Elements of a reward package

Typically, a reward package will consist of a combination of a number of elements. In most cases the package will be fixed and set by the employer, but in some cases the employee will have the freedom to choose certain elements on a mix and match basis - these schemes are known as flexible or "cafeteria" benefits .

Typical elements in a reward package

Employers should carefully put together an appropriate package to attract, retain and motivate the right calibre of employee. Typical elements to consider include:

• basic pay
• additional pay
• bonus
• incentives
• commission
• performance related pay
• merit pay
• overtime
• shift pay
• allowances
• subsistence
• benefits
• contracted hours
• holidays and bank holidays
• pension (including company contributions)
• private health insurance
• permanent health insurance/long term disability insurance
• life assurance
• company cars
• fuel for private mileage
• health club membership
• social club facilities
• sick pay
• training and development
• mentoring and coaching
• share ownership.

The challenge is to get the right level and mix of reward package and also to make the value of each element visible to your employees so that they understand the full value of your investment in them.

Factors to consider when deciding what to offer

When considering what elements to include in your reward package there are a number of factors to take into account: the type of organisation you are, the range of workers you employ and the current market/climate in which you operate.

• Organisational considerations: What type of business are you? A reward package for a manufacturing business is likely to centre around basic pay, overtime, shift pay, pensions and sick pay. Those in a sales environment may be more interested in company cars, an individual bonus, incentives and health club/sports facilities. In a voluntary or charity based organisation people may value the contribution given by the employer to their sponsored charities. Further, an environmentally 'green' organisation may wish to reward those who car share or cycle to work or who input suggestions on how to further save the environment at work.
   
  
• Employee considerations: by reviewing your employee profile you can consider which elements of a reward package may be most appreciated - but don't prejudge! Whilst a younger workforce may possibly be more interested in training and development or gym membership than in pensions or flexible reduced hours it's always worth doing an informal survey to find out what your employees would appreciate - then you can put your money into benefits which are valued, rather than ones which are not.
   
  
• Employment market/climate: it's always worth keeping an eye on what your competitors are offering, and bearing in mind the climate in which your employees are working. Employees who have experienced a degree of uncertainty due to multiple takeovers and thus change of employer, may consider that stability of employment is key. They may also wish for enhanced redundancy terms - just in case! In terms of the reward package they will want clarity and to feel they have the best deal in terms of benefits from any changes implemented. Those who are lucky to have benefited from job security so far and feel stable at work may be looking for something different and you may need to update your reward package to remain competitive. This will ensure you retain current workers, thus avoiding the "grass is greener" drift, and help you to attract fresh blood into the organisation.

What can be done to strike the right balance and ensure an attractive and motivational reward package to cover a range of employees and circumstance? The first step is usually to gather data from your employees via internal surveys or focus groups to find out what they actually want and value. What do they rate as their top five benefits? Which factors would they do without? Would they prefer higher basic pay, or do they value the benefits? Research what your competitors, clients and suppliers offer as a reward package, are you competing at the same level?

Care should be taken to ensure that any reward packages comply with legal considerations, eg equal pay , equal treatment for part-timers , the national minimum wage and also the requirement on some employers to provide a stakeholder pension scheme.

Be flexible where possible - and give employees a choice. You may wish to consider a cafeteria benefits scheme whereby employees can choose their own reward package, with a few basic options that all employees have (eg sick pay) and a range of further options that can be chosen (for instance choosing critical illness cover instead of a fuel allowance). Some employers who offer over and above the statutory minimum annual leave permit their employees to sell part of their holiday allowance back. But consider also whether you wish your employees to have particular benefits - you may feel that private medical insurance is mandatory for all, or for some key employees, as you wish to ensure that they are treated quickly in the event of a medical condition. You may also have strong views on encouraging pension contributions.

Finally, whatever you give, ensure that your employees are aware of their benefits and are also aware of the cost of providing these! An annual "benefits statement", listing the benefit and the value or cost to the business of providing this, may remind them of the things you provide which they tend to take for granted.

You may also want to have and communicate a reward policy for your employees; and to look at the guide to pay reviews.