Benefits and Compensation

What’s Happening to Total Rewards? New Landscape

The current global economic environment means executives are thinking about reward program management in new ways, says consultant Tom McMullen. The good news is that Hay Group studies show human capital concerns rank number one.

What’s the Deal with the ‘Regular Rate’?

FThe bad news is that many organizations still find it hard to maintain an effective rewards system.

McMullen is Reward Practice Leader for Hay Group in Chicago. He was joined by Dow Scott, professor of Human Resources in the Quinlan School of Business Administration at Loyola University Chicago and president of Performance Development International, a management consulting firm. Their remarks came at the WorldatWork conference in Philadelphia.

What Is the C-suite Concerned About?

Here are the dominant C-suite reward-related themes, according to McMullen:

  • Optimizing productivity and cost effectiveness
  • Improving employee engagement
  • Developing and retaining key talent
  • Improving performance management processes
  • Aligning human capital and reward systems to business strategy

Major Challenges with Reward Practices Today

McMullen finds the following common challenges for employers that are trying to implement meaningful reward strategies:

  • Strategy and design
    • There’s little input from employees on reward strategy and design.
    • Awards often are not aligned with strategy.
    • There is often an extreme focus on benchmarking and little concern given to affordability of pay programs.
    • Reward components are managed in isolation of each other.
  • Implementation
    • Performance management processes are often weak (it’s hard to separate out top performers).
    • The value and intent of “total rewards” are not understood by employees.
    • Line managers are not well engaged in reward implementation.
    • Little is done in terms of reward ROI assessment.

2013 Reward Next Practices Survey

To find out how companies are meeting these challenges, WorldatWork conducted a survey in early 2013 of 303 senior reward professionals to identify key characteristics of reward strategies and programs.


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Is Reward a Cost or an Investment?

The survey asked whether the organization regularly measures the ROI on its reward investment. Eleven percent of respondents said this is a current focus, and 48% said it will get greater focus in the future.

It’s an important question, McMullen says, because of this:

If pay is a cost, the obvious goal is to minimize it.
If pay is an investment, the obvious goal is to optimize it.

If reward is viewed as an investment, organizations focus on:

  • Aligning rewards with its business and human capital strategy
  • Balancing employee and organization reward interests
  • Reinforcing the link between rewards and performance
  • Distilling down and sustaining key reward communications
  • Leveraging senior leaders, managers, and employees in reward implementation

Core Reward Strategy Objectives

There is an increased emphasis on the motivational value of reward programs, says McMullen. As the survey table shows, employers will focus on the motivational value in the future.

 

Reward program is …

% saying this is a current focus

% saying this will be a greater focus in future

Externally competitive

64%

53%

Internally fair

75%

41%

Motivational

39%

67%

Reasonable in cost

74%

47%

Reward Strategy Trends

McMullen sees the following trends affecting reward strategy:

FROM

 

TO

Externally competitive

Motivational

Inconsistent
strategy and design

Consistent
strategy and design

Short-term performance orientation

Longer-term performance orientation

Financial performance measures

Balanced performance measures

Cost orientation of reward

ROI orientation of reward

Core Compensation Program Effectiveness

The survey shows an across-the-board focus on increasing compensation effectiveness, says Scott.

Rewards
Program
Segment

% saying this is a current focus

% saying this will be a greater focus in future

Base cash/wage programs

74%

44%

Short-term variable pay
programs

47%

56%

Long-term variable pay
programs

34%

42%

Financial recognition programs

32%

38%

Total Remuneration (i.e., mix of fixed, variable, and benefits)

62%

61%

Compensation Process Effectiveness

Survey participants indicated that performance management is the primary focus in the future, Scott says.

 

Compensation
Process▼

% saying this is a current focus

% saying this will be a greater focus in future

Market pricing
processes

62%

50%

Job leveling/grading
processes

51%

53%

Performance
management processes

41%

69%


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Nonfinancial Reward Program Effectiveness

Career development opportunities will be a primary focus in the future for many survey participants, says McMullen.

 

Nonfinancial Reward
                 ▼

% saying this is a current focus

% saying this will be a greater focus in future

Education and training programs

50%

54%

Career/development opportunities

39%

63%

Flexible work arrangements

50%

32%

Nonfinancial recognition

38%

43%

Work climate/culture

57%

48%

Work/life balance

48%

38%

Meaningful job design

37%

31%

Reward Design Trends

McMullen sees the following design trends for rewards programs:

FROM

 

TO

Base pay program management

Variable pay program management

Paying for jobs/work 

Focus on paying for value/contribution

Flexible work arrangements 

Career development, culture, recognition

Defined benefit plans 

Defined contribution plans

Siloed reward element orientation 

Total remuneration / rewards orientation

In tomorrow’s Advisor, more on compensation design from McMullen and Scott, plus good news about an upcoming webinar that shows how to build a talent pool to make hiring A-level talent easier.