Most business owners apply the mantra that "our staff are our biggest asset". Unfortunately, a lot of them just repeat the words and don't do enough to get the best from that asset. Given that salaries and benefits are the biggest cost to most businesses, getting the rewards structure right is obviously essential for success. How do you do it?

Start by recognising that everyone is different and, above all, recognise that employees are significantly different to you the business owner. You are an entrepreneur, a risk taker; your employees are inherently more cautious, otherwise they'd set up on their own and be competitors, not employees.

It's all about money. I've heard business owners say this so often, I've almost come to believe it. Sorry, but it's not that simple. For the small and medium sized business owner, yes, it's the key motivator (although getting home in time to see their kids probably comes a close second). But your staff have a different agenda and you need to find out what it is.

When you ask them, you'll be rather pleased, because, oddly enough, it's the intangibles that win prizes every time. Every piece of research shows that money and benefits are well behind sense of achievement, appreciation by management, working atmosphere, pride in the job and so on.

This is all good news because making your staff feel wanted and valued and giving them authority costs very little (it will also help you get home to see the kids). Human resource specialists call money and benefits the hygiene factors, ie they have to be right or you will have a problem, but they aren't the key motivator.

Remember to tell your staff about those intangible benefits. Also point out the other advantages of working in a small business. Someone wants to talk to the MD about a problem? No appointment needed, let's do it now. Someone has upped their productivity or sales dramatically these past four months and thinks they deserve a pay rise? OK let's talk it through this week – no need to wait until "the annual review next spring". Someone needs to take his kids to and from school for a week and needs flexible timings? Can do. Big businesses have to be more structured and their tiered management structures stop them from saying yes to the above needs.

Anyone running a business will want a profit related bonus to be part of a benefits package: payment by results rather than just effort. As a business owner who finds the formula of "the better we do, the better you do" beguilingly simple and attractive, you will be mystified by the reaction of some staff who don't see it as motivating or rewarding.

Unfortunately, staff have suspicions about such schemes: the directors will get 90% of the benefit while the staff work twice as hard; the directors can massage the figures; pricing is out of our control so we can't affect profitability. It is clear that it is imperative to tell and sell a bonus structure very carefully indeed. If you get the formula wrong, it's actually demotivating. It can also be difficult to ascribe contribution to profit. With a salesman it's easy, not so with other staff. Finally, remember the impact on cashflow of bonus payments – you really do have to pay this on time! Don't assume that putting together a profit related bonus is easy or that its success is guaranteed.

It is often this discovery which leads managers to look at a benefits package. As I said before, everybody's different and putting in place what you think is right will achieve nothing if your staff don't accord value to it.

Let's consider some cases, starting with a problem child, the company car. It's an expensive perk – at least £2,500 a year to park a Ford Focus outside your premises for eight hours a day. What's more, it's tax expensive for the recipient. But it can be a real motivator, especially for younger staff. It can also be a very cost effective set of handcuffs if the recipient wouldn't get a car if he or she changed jobs. In the case of salesmen who would get a car normally, an uprate can be very effective. The difference in cost between leasing a Ford and a BMW can be no more than £1,000 a year, but for the driver who values that badge, it can be worth far more.

Pensions are a deeply complex subject and of recent times have had a mixed press. However, it's certain that everyone needs to save for retirement. The issue is how you do it and who pays. Increasingly, the concept of salary sacrifice is becoming popular – it puts the cost on employees but in a tax efficient way. Whatever you go for, it's essential to discuss the options and costs with an independent advisor.

Then there's private medical care, classically associated with BUPA. I have to confess that this doesn't ring my personal bell, being consistently healthy. But to some people it's important. This is especially true for women and family men. It has particular appeal to the over-40s. It does have that "my employer's looking after me" feel, which makes for positive attitudes and it has the practical virtue that no key staff are taking days off in pain waiting for an operation. You can also insist on regular checks to ensure a healthy workforce. Schemes vary but for the small business that offered by the Federation of Small Businesses’ chosen provider HMCA is a good guide. They base a package on age of members and have eight different schemes so quoting an example price is next to impossible. It is, however, by no means a low-cost benefit.

Holiday entitlement is a divisive issue that can be built into a benefits package. An extra week's holiday is inexpensive but can make a big difference to those with families, especially single parents. In a recent survey, CIPD (Chartered Institute of Personnel and Development) quotes as many as 81% of companies giving 25+ days, so, those who don't may find their total package less competitive. One nice way to introduce this is to give everyone a day off on their birthday (or variations on the theme). Again it's "my boss looking after me, so I'll look after my boss".

Under the same heading, consider occupational sick pay that is more generous than that provided by the state scheme. Life assurance which pays on death during service is relatively inexpensive. Permanent health insurance replaces income for those who are off work through long-term illness – a good idea but it can be expensive or so restricted that its benefits are rarely claimable. Dental insurance is, apparently, one of the fastest growing benefits and anyone who has paid for private treatment will understand why.

So what can you offer to staff at low cost or no cost, and does it have any value? In fact, there's quite a lot and it does have perceived value. Flexible working is increasingly popular and it is often easier for the smaller business to implement than for the larger.

Consider putting together an employees discount scheme. Contact local businesses and negotiate a discount or other financial benefit. As well as being a tangible reward (we all go to shops and restaurants and have our cars serviced) it cements your relationship in your local business community. Ideally, some – perhaps all – of the participating companies would be existing clients and your scheme could in the process help drive sales.

Childcare vouchers benefit from government support. The employer who provides up to £50 of vouchers per week pays no NIC on the sum and the employee pays no income tax or NIC on the benefit. These vouchers are organised by the private sector providers, such as Busy Bees or Sodexho Pass. The staff member should check with their provider what vouchers are acceptable.

Employees can also save half the cost of a new bicycle for the commute to work. The employer leases the cycle to the employee who can buy it outright for one month's lease. Staff who cycle to work can be provided with tax-free meals as well.

Interestingly, one of the most valued benefits quoted by CIPD (see above) is often entirely overlooked – free car parking. If your business is located out of town, it comes as part of the deal, but to an employee who has been used to paying hundreds, perhaps thousands of pounds a year for parking, it's a big deal. If you don't have free parking check the cost of local car park season tickets. Also look at the possibility of doing a deal with a nearby pub or hotel which may well have empty spaces in the daytime.

So what effect does a benefits package have? Isn't it easier to just pay people well and let them go and buy their own damn cars, pensions and BUPA membership? Yes, but it may not be better.

Benefits definitely help attract and keep good staff. A benefits package sends out the right message to a prospective employee. It says "this company looks after its people, I will be valued here". At the same time, it is easy to spend the company's profits to achieve relatively little, bar a general nice warm glow around the place. A further concern is that the benefits which are costing the business serious money can become "wallpaper" – they are there, automatically, but not much appreciated. Equally, benefits such as sick pay, healthcare and life assurance only have value when they're used (which most people would hope is never). If you're going to spend on people you should expect to get more out of them, and they should know that.

Paul Clapham is a marketing consultant with over 25 years’ experience covering a broad range of business sectors and a full spread of marketing disciplines. He has run his own business since 1996, working with small, medium and large companies alike to increase their profitability through marketing. Tel:01453 765432

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