Battle for hearts and minds

Keeping employees engaged and motivated without a big pay rise is possible, as Jo Faragher discovers

Engaging employees in the current economic climate is a challenge. Unemployment is at its highest level since the mid-1990s and, while those in work are thankful to have a job, they are also having to deal with increased workloads and doing more with fewer resources.

It is no surprise, then, that a recent survey of workers in 28 countries by Kenexa’s High Performance Institute found declining employee engagement levels for the second consecutive year. No job sector or job type was spared – everyone from clerical workers to senior managers reported feeling less positive about their work. In the UK, it is becoming harder to reward employees when organisations are faced with making cuts in other areas.

According to Mark Quinn, a partner in the human capital practice at consulting firm Mercer, inflation stands at around 5 per cent at the moment, but average staff pay rises in the next year will only be around 3 per cent. “This will be the third year that base pay will be below inflation,” he says. “The challenge is how do you make that work, and for whom?”

With this in mind, many organisations choose to direct “variable” types of reward such as bonuses and other benefits at the high performers in the organisation. While this has its advantages in that the employer can easily show the correlation between performance and reward, Mr Quinn sounds a word of warning: “Some companies follow the logic that if they’re not going to give as much money for pay awards, they want to target it at high performers. This might be a good strategy for now, but what is the long-term impact for the organisation? You could end up disenfranchising people.”

And while salary is an important “hygiene” factor, it is often nonfinancial factors – like being treated fairly or being able to have an open dialogue with management – that make the difference between an engaged employee and someone who wants to leave.

Responding to people as individuals is really important in keeping them engaged

While compiling the global engagement survey, Dr Jack Wiley, executive director of the High Performance Institute, found that companies that bucked the trend in declining engagement were those that “listened to what employees want, took action on employee surveys and responded to needs”. Typically, managers in these companies met four key criteria: they inspired confidence in the future, recognised employees’ contributions, provided staff with exciting work and demonstrated a responsibility to their employees and the communities they worked in.

Ensuring your organisation is offering the sort of incentives employees want – whether that is the ability to buy and sell holiday, or discounts off day-to-day shopping – can pay dividends. Furniture retailer Ikea, for example, has re-organised its rewards and benefits around life stages.

“Rather than just present co-workers with a package of benefits, we’ve thought about what will make the biggest difference to them in their lives,” explains Cathy Donnelly, HR operations manager for UK and Ireland. Some 37 per cent of the workforce is under the age of 24, for example, so the company managed to secure a 25 per cent discount with mobile phone network Orange for staff. This didn’t cost Ikea anything, but staff place great value on it.

Ikea has also reviewed its benefits package and retendered arrangements with all of its suppliers. Small changes such as reducing the amount of physiotherapy available to managers on its private medical insurance will only impact a few employees, but have reduced the company’s overall outlay on benefits by 15 per cent.

“Responding to people as individuals is really important in keeping them engaged,” agrees Ann Brown, vice president for HR at Capgemini, the technology, consulting and outsourcing company. Her organisation offers a flexible benefits package where staff can choose rewards that suit their lifestyle or their priorities. To ensure it continues to offer benefits they value, it monitors uptake every year and conducts an employee survey on what works best.

Regularly acknowledging the effort that staff put in can generate huge payback in terms of engagement – even if it is in a small way. One of the major coffee chains recognises high performing staff by presenting them with a “golden bean”. You can’t do much with it, and it’s not worth a huge amount financially, but employees value the recognition. “Simply by supporting managers to say thank you, you can get a lot of benefit,” says Mr Quinn. “The symbol itself is more important than the monetary value.” In these straitened times, a little can go a long way.

NEW PENSION REGIME COMES CLOSER

From October 2012, the Department for Work and Pensions has announced that employers will be required to auto-enrol people over 22 and earning a minimum of £7,475 per annum into a workplace pension.

The regulations will be phased in over a number of years, with only larger organisations (employing more than 120,000 staff) commencing enrolment from next October. Automatic enrolment for small businesses (fewer than 50 staff) has been delayed, and will now commence in May 2015, instead of April 2014, as had previously been announced.

These workers will have to join either their employer’s current scheme, or a brand new one such as NEST (National Employment Savings Trust). Employers are required to make a minimum contribution of 3 per cent of salary, and once auto-enrolment has commenced, must identify and enrol new and eligible job holders into a scheme. There is a one-month joining window in which staff are entitled to opt-out of the scheme if they wish.

But while the reforms are well intentioned in that they will get millions of workers saving for their retirement, even the government’s own estimates suggest they will cost employers more than £4.5 billion per year. The requirement for small businesses to auto-enrol may have been delayedbut it is thought it will hit them hard. A recent survey by the British Chambers of Commerce found that a third of sole traders thought the pensions requirements were a total or significant barrier to them taking on staff.

Employers will also need to think about how they communicate the changes to their workforce. A survey earlier this year by the Chartered Institute of Personnel and Development found that more than half of workers did not know about the reforms.