How pay and reward impact employee outcomes: A framework for employers

06 December 2021

Are you struggling to recruit and retain the right staff in the middle of the “Great resignation”? Are you confident that the package of benefits you offer is the right one to attract and keep the right people?

You can now use this simple framework that shows you how each of the monetary and non-monetary benefits you can offer your people will affect key outcomes such as employee satisfaction and employee retention. The framework will help you define an efficient and effective package of benefits that helps your business recruit and retain the right talent.


Using benefits to improve employee outcomes

The impact of benefits on employee wellbeing, satisfaction, retention and diversity

Our report into the roles of pay and reward into employee outcomes revealed that pay is an important, but not the most important, factor in employee wellbeing; factors such as stress at work and work-life balance are equally, if not, more important.

There is also an interesting set of differences when assessing the demographics of employees. Younger employees place a higher value on pay than older employees. Being transparent about available salaries, and whether negotiation is possible, will help ensure women receive fairer pay.

UK regulations were brought in during 2017 to reduce and eventually eliminate the current gender pay gap. The principal of equal pay has been long established in law and it is already illegal to pay women less on average than their male counterparts. However, differences in gender representation at different levels of an organisation can create a gender pay gap.

Read more about our Gender Pay Reporting offering and how it can benefit your business and your employees.

Our report found that bonuses are most effective when at least 25% of an individual’s salary. Employers should consider making bonuses available to all employees to facilitate retention. The higher the level of employees that are awarded a bonus, the more likely this is to have a positive effect on employee retention.

Employers may have waived or deferred bonuses during the COVID-19 pandemic, a move that was commonly seen at the start of the pandemic particularly for larger businesses looking at the long-term implications of doing so and perhaps in wanting to avoid using the Coronavirus Job Retention Scheme.

Some employers offered shares rather than bonuses which linked to employee retention, in that they would receive an enhanced salary package when the business recovered. There are several ‘tax-advantaged’ share plans that were used to offer tax savings to both employees and employers. For example, for options issued under the Enterprise Management Incentive (EMI) scheme, the company can claim corporation tax relief on the difference between the market value of the shares at exercise and the option price paid.

Read more about what this may mean and how to mitigate risk when re-implementing any structures.

As most of us are aware, expectations around paid annual leave differ greatly from country to country. More paid leave is not always better when it comes to job satisfaction. The relatively new trend of offering ‘unlimited’ annual leave may not increase job satisfaction, and can backfire in that it reduces the amount of annual leave taken overall. Our report into the roles of pay and reward into employee outcomes recommends that managers should make sure everyone is clear about their company’s annual leave policy, and should use ‘role modelling’ to ensure that it is part of their business culture to be expected to utilise this paid leave.

Our report found that employer pension contributions are a benefit that is greatly valued by  employees.  Ensure that as an employer you understand how to maximise your employees' pensions. BDO have a range of guidance on pensions including a thorough breakdown of pensions tax relief.

There are a range of factors employers should be aware of to remain compliant with the complicated rules around pensions. For example, similar to Salary Sacrifice schemes, SMART pensions are a way to reduce employment costs for employers, while maintaining or enhancing employees’ pension benefits.

SMART pensions enable an employee to enter into a salary sacrifice agreement whereby they cease to make a contribution from their pay: instead they agree to reduce their gross pay in favour of an increased employer pension contribution. The tax position remains the same but importantly the employee is receiving less remuneration for NIC purposes and there is therefore an NIC saving for both the employee and employer.

Employees should also be aware of their personal Lifetime Allowance and ensure that their employment and personal pensions are compliant.

Again, our report found that demographics are particularly important here. Emerging evidence suggests that mention of generous employer pension contributions in job adverts may attract older workers. There is again a ‘gender pension gap’, with women having lower average private pension wealth, and therefore lower income in retirement, than men. This is driven by a range of factors, with differences in pension participation rates between men and women broadly mirroring the gender pay gap which suggests that women may change their saving behaviour around the time they become mothers, usually in their thirties.

Company ownership is the first of the non-monetary rewards that we investigated in our report. The employee-owned business sector in the UK is growing because employee-ownership is proving to be a durable and successful business model. The combined impact of the COVID-19 pandemic and the anticipated rise in UK capital gains tax resulted in a substantial spike in the number of shareholders looking to sell their respective companies in the 2020/21 tax year – and an employee-owned structure is a highly beneficial route to consider for high-growth companies.

Employees in employee-owned businesses tend to be more entrepreneurial and committed to the company and its success and employee-owned businesses tend to be better at recruiting and retaining talented, committed staff.

Employee Ownership Trusts

An Employee Ownership Trust (“EOT”) is a special form of employee benefit trust introduced by the Government in September 2014 to encourage more shareholders to set up a corporate structure like the John Lewis model.

The incentive for owners is that the Government introduced very generous tax breaks to encourage shareholders to move to an employee-ownership model. However, to qualify for the tax incentives, the employee ownership needs to be structured in a particular way.

Becoming employee owned reflects the people-first entrepreneurial spirit that has been the backbone of HJA since 1977. It provides continuity for our partners and staff, and therefore our clients. It is the perfect model for a firm like ours.”

Patrick Allen, Senior Partner, Hodge Jones & Allen LLP

"The collective ownership by all of the team secures the future of our business and our core values, meaning we can long outlast the founders and senior team without the threat of a takeover or sale that could result in a dramatic change in business culture".

Tony Iles (Chairman and MD), Tonic Construction Ltd

Other employee ownership structures

There are a range of other share and incentive plans that can be used to achieve the same benefits for your business and employees. Read our full breakdown of each structure and how it could work for you.

Which Share Plan is right for your business?

There are so many to choose from. Try our free, quick diagnostic tool to receive an outline of which share plan or plans best meet your business needs.


One of the most impactful changes stemming from the COVID-19 pandemic was the ability for a large percentage of the UK working population being asked to work from home. However, despite seismic shifts because of the pandemic, our research found that the proportion of jobs advertised with flexible working options remains low - at 22%.

Many employees want to continue working remote at least part of the time. Has your business adapted to this trend and are you embedding a ‘work from anywhere’ policy? Find out more about tax implications, the compliance issues and managing the risks of employees working from home, at home or whilst overseas.

There are a range of tax issues that arise where employees are working from home. Read our summary that is not an exhaustive list, but provides a basic checklist for employers to consider.

Today, a common question businesses face is, can employees continue to work from anywhere – extending the new prospect of more agile work arrangements into the future - and do employers wish to support this?

There are three sections to ESG – Environment, Social and Governance. We are at risk of just focussing on the environmental aspects of pay and reward but the S, Social, is equally important.

New levels of transparency have been reached this year in terms of funds and financial institutions' 'green credentials.' The UK has ambitions to ensure that green finance is an option for all. Read more about what this means in practice

It's important to ensure that your tax strategy is responsible. Employees will expect their organisation to have considered ESG factors in all aspects of running their business. Sustainable investing is a new and growing topic. Many are however sceptical about the degree to which all the talk has been matched by concrete action. What are investors doing in practice?

International tax transparency initiatives have placed tax policy and reporting in a more central role in achieving environmental, social and governance (ESG) sustainability objectives. As part of this, businesses are publishing details of their approach to tax within broader ‘total economic contribution’ tax reports. This approach recognises that simply complying with the strict ‘letter of the law’ may not be enough to avoid damaging media coverage and negative public perception. Read our summary of how tax can form a key part of your ESG strategy.

The BDO Global team have created an ESG guidance hub covering all aspects of the three letters of ESG and have also developed an ESG Risk Assessment Tool which can be used by any business to quickly assess risk.

Company culture is a pivotal factor in retaining employees. Employees are more productive and happier in the workplace when they are thanked for their hard work. Recognition is a crucial factor in determining employee retention and differs greatly depending on the size, location, and structure of the organisation. Bonuses are a key part of recognition but are not the only factor to be considered.

Employers should consider investments into client satisfaction and the communication of client feedback to enhance employee retention. Client satisfaction is positively linked to employee retention and therefore investments into client satisfaction are likely to improve employee retention.

Positive client feedback has a significant impact on employee retention and therefore should be freely and plentifully distributed to employees, and negative feedback should be communicated carefully.

Most organisations have faced the biggest challenge yet to their culture and the wellbeing of their people has never been more vital. At BDO, our core purpose is ‘helping you succeed’. This was our guiding thought as we worked our way through what became known as ‘the world’s largest working-from-home experiment’. Read more about our culture and how we helped our people succeed, as well as some of our learnings from the past year.

Our decision framework creates a simple reference guide for the key findings and recommendations. Download the full framework and our recommendations below – our team are available to discuss how our suggestions can be tailored to your business.



How most business leaders think about employees and workforces has had to change beyond all recognition in the last two years. 

The COVID-19 pandemic has changed how many workforces operate and many businesses taking the opportunity to re-evaluate their flexible working practices. People’s expectations of a “work/life balance” and of hybrid working policies are changing substantially. Businesses are also rethinking the role of offices and premises and how to provide employees with the right working environment.

Diversity and Inclusion

There is a growing awareness of Diversity and Inclusion as a key aspect of a successful and sustainable workforce. Many businesses are already reporting on gender pay gaps. Businesses will have to demonstrate a proactive approach to the diversity of their workforce and how they promote equality and inclusion.

Pay and rewards

Recruiting and retaining people with the right skills to deliver on business strategies has become increasingly difficult and expensive. The increasing emphasis on wellbeing and job satisfaction means that offering people the right mix of pay, rewards and benefits has become more complicated.


Every part of a business that is now having to consider Environmental, Social and Governance issues; the ESG agenda. Governments as well as stakeholders such as employees, clients, customers, investors, and shareholders will all expect every business to articulate how it is contributing. Employees are driving the ESG agenda too, with more consideration being paid to things like green finance, investing, and pensions.

The Pay and Reward Framework is based on a comprehensive literature review conducted by the Behavioural Insight Team. Alongside this review, we have published an extensive report packed with insights and advice covering the different monetary and non-monetary levers available to business leaders and how they impact employee outcomes.

The Report

The concept of this report was borne out of client conversations that took place during the start of the COVID-19 pandemic. Many business leaders were focussing internally, evaluating the expected impact of the pandemic and, for many, rethinking their future strategies.

A key part of this debate, and high on the people agenda is reward, both monetary and non- monetary. We had conversations with businesses whose incentive plans and bonus schemes were underwater and required a fresh start, as well as with those that had managed to achieve strong growth despite these challenges and had accelerated to returns above expectations. The common question posed across the board was: how do we make best use of our reward strategy to get the best outcome we are looking for?

So that we could better answer the question, we commissioned The Behavioural Insights Team (BIT) to conduct an evidence review of the literature related to the structure and design of pay and reward, as well as non-financial rewards. This resulted in a hugely in-depth and interesting review into a wide range of aspects of reward, many of which have not been fully considered by employers.