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The relationship between an employer and employee is fundamentally a transactional one. The employer has a task that needs to be done, which has a certain value, and the employee fulfils that task in exchange for the monetary value.

Yet life, and business, are never that simple. That exchange of value can be taken and stretched into something that can incentivise, motivate, and, ultimately, reward. Studies have indicated that a happy, productive worker is one who is constantly learning, evolving, and growing.

Raises vs Bonuses

When establishing a reward scheme for employees, most companies focus on either a raise or a bonus.

What is a bonus?

A bonus is a one-off payment made in addition to the usual salary, usually in recognition of the completion of a particular project or achievement. If the set goals are not achieved, then the bonus payment is not made.

A bonus scheme is a fundamental part of an overall reward and recognition scheme for employees, and the more attractive it looks, the more benefits it will bring to an organisation as a whole. One of these benefits is the fact that it plays a key role in attracting hungry new recruits who are keen to boost their earning potential.

For existing employees, a dynamic bonus scheme is an important method of incentivising a workforce and recognising the role that they are currently playing within an organisation. During difficult times, such as the current economic crisis, when existing workers are often called upon to go over and above their existing roles, receiving a bonus is a welcome compensation for the additional responsibility that is put on their shoulders.

For many employees, receiving a bonus will be that boost of confidence and encouragement that is so crucial to maintaining high energy and motivation in the workplace. It is recognition of a job well done and, on a personal level, will go a long way to paying for a good holiday or towards a deposit on a property. It can be the difference between believing you’re simply part of a big cog or actually making a difference. What a bonus does not take into account though, is the long-term residual benefits of receiving an increase in salary, which improves overall credit rating and sets an individual on a stronger path towards applying for a mortgage and building a life.

Also, on a professional level, a bonus does not necessarily push you into the next payment category. It may feel as though, as an employee, you are constantly playing ‘catch up’ rather than moving forward in a defined and positive manner.

Is a raise a better total rewards strategy?

A raise is an increase to your basic salary level. A raise is often awarded as part of a promotion or progression through a company or part of an overall pay review and analysis to keep salaries in line with inflation and the cost of living.

In terms of the latter, a raise is not really a raise as part of a total rewards strategy - it simply endeavours to keep you at the same level that you are currently at.

However, as part of a drive to recognise the achievements of an individual, deciding to increase a salary is an important barometer in terms of the contribution an individual makes to an organisation and the recognition that they get as a result. From the point of view of the employer, a raise is a demonstration of the commitment they are making to that individual. By pledging more money on an ongoing basis, an employer is openly signalling that they appreciate the efforts made and the results achieved and want to continue this mutually beneficial partnership in the long term.

What happens when a raise is not awarded as part of a total reward strategy?

If an employee does not receive a raise in recognition of their achievements and contribution to the company, this may cause them to feel a degree of resentment and can lead to a lack of motivation. Lack of motivation affects overall productivity. While there may be solid financial reasons for not giving a raise, if this is not addressed and communicated, then the organisation could be in serious danger of losing a valuable member of the team.

Quite simply, work improvement deserves reward and recognition, and by establishing a well-thought-out long-term total rewards strategy, a company can both anticipate and prepare for any fluctuations in cash flow when it comes to paying out bonuses or calculating any salary increases.

The key is to develop a strategy based on clear and defined business goals, and every individual will know what their own potential reward and recognition will be so that they have a defined focus as well. If you would like to develop clearly defined rewards and recognition schemes going forward into 2023 for your workforce, Paydata can work with you to structure the best way forward. Contact Paydata to schedule an initial conversation.

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