Technical notes: Employee remuneration

17, May 2012

Engaging employees and making them feel part of something can reap rewards during times of economic turbulence, when companies need to extract as much value as they can from people on the payroll. Here’s how…

For most businesses, the cost of employing people is a major item on the company profit and loss account so it’s tempting to pare down on salaries as much as possible. Many businesses have already undergone a period of austerity, with pay freezes or downsizing. However, there’s only so far these strategies can take you.

Increasingly at Grant Thornton, we are finding that a creative and holistic approach to staff reward can help employers to get the best value out of people. Below we show how reasoning and instinct can unlock savings and improve employee engagement.

Recent research on employee engagement from The Gallup Organisation in the US, for example, shows that if you are getting 100% of value from your engaged employees (which typically constitute 30% of your workforce) and only 50% effort from those who are either ‘not engaged’ (typically 50% of the workforce) or ‘actively disengaged’ (the remaining 20%) and this level of engagement is spread equally across the workforce, then you are not getting value from 35% of your employees.

So, how do you increase engagement?

It’s all about a cultural shift. Making sure that employees have a voice in your organisation’s mission and vision, that the management style is open and transparent, and that everybody can and does make a difference.

Engagement doesn’t have to mean expensive surveys or spending money on collateral. It’s about behaviour – organisational and personal – and making those shifts on an incremental basis. It may seem a human resource type concept but improving engagement can also have tangible cost benefits.

From another perspective, is your organisation paying unnecessary National Insurance (NI) on staff benefits?

For example, an employer pension contribution bears no NI, whereas an employee contribution is paid out of income on which NI has been paid.

Asking employees to exchange salary in return for an improved employer contribution to a pension will save NI for both parties. All UK employers will be required to enrol staff into a pension plan in the next few years, and a salary exchange is an excellent way to contain some of the costs. Salary exchange will also lead to savings when used for tax-protected benefits, such as childcare vouchers and employee-funded training.

These are strategies that are applicable for all employees, but you may also wish to provide incentives to key players.

Losing such people at a critical stage in business development costs much more than the bare cost of replacing them, and coping with the inevitable period when the new colleague is getting up to speed. There are several strategies that can be used around the equity of a business, which can ensure that reward is linked with business performance. For further information visit our Employer Solutions page.

All of these issues, and more, will be discussed at our forthcoming FD Intelligence event: The war for talent – what it means for the bottom line, which will be held on Tuesday 12 June 2012 at the elegant Dartmouth House in Mayfair. Hear from our guest speaker Lorraine Heggessey, former Controller of BBC One and participate in our facilitated round table discussions. To book your place please email fdintelligence@uk.gt.com.

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