Return on Reward

Return on reward, i.e. the average economic performance per employee, which a company generates based on its average total labor expenses is a topic that seems to have received surprisingly little attention in the past. While companies manage their (often fictive) financial indicators (e.g. capital structures and stock prices) in an attempt to create value for their shareholders, the sense that each individual employee is (or at least, should) actually be contributing a certain measurable economic value, is often overlooked. Moreover, in the world of Human Resource Management, the intense debate between economists and psychologists/sociological economists on whether higher incentives actually lead to higher performance, is still largely unsettled. By using a model which measures economic value per employee as a function of productivity and cost per employee, while at the same time looking for trends which indicate a relation between these two, this paper answers the question whether higher average wage bills generate higher productivity. The relationship between the cost of labor and various performance metrics over an 18-year timespan was empirically examined. The results from this assessment indicated that a positive correlation can be found between the average total labor expenses and average employee productivity, as measured by various different performance metrics. Thus, while current literature is locked in debate on the effects of incentives on motivation and performance, these results provide a strong argument for the fact that incentives positively impact performance. Moreover, from the subsequent findings it can be concluded that providing higher incentives leads to a productivity increase which outweighs the initial cost of the increase. This leads to the conclusion that the economic returns benefit from an increase in average rewards provided to an organization’s workforce. Hence, the results from this study conclude that it does indeed pay off to pay more.