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The Impact of Financial Rewards

A Towers Watson survey (2012) placed salary as the top priority for both talent recruitment and retention. Referring to Maslow’s hierarchy of needs (1943), the first level of needs is associated with the physiological needs that must be met for survival. Thus income represents the basic financial need to be fulfilled before other levels are considered. Furthermore, higher financial rewards make alternative employment unattractive. However, it is important to consider that the value of money is dependent on the profile of the talent, with age, gender, number of dependants, stage of career and professional background all influential factors. For example, money is important for the principal wage earner in the low-wage sector or in resource-poor countries (Dill, Morgan & Marshall, 2013), whereas those in higher-paid work or high-income countries will be more interested in work quality and career opportunities, for example (Ahmed et al., 2012). A Corporate Leadership Council’s survey (2004) reveals that some employees will be more motivated by financial rewards than others, such as those in sales, where pay is more commonly related to performance. Indeed, tying compensation to performance was found to be a powerful lever of discretionary effort (Fang & Gerhart, 2012). As a precautionary note, it is important to remember that public sentiment about large annual bonuses for performance was negative following the financial crisis and bailouts of banks during the 2008-2009 economic crisis (DeSantis, 2008). Furthermore, pay for performance, when structured badly, is believed to provide an incentive for distorted behaviours to maximize short-run performance of the kinds that led to the implosion of organizations such of Enron and WorldCom (Rappaport, 2005).

To retain the most valuable people, it has become common practice to give employees retention bonuses, especially following a merger (Kohers & Ang, 2000;

Cosack, Guthridge & Lawson, 2010). However, retention cannot be accomplished through financial incentives alone (e.g., performance-based cash bonuses, increases in basic pay and stock) as evidence shows that for people with good salaries, some non-financial motivators (praise from line manager, attention from leaders and opportunities to lead projects or taskforces) are more effective in building long-term talent engagement in most sectors, job functions and business context (Dewhurst, Guthridge & Mohr, 2009). Furthermore, offeirng more pay for work can lead to a transactional leadership style which has been shown to increase turnover, as discussed earlier. In the aftermath of the economic recession, remuneration costs were cut by 15% or more (Dewhurst et al., 2009) leading some to comment on the relative importance of financial rewards for retention (Cosack et al., 2010; Giancola, 2012; Heskett, 2009). These rewards are estimated to be at least 5-8% of an employee’s salary (Withers, 2001). Yet other types of non-financial, ‘soft’ benefits were found to be less expensive (about 4% of salary) and just as effective as a financial reward, if not more so.

 
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