European Rewards Pkgs Not Effective Employee Incentive

October 25, 2005 ( - A survey from Mercer Human Resource Consulting found that only 30% of European companies believe their rewards program is very effective in attracting and retaining talented employees.

In addition, according to a summary of the survey findings, only 20% of companies believe their rewards program is effective in influencing the right employee behavior. Perhaps this is due to the fact that only 57% of employers believe their rewards strategy is linked to the company’s business strategy.

On average, only half the respondents said they believe their rewards program differentiates between high and low performers. The survey found considerable differences in this belief among different industries. Sixty five percent of companies in the banking and finance sector differentiate on the basis of performance compared to 48% in the high-tech industry, 36% in insurance and 29% in the pharmaceutical sector. There were also significant differences between countries , with companies in Spain and Germany distinguishing most between high and low performers (63% and 58% respectively) and Belgium and Ireland the least (32% and 34%).

As far as costs of their rewards packages, 27% of respondents prepare employee rewards cost projections for the next five to ten years. The summary said 32% believe the cost of their rewards program would be unsustainable within five years. Reasons cited for this were:

  • rewards costs are not linked to business performance (37%),
  • variable pay programs are ineffective (25%),
  • benefit costs are out of control (22%), and
  • base pay increases are too high.

Traditionally, European companies have focused purely on pay and benefits when designing their employee rewards programs. Mercer found that more employers are now expanding their rewards approach to include training and career development. Some 53% of companies have specific guidelines on how to manage employees’ careers.

Mercer received responses for the survey from 367 companies representing 19 European countries and 14 industries. A free copy of the complete survey report can be requested here .