Winning with a culture of recognition: rewards can be damaging.

This month, Nathalie Arteel had an exciting discussion with Xavier Baeten, Professor of Management Practice in Reward and Sustainability at Vlerick Business School. He is the real reference in Europe when it comes to reward management, and combines his academic experience with developing strategic reward strategies for companies and an affiliation of remuneration committees. As Culture & High Performance Expert, Nathalie Arteel talked to him about the trends in recognition and rewards.

When I look back at the last 20 years, most companies and our government have put enormous efforts into financial rewards: compensation & benefit packages, cafeteria plans, financial advantages, bonuses and all kinds of vouchers. But is there also a direct link between rewards and engagement? This is what Nathalie Arteel asked Xavier Baeten to kick off the discussion.

Financial versus non-financial rewards

Xavier Baeten “I don’t want to end up with a dichotomy between non-financial and financial rewards, but what I can say is that the non-financial rewards drive engagement. It has been proven that, when employees leave or intend to leave the company, money does not score very high on the list. Most important is the reward package as a whole, as experienced by the employee.

‘What is most essential is obvious to me: give people fair financial remuneration and make the difference by adding non-financial rewards.’

Within these non-financial rewards, it is recognition, the company’s reputation and participative management that make the real difference. Even today, I believe that too little attention is paid to participative management, despite the fact that stakeholder engagement is becoming increasingly important. I believe in a culture of recognition and do not think that strongly hierarchical top-down structured companies can sufficiently support recognition and participation.

Some organisations develop a purely mathematical rewards procedure. However, that doesn’t work. You can compare it with a child learning to use the potty. As a parent, you are hardly going to say that this is an objective that will determine at the end of the year whether or not the child deserves a present/bonus. If the child is successful, you reward them immediately.

Yes, it’s that simple: just go back to the basics of child-raising and you’ve got it. I realise that measuring non-financial rewards is tricky, but I still find it dangerous to depend entirely on financial rewards. It also harbours the risk of even more burnouts. So, that means that we must look at things differently: to what extent will we need another approach in the future? The answer lies mainly in meaningfulness.”


Collective versus individual rewards

Nathalie Arteel “More and more companies are developing a strategic recognition policy. Personally, I notice that organisations are increasingly looking for ways to reward positive behaviour immediately. They struggle with the fact that too many collective bonuses are being distributed. This leads to demotivation among those who make a special effort. They then seek another challenge or end up being trapped in a golden cage. What is your experience?”

Xavier Baeten “We must be aware of the fact that rewards can be very damaging. Merit matrices are one specific example. You get a score of 1 to 5, we look at the ranking in your salary band and we know your pay rise. It seems objective, yet in awarding the score there is naturally also a subjective element. This means that deciding whether or not an employee has performed well or very well can be a real nightmare for managers."

I am in favor of collective rewards but combined with individual recognition. But again, do not exaggerate with the individual financial recognition: if you receive a bonus that is three times higher than mine, I will be completely disheartened, and I will disconnect.

‘I think that we mess up many reward systems because it actually all ends up focused on the individual. It is important that it can also work at a team level. This requires a creative approach. We must dare to involve employees in defining the policy.’

Also, trust in the assessment abilities of line managers, give them the tools. At ABN AMRO in the Netherlands, for instance, people are asked to consider three elements.

  • First of all, behaviour: is this in line with the responsibilities and does the behaviour help the team to progress?
  • Secondly: is this person developing themselves, are they participating in training?
  • And thirdly, vitality: does this person have energy and are they able to set priorities? Then an assessment is requested based on facts.

That is quite different to purely mathematical targets.”


Freedom and responsibility

Nathalie Arteel “Can you see other opportunities to look beyond purely financial rewards and to provide individual recognition?”

Xavier Baeten “It is a fine art to achieve recognition systems with levels of freedom and responsibilities – and also including an element of surprise. That element of surprise is too often forgotten in rewards. Let’s be honest: there are far more positive than negative elements that can be recognised in people’s behaviour, but as a manager you must both look and feel: this is a milestone and now we are going to do something, give recognition or a reward.

My experience is when you create that culture, criticism also becomes easier. Such criticism is then better accepted. If people never receive a compliment and it is always only about criticism, then they protect themselves and systematically end up with a defensive attitude.

In the compensation & benefits story, we are too involved in the quantitative assessment of people, which can cause people to put up barriers. For me, the most interesting question in a performance review is ‘what did not go well’? Only then do you start to learn.”

Sustainable reward management

Nathalie Arteel “A growing trend in rewards are responsible rewards. Employees receive gift vouchers with which they can support charities or local enterprises, or work on their health. What evolutions do you see in this area?”

Xavier Baeten “Responsible rewards are new and people are still busy exploring them. For me, it is important that this is embedded in the rest. It is a piece of philanthropy, but make it strategic as well.

‘So ask yourself: what business are we in and on what can we have an impact?’

Many companies are already involved in sustainability. Within the Centre for Excellence in Strategic Rewards, we asked ourselves how this can be applied in the rewards domain. As such, we looked at the United Nations Sustainable Development Goals and saw there were no less than nine objectives (out of 17) with a strong link to rewards. That is very powerful. Yet the greatest error that organisations can make is to try and do everything at once.

‘My advice to them is: consult with the employees about what you want to focus on.’

That will be different at a bank compared to a retailer or transport company. Then, there is of course the question of how your company will turn these words into actions. Be careful though that you don’t create a culture in which it is considered bad if you don’t choose a charity, giving employees a guilty conscience if they put themselves first for once…”

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