There are frequent surveys carried out of what motivates employees and since the pandemic, there has been an undoubted shift in expectations of what’s important to them. There have also been real changes in how employers monitor and look to improve employee performance as well as how they pay and reward good performance.
We know that fair and consistent performance management is critical to motivating all staff to do their best and you can read our separate articles on how to do that. In this article, we want to think about how you might reward good performance and what you may need to have in mind, particularly from an ethical HR perspective and considering upcoming changes in your HMRC reporting obligations.
Can’t we just pay bonuses?
Yes! We still see organisations that offer bonus schemes to reward good performance and the schemes come in a variety of forms including:
- entirely or partially discretionary bonus schemes;
- schemes based on personal performance targets alone;
- schemes incorporating both personal targets and business performance; or
- bonus pools.
Note that for organisations operating in the financial services sector, there are particular considerations and compliance obligations around performance related pay. Care also needs to be taken in all sectors with employees who are on family leave, to ensure that they are not discriminated against as a result.
Across all bonus schemes, it’s important that you have clarity around how the scheme will operate and that it is, in fact, applied fairly, consistently, and reasonably to all employees. Your obligations around mutual trust and confidence apply as much to paying a bonus as to any other element of the employment relationship. Although bonuses arrangements can sit outside the express terms of a contract and simply be paid as and when an employer feels it is merited, that can increase risk and lead to certain employees being favoured over others and the appearance of bias. It isn’t uncommon for more senior roles to have different pay reward structures but if some employee groups are benefiting and not others, you will need to be comfortable that you can justify that difference in treatment and that it isn’t going to erode employee morale and create a ‘them and us’ culture, which could ultimately be counterproductive.
Does the same apply to a commission scheme?
It does, although commission schemes usually work to a fixed sum or percentage linked to the achievement of specific targets such as sales targets. It therefore tends to avoid fewer of the discretionary issues that can arise with bonuses but still needs care around defining how the scheme will work and how absence will be handled.
There are also longer-term schemes an organisation could look at including share options and other share incentive schemes or even a form of employee ownership. We have specialists within our Firm who are dedicated to these kinds of arrangements and would be delighted to explore the options and considerations to you, if of interest.
All of that said, with the ever-increasing costs on business, you might feel that these financial rewards aren’t achievable for your organisation or that your size of operation doesn’t warrant them but there are other options you can consider.
What kinds of rewards do employees want?
Historically, employers have perhaps thought about this in purely financial terms – a pay review, a bonus or something similar. Yet increasingly, employee surveys tell us that as work-life balance expectations shift, so too does this focus on financial rewards. It is often, in fact, the non-financial rewards which are more warmly received. That could include things like:
- simply incorporating public recognition and appreciation – think ‘employee of the month’, social media mentions, shout-outs in company newsletters or ‘positive postcards’;
- offering a surprise afternoon or day off;
- allowing an early finish on Fridays during summer months;
- opportunities for training or personal and professional development; or
- opportunities for ‘giving back’ or participating in charitable activities.
If you’ve not spoken with your workforce but are considering how best to reward good performance, you might want to think about running a survey with them to gauge what’s going to have the greatest impact. That way, you’ll be engaging your workforce in the planning of your rewards as well as in the impact of them. Not all of them will come at a cost or a significant cost for you but might still have a very positive effect on your employees.
Are there other perks we could think about regarding pay and reward?
In between the traditional financial rewards and the non-financial ideas above, you could also look at additional perks, often called ‘benefits in kind’. That might include:
- company cars;
- private health and/or dental cover;
- holiday buying and selling arrangements;
- subsidised gym memberships;
- living accommodation;
- shopping vouchers;
- free meals and snacks.
We often have conversations with benefits providers about different packages which employers can put in place and it’s important to make sure you’re working with someone who understands your organisation and what rewards you are looking for to motivate your staff. They will be able to work with you to tailor something which enables you to get the best out of your employees. Once you’ve identified what your benefits package should look like, you’ll then need to make sure you get any necessary financial advice around what you’re offering.
That’s particularly important at the moment as there are changes coming into force as of 6 April 2026 which will affect how you have to report benefits in kind to HMRC. You will no longer need to produce separate P11d forms for staff but you will need to include most benefits in kind through your payroll reporting and update your staff that that’s what’s going to happen. Although there’s a period of time before this becomes mandatory, you might want to start getting ahead and changing your reporting method voluntarily ahead of time.
Our Employment team is on hand to look at the legal and HR aspects of the above and by considering both financial and non-financial rewards, you can create a motivating and supportive work environment. We also have a great network of contacts we can connect you with both on the provision of benefits and on managing the payroll and financial reporting aspects.