for businesses of all sizes, in most sectors and used appropriately

forms a key component of any business strategy. People represent a significant cost for many

businesses and appropriate use of reward systems will lead to an improved return on this

investment and greater sustainability. A fully engaged and motivated workforce is an asset to any

business.

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The Remuneration Package – Retain the Employees You Deserve

The remuneration package can include a multitude of options and should be a critical component

of any recruitment and retention strategy. As perception is often more important than reality your

staff will often value most highly the least costly benefits within their package. Engage with your

workforce and consider what they see as important, then thoroughly evaluate the cost of each

element to identify the value of the total package.

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What Salary Should We Pay?

The decision making process when setting salary levels is fraught with difficulty. Too much? Too

little? Relativity to other roles? The individual has specialist knowledge? What often happens is

that businesses become too generous and leave themselves with a legacy of overpaid individuals

with associated issues around relativity to others and benefit allocation. As a rule of thumb the

decision should take into account a 3 sided equation and the salary should reflect 3 factors. These

are the market worth (what would the job be worth elsewhere) the job worth (how it compares to

other roles within the business) and the individual worth (how valuable is the person within the

organisation).

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Salary Sacrifice – Tax Efficiency, Not Just for the Rich

Salary sacrifice offers employees the opportunity to take benefits using their pre-tax earnings. In

recent years several such schemes have come and gone but some remain and provide a valuable

tax saving opportunity. Child care vouchers are an obvious example, allowing working parents to

receive discounted childcare via tax relief, saving them up to 41% of the amount sacrificed.

Employers can also save National Insurance contributions in addition to the kudos of providing this

valuable benefit to their employees.

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Cash or Benefits – What Motivates Your Employees?

Does cash provide the sole motivation for your employees? This question has been posed many

times and has many answers. Primarily money is a motivator up to the point where the recipient

has enough to do the things they want to do. Most businesses have a diverse workforce and

personal circumstances will dictate the answer to the question. Employers need to consider a

variety of benefits to cover all bases and allow their employees to evolve within their roles to gain

the optimum remuneration for them.

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Flexible Benefits – Hassle or Benefit?

The concept of flexible benefits is not new. However, its application has become more widespread

and allows employees to tailor their remuneration package around their own requirements. The

key for the employer is the ability to acquire benefits at a competitive rate as they can spread the

risk or guarantee a high take-up. Particular attention should be paid to protection policies such as

life and critical illness cover, both providing a very cost effective benefit for their employees. Adding

flexibility on annual leave entitlement and other traditional benefits can liberate cash for employees

to spend on other benefits they value highly.

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Total Reward – Showing the True Cost of Employment

One approach to making the value of the remuneration package more transparent for your employees

is to adopt a total remuneration approach. Each element of the remuneration package is given a

monetary value and employees get clear visibility of how much their total package amounts

to. Annually, each employee receives a total reward statement with full details of each element of their

remuneration package and what it is worth. The total reward approach gives much greater visibility of

the value of non-cash benefits and can help to engage with your employees.

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Reward Strategy – The People Driver

Every business wants to attract and retain the best staff it can afford. Reward strategy is what

allows them to achieve this goal and it does so by optimising the impact of people within the

business. The underlying principle is to promote internal equity and external competitiveness,

therefore becoming attractive to the employees you desire. People want to work for a business

where they are valued, fairly remunerated and rewarded for performance.

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Management Bonus Schemes – The Overarching Principles

The management bonus scheme is the ideal incentive to drive company performance and reward

individuals for their contribution. The scheme should be self-funded through the achievement of

financial targets and payment should be tailored to the performance of the individual. A well

designed scheme will provide a tangible incentive for employees to work hard and stick around.

Conversely, underperformers will have less incentive to stay in the business.

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Board Level Remuneration – Smoke and Mirrors

The world of senior level remuneration has been likened to a deep pit for companies to pour money

into. Promises made on appointment can often become embarrassing obligations at a later date.

This can be minimised by ensuring notice periods are of a reasonable duration, bonus plans are

linked to both business results and the performance of the individual; and that the remuneration

package is flexible enough to be tailored to most scenarios.

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Incentive Plans and Team Dynamics – A Peer Alignment Strategy

Incentive plans will often work best if all those who contribute to an outcome have ‘skin in the

game’. The gentle hum of a team working in harmony is a thing of beauty and an incentive plan,

whether this be in the form of bonus or commission, can be configured to encourage individuals to

work collectively towards a shared goal. In an ideal world, payment can be split between personal

and team objectives to avoid one individual pulling the whole team down.

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Commission Plans – Do They Work for the Company?

Sales commission is often simplified to a level of ineffectiveness, with companies giving their profit

away to their sales team. The key is to calibrate a commission scheme to the sales margin and

ensure that sales staff are rewarded relative to the true value of the sale. Too often the word

'contribution' is banded about as a justification for a flat rate commission scheme. Be bold and

incentivise the higher margin, more difficult sales and get your sales force tuned in to profit.

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Commission Plans – New Business Versus Add-on Sales

Larger sales teams will often be structured into ‘hunters’ and ‘farmers’, the former targeting new

clients and the latter additional sales from existing clients. Smaller companies will often combine

the two into a generic sales or account management role. A structured sales commission

programme can bring this alive and avoid the trap of clamouring for new clients whilst neglecting

those you already serve.

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Company Cars – Not Quite Dead Yet

Many people claim that the company car is a relic of the past, but it is wise not to dismiss this

traditional benefit so lightly. Whilst the ‘car allowance’ may reduce the burden of fleet administration

and affords more choice to the recipient, there are still in excess of 900,000 Company cars on

Britain’s roads. The company car ticks the boxes of controlled road risk, a good company image

and employee retention and word of its demise is a little premature.

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Grey Fleet – The Company Car Alternative

Business terms come and go at an alarming rate, but the grey fleet is here to stay. This catch-all

refers to the cars driven for business that are predominantly paid for by cash allowances paid to

the driver as an alternative to the company car. It brings with it a requirement for the company to

ensure that the cars are roadworthy, fully insured for business use and that the driver is legally

entitled to drive, so not quite the easy way out that some businesses consider it to be.

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Cash Allowances – What Will Yours Buy?

Many employees are tempted by a cash alternative to a company car and like the child in the sweet

shop eagerly select their new wheels. Several components make up the true cost of ownership

including purchase price, insurance, road tax, servicing, fuel and maintenance. Add to this a

number of funding options, including Personal Contract Purchase (PCP), Personal Contract Hire

(PCH), Bank Loan and Savings. A lot to consider, so employees should tread carefully.

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Management Grading – Structure Can Seriously Influence Your Wealth

Many businesses have benefitted from a structured management grading scheme. This promotes

internal equity, creating a value system for the roles within the business and providing a platform

for benefit allocation. A good management grading scheme will allow employees to have a clear

understanding of their worth to the business, how they can progress their career and how their

remuneration package is constructed.

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About Gravitas HR Solutions

Established in 2012, Gravitas HR is owned and managed by its three directors.

Clients benefit from over 50 years’ combined experience gained in a variety of blue chip

organisations and law firms. Professionally qualified, our expertise covers all areas of HR

management, employment law and reward management.

We build lasting relationships built on mutual trust and will work in partnership with you to get to

know and understand your business. We will work with you to design and deliver HR solutions

which are bespoke to your organisation.

Many of our clients refer to us as their ‘Virtual HR Department’, enjoying the benefits and flexibility

of having highly qualified HR professionals on their team, without carrying additional headcount

.

Dawn Exley 07811 281905

Mark Exley 07789 507262

Northampton Office 01604 763 494

Gravitas HR Solutions

7A Basset Court

Loake Close

Grange Park

Northampton

NN4 5EZ