How to: motivate and reward your staff

Reward trophy at work

David Goodridge, partner at accountancy firm Kingston Smith, gives his view on the best ways to make employees feel loved.

The first step is to make sure that the communication channel between you and your employees is two-way. Employees need to have an understanding of how the organisation works and performs, to provide them with a backdrop for their contribution.

A good way of addressing this issue is through one-to-one appraisals.

Appraisals and salary review meetings will be more beneficial if they are conducted six months apart. This gives managers the opportunity to formally review an individual’s performance, provide feedback, set objectives, motivate and identify training and development needs, in line with the organisation’s goals.

Appraisals don’t need to be complicated or time-consuming and are a good way of establishing a regular communication with your employees. The appraisal process needs to be fully explained, with the employee given enough time to prepare and the opportunity to contribute fully during the appraisal meeting.

The people carrying out the appraisals should also be given sufficient guidance in how to do this – as potential “appraisers” are often more nervous than the “appraisees”! Effective appraisals will improve their commitment to the organisation and should have a positive effect on their ability to meet their objectives.

It is worth pointing out that feedback in relation to an individual’s work and performance should not only be reserved for the appraisal process. This is particularly relevant when an individual is not performing to the level expected of them. Any concerns you have should be raised at the earliest opportunity.

Invariably people are pleased to receive feedback on their performance, even if it is not good. Appraisals will not be sufficient on their own to improve an employee’s commitment or motivation, but for a small business, it is clear that an employee will be able to have a far greater say in how the business operates, and this is an excellent method of highlighting this opportunity.

Listen to your employees’ ideas and give them regular opportunities to contribute. Frequent meetings are useful, as are suggestions boxes, which will provide more modest employees with the opportunity to pass on their ideas.

Make sure that you praise and encourage even when ideas are not adopted. Non-financial rewards for ideas are usually well received and do not have to cost the earth. Higher commitment levels and motivation will not only impact on the quality of work your employees produce, but should lead to a reduction in staff turnover and sickness absence rates.

The ideal bonus or reward strategy will depend on whether you are aiming to motivate your staff or looking to lock in key people, whose skills your business’ success depends on. The tax and National Insurance (NI) effect on both your business and the employee must also be considered.

Bonuses can motivate your staff towards a common corporate goal and are taxed as remuneration. Either discretionary or linked to set targets, bonuses can be for performance, service or sickness records.

Benefits in kind can be offered instead of cash, although there are no longer any National Insurance savings in following this route. You can also offer non-cash incentives like company outings, sabbaticals, or increased holiday.

Share incentive schemes may help hold on to skilled employees over a number of years. There are a number of different schemes:

Phantom share schemes are effectively future cash bonuses based on the value of your company. Any proceeds will be taxed as remuneration.

Employees can be offered the chance to buy new shares for full value, discounted value or nothing. Assuming that the shares are not marketable securities, no PAYE or NI will be applied.

The employee will have an income tax liability on the full value of the shares received less any amount that they pay, and any additional growth in the value of the shares will be subject to capital gains tax.

Granting options for the issue of shares at a future date does not attract any tax charge at the time of the grant, provided that the option must be exercised within 10 years.

When the option is exercised there will be an income tax liability for the employee based on the market value of the shares at that time less any amounts paid. There may also be a National Insurance liability if the shares are marketable. Further growth in the value of the shares will be subject to capital gains tax.

The Enterprise Management Incentive (EMI) is a share option scheme designed for smaller businesses wanting to give share options to a small number of employees. Although there are a number of requirements for the company to qualify, the tax reliefs for both the company and employee are significant.

The above is a general overview and not intended to be professional advice. Please speak to an accountant to confirm the tax position and get individual advice for your business before taking any action.

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