Staff perks need not be expensive and some are tax free. This article highlights the benefits to both business and staff and looks at the type of incentives you could consider and how to set up an effective system.
Why pay incentives?
An effective incentive scheme can help a business enormously. For example great perks can persuade high quality staff to join the business, retain existing valued staff, increase staff motivation, morale and loyalty, not to mention giving a boost to productivity, focus employees on targets and build teamwork. Then there are the indirect benefits that certain perks provide. For example, free health insurance can lead to reduced absenteeism.
What are the benefits to staff?
Employees like perks and incentives which can enhance the quality of working life, be seen to reward staff efforts, and add value to an employment package. But for a scheme to be effective it must be relevant. It must be affordable, appropriate and clear. Good perks should not be seen as a substitute for pay– if they are they will fail. They work best alongside a good pay scheme, nice working conditions and other good management practice such as clear communication, well planned appraisals and training programmes.
What are the options?
There are many ways of encouraging staff attachment to a business. They include occupational pensions, extra leave (above the statutory minimum), gifts, for example on birthdays, health benefits such as health insurance, family friendly and work-life balance benefits such as flexible working hours, subsidised staff canteens, tea/coffee-making facilities, season tickets, social events such as parties and work outings, membership of social clubs and gyms. Extra training which goes beyond skills needed for the job is another valuable perk. Some businesses allow staff to self-select from a range of benefits, e.g. health insurance or gym membership, season ticket or free car parking.
What are the advantages and disadvantages of various incentive schemes?
Financial schemes, like bonuses and commission are useful for improving performance and can be self-financing. They have the advantage of focusing on hitting a target and giving achievement a certain value. However the rewards are sometimes small and staff can quickly become demoralised if they do not hit agreed targets.
Non-financial benefits, such as flexible working or extra holidays have the advantage of recognising employee priorities and lifestyles and can encourage attachment to business. However, if they are inappropriate they are pointless and there is a danger staff can take them for granted.
Individual incentives have the advantage of focusing on personal achievement which can link extra pay to extra output. The down side of this is that an individual’s earnings can fluctuate. Group incentives can encourage team-working and can pull up individual under performance. But it may mean that individual skills are undervalued and staff who contribute less can feel pressurised. There are pros and cons to all schemes, so it is a matter of choosing the most appropriate for your business.
There are tax and National Insurance implications for most financial incentives and for non-financial benefits with an equivalent cash value. Rates change so check with HM Revenue & Customs website (see below). Remember that civil partner employees must be treated in the same way as married employees.
How to set up an incentive scheme for employees?
An incentive scheme is the most straightforward way to motivate staff, although pay and incentives are only part of a work package that staff value. Job security, job satisfaction, good working terms and conditions and appropriate training are also important. Atmosphere at work, fairness, good communication and other less tangible benefits will influence an employee.
Consider what the scheme’s objectives are. Do you want to encourage the recruitment and retention of staff? Is conflict a problem or do you need to encourage teamwork and motivation? Are there specific productivity and financial targets you want to achieve? Once you know what you want to achieve you can choose the appropriate scheme.
Consult with staff (and trade unions if appropriate) to find out what they would value most. Think about whether the scheme is to be financial or non-financial, and also how it will relate to other benefits. How will it be administered? Is it a competitive scheme? Establish likely tax implications on staff as well as considering related costs and funding. Decide on performance measures such as targets, quality of work and length of service. The best schemes are flexible and can be adjusted to meet business needs and keep staff interested.
Consider a pilot scheme. Sometimes schemes are a complete waste of time. For example, if there is a bonus scheme, but staff rarely achieve the bonus, it is worthless. Once you are happy with the system, make sure the details are clearly written down for all to see, keep good records and make sure it is reviewed regularly. Encourage staff feedback.
Getting the right balance of incentives takes time and effort but can really lift morale and motivation. Competition for highly qualified, well trained staff is already stiff and more and more companies are realising that perks make good business sense.
Useful website for information on individual and group incentive schemes: www.acas.org.uk
See also separate article on how to control and manage staff turnover
