NON FINANCIAL

REWARDS

PILAR SCARPATI

t
 What is non financial
rewards?
In employment, it is a reward to a worker other
than extra pay. Many non-financial rewards are
bonus such as company cars, free private
medical care, and free pension entitlement.
However, an employee may be rewarded, for
example, by being given a better office or a
bigger budget to control, or by being given the
choice of where to take a posting in a company.
Non-financial rewards can be very cost-effective
for companies because, in contrast with a pay
increase, little or no income tax or national
insurance contributions are paid.
Non financial rewards
outcome
 Non-financial Programs incentive and
reward programs structured to motivate
positive behavior change through means
other than money (i.e. “Publicizing,
Performance”, “Providing Additional
Technical Support”)
 Motivate and retain employees (A
motivated employee will achieve a great
deal. A demotivated employee will be
slow, horizontal to error and not likely to
achieve).
 Helps to build feelings of confidence and
satisfaction in employees
 Can be very important for their long-term
effect.
 Advantages
Non-financial measures offer 3 clear advantages
over measurement systems based on financial
data:
Financial evaluation systems generally focus
on annual or short-term performance against
accounting yardsticks. They do not deal with
progress relative to customer requirements or
competitors, nor other non-financial objectives
that may be important in achieving profitability,
competitive strength and longer-term strategic
goals.
 Critics of traditional measures argue
that drivers of success in many
industries are "intangible assets" such
as intellectual capital and customer
loyalty, rather than the "hard assets"
allowed on to balance sheets. Although
it is difficult to quantify intangible
assets in financial terms, non-financial
data can provide indirect, quantitative
indicators of a firm's intangible assets.
 Non-financial measures can be better
indicators of future financial
performance. Even when the ultimate
goal is maximizing financial
performance, current financial
 Disadvantages

unlike accounting measures, non-financial

data are measured in many ways, there is no
common denominator. Evaluating
performance or making trade-offs between
attributes is difficult when some are
denominated in time, some in quantities or
percentages and some in arbitrary ways.
Lack of causal links is also an issue. Many
companies adopt non-financial measures
without articulating the relations between the
measures or verifying that they have a
bearing on accounting and stock price
performance. Unknown or unverified causal
links create two problems when evaluating
performance: incorrect measures focus
attention on the wrong objectives and
improvements cannot be linked to later
outcomes.
 Lack of statistical reliability: whether a measure
actually represents what it purports to represent,
rather than random "measurement error". Many
non-financial data such as satisfaction measures
are based on surveys with few respondents and
few questions. These measures generally exhibit
poor statistical reliability, reducing their ability to
discriminate superior performance or predict
future financial results.
 Although financial measures are unlikely to
capture fully the many dimensions of
organizational performance, implementing an
evaluation system with too many measures can
lead to "measurement disintegration". This occurs
when an overabundance of measures dilutes the
effect of the measurement process. Managers
chase a variety of measures simultaneously, while
Raising wages and incentive pay does
not help to reduce turnover. Raising
compensation only in fact increased
turnover rates. Turnover declined when
the employer combined pay increases
with efforts to improve career
development and corporate
communications and efforts to provide
flexible staffing (i.e. non-financial
rewards programs)
 Conclusion

Although non-financial measures are

increasingly important in decision-making
and performance evaluation, companies
should not simply copy measures used by
others. The choice of measures must be
linked to factors such as corporate
strategy, value drivers, organizational
objectives and the competitive
environment. In addition, companies should
remember that performance measurement
choice is a dynamic process, measures may
be appropriate today, but the system needs
to be continually reassessed as strategies
and competitive environments develop.