No silver bullet for total reward and engagement

Newsletter articles

27 Jun 2016

HR Insight Issue 22

Amanda Callen, Senior Research Fellow

In the context of ongoing austerity and real or relative pay freezes or cuts, many employers are considering whether the development and communication of a total reward strategy would provide an opportunity to build employee engagement. IES has just completed a review of the evidence for a link between total reward and engagement for NHS Employers. Our analysis suggests that, although the idea is alluring, the road to successfully building engagement through total reward is likely to be a rocky one.

Employers looking into the possibility should be aware of two underlying reasons for this. First, the complex and multi-faceted concepts of both total reward and engagement are broad and all-encompassing with many definitions in use. Furthermore, academics and practitioners tend to see the concepts differently to each other, and research from the two camps rarely addresses the same questions.

Second, and possibly because of the difficulties in defining both concepts, there is not enough rigorous, peer reviewed evidence to draw sound conclusions on how reward might influence engagement in the workplace nor how this is linked to performance outcomes. So, whilst there is a decent amount of good-quality practitioner literature, there is precious little solid evidence to inform decisions, and practitioners may be tempted to rely on anecdotal evidence or rules of thumb in its absence. Nonetheless we found that it is possible to draw some conclusions from the research that might help HR practitioners in discussion with reward teams who are keen to leverage engagement through reward if possible.

Whilst good and appropriate reward systems that contain both financial and non-financial elements can help to build employee engagement, these need to be very carefully considered, as the evidence suggests that badly designed or executed rewards can hinder engagement. Bearing that in mind, broader definitions of total reward (which would include a wide range of intrinsic and extrinsic financial and non-financial rewards) seem to be the most likely to have a significant positive impact on engagement. Where total reward is designed and communicated well, and employees report feeling ‘totally rewarded’, then higher levels of engagement and performance do seem likely to occur, particularly in care or customer service settings.

The evidence to date makes it clear to us that there is no total reward ‘silver bullet’ that will inevitably result in more engaged employees and higher work performance. The reward-engagement relationship is complex and very much situation-specific, with differences in employee demographics, historical approach to reward, labour market sector and many other factors impacting on what is likely to work in any given organisation.

This means that employers will have the best chance of improving their engagement levels through total reward strategy if they first begin with a very careful and deep investigation into the current organisational strategy, structure and culture. They should also consider what brings their employees to work in their organisation and what most motivates them. This will allow a flexible, segmented and variable total reward model to be constructed that meets the differing needs and aspirations of different groups of employees. This bespoke total reward model will then need to be integrated holistically with HR practices to deliver the most positive and sustainable impact across the organisation. Once this rocky road is traversed, the potential gains in employee engagement and performance will be in sight.

Read IES evidence-based review for NHS Employers

• The relationship between total reward and employee engagement
  

 

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.