Friday, February 25, 2011

Total Employee Rewards: Re-Invented

Friday, February 25, 2011

For several decades American organizations have utilized numerous methods for rewarding and recognizing employees in efforts to attract, retain, and motivate those employees. Those efforts and methods have included fixed as well as variable forms of compensation, benefit, retirement, and stock ownership plans. While individual organizations perceive they have met with some degree of success, many continue to search out alternative methods in hopes of achieving some balance between the needs of the employee vs. the needs of the organization.

According the “WorldatWork” (a.k.a. American Compensation Association), Total Employee Rewards are made up of all of the tools an organization has at its disposal to attract, retain, and motivate employees.

This includes: 
  • Cash compensation - wages, commissions, bonuses, incentives. 
  • Health and welfare benefits - health care, life, disability,. 
  • Retirement - pension, 401(k)/403(b)/457. 
  • Stock plans - ESOP, ESPP, stock incentives. 
  • Miscellaneous- paid & unpaid time off, discounts, development/educational/training opportunities, … etc. 
Total Employee Rewards also includes the cultural and environmental aspects of an organization. Is the organization a place where employees want to work, are engaged in the success and growth of the organization, and are respected by their management? Does the organization permit personal and professional development? Some organizations allow employees to develop and own patents for products the employees have created or at least purchase these patents at a reasonable market value.

Organizations as diverse as John Deere, State Farm, Symantec, and Timken have embraced the concept of Total Rewards. Why would such organization under take to adopt a philosophy that is simple yet complex and has the ability to take on almost any desired configuration? Maybe because Total Rewards is a way to look beyond just the dollars and cents of hiring and paying for just another worker bee. To some extent Total Rewards allows employees to have a degree over control of what motivates them to get up and come to work every day. There is something different in Total Rewards for every employee. For some it may be doing new and interesting work, for others having a degree of security, for another it is being allowed to develop new and innovative products.

In an era of no worker or employer commitment, is it possible that organization have the ability to retain their top talent? Of course it is. A big salary increase is only good for a short time. And when there is always another employer who is willing to pay more it becomes bidding game and in terms of retaining talent, this is a zero sum game.

Friday, February 18, 2011

Employee Compensation: Re-examined for the Post Recession

Friday, February 18, 2011

Although painfully slow, there are increasing signs that the US economy is on its way to a modest recovery. In February, the U.S. Bureau of Labor Statistics reported a net gain in jobs for civilian non-farm employers of 36,000. While this is disappointing and discouraging, it continues to point to a very slow and long recovery.

As employers add jobs, what, if any considerations should be made in the cash and non-cash rewards of current workers? Should special allowances be made for those workers who “stuck it out” while their employers struggled to stay in business? Is there value to be had in recognizing worker loyalty and dedication? As fewer workers produced more and more goods, what can be gained by sharing some of those gains with those same workers? Organizations should look back to their “compensation philosophy” as the guiding principle and foundation for determining current cash and non-cash compensation practices as well as changes in those practices. A sound compensation philosophy will provide the basis for an organization to adapt its compensation practices in up as well as down cycles.

At the macro level, labor is not unlike many other commodities and follows a supply-demand curve as the economy wanes and waxes. The demand for skilled labor also follows a supply-demand curve likewise. An organization which has built up and retained a skilled workforce over time will not want to lose those workers as the economy recovers. Since the recovery, at least at this time, is in a slow recovery phase; organizations may have time to prepare for an increased demand on their workforce. A New York Times article titled, “Despite Recession, High Demand for Skilled Labor”, is a clear indication that even in a down economy; some jobs will continue to demand high wages.

While compensation surveys are helpful in understanding the general trend in cash and non-cash rewards, by their very nature they lag the active wage market by several months to over a year. An organization’s compensation philosophy should include directions on how and to what extent the organization’s compensation practices will lead or lag the market for some or all of its jobs. It may be financially impossible to be a leader for all jobs, so an organization may be required to focus on those few key jobs within their organization and structure reward systems them above current market. Although cash wages are only one of many reasons that contribute to an employee’s willingness to stay with an employer, pay can account for a significant portion of their reasons to remain.

In Mercer’s “2010 Attraction and Retention Survey”, released in June 2010, it was found that despite the difficult economic times, many organizations continue to maintain their pre-recession levels of cash and non-cash reward systems. In addition, some employers actually expanded their non-cash reward offerings including; career path planning, work-life programs, special project opportunities, and total rewards communications efforts.

Friday, February 11, 2011

Talent Retention in 2011: An Employer Challenge

Friday, February 11, 2011

Based on a January 27, 2011 report from Towers Watson (TW), the global professional services company, employers are facing strong challenges to retaining and engaging key talent in 2011.  The report based its conclusions on a 2010 survey conducted by TW in which respondents report that less than 50% of employers “do a good job retaining top talent”. 

The report went on to discuss the areas that employees perceived were significant to retention of talent.

Career Path

Why should it be the responsibility of an employer to lay-out the employee’s lifelong career path? It’s not. However, understanding the opportunities that might exist within an organization can go a long ways towards retaining and developing the business’ current talent and attracting future talent. By understanding and knowing where opportunities exist, the employee and employer can both evaluate their next steps for each and the organization can plan for succession as talent moves from one assignment to another. Multi-career paths may exist within any given organization. For example, in the US Navy, it was often held that command of a surface warship was the only career path to a naval officer advancing beyond mid-grade levels. However, since 2005, the Navy has employed an alternative in its Surface Warfare Community by utilizing officers in Specialty Career Paths (SCPs). SCP has been successful by providing the Navy with officers processing critical skills, and has recently been expanded to include aviation and submarine communities.

Reward and Recognition

Reward and recognition is about more than just money. However, let’s face it; money usually gets an employee’s attention first. However, after awhile, the newness of that big raise wears-off and there has to be something in its place to sustain the motivation and engagement of the employee. It is common for most individuals to think in monetary terms, titles, benefits or corner offices when envisioning rewards and recognition. In a November 2009 McKinsey & Co. report titled, “Motivating People: Getting Beyond the Money,” noncash motivators proved to be more effective than financial incentives. In a related article, McKinsey related that often financial rewards do not yield the expected results.

Employer-Employee Communication

Everywhere communication plays a key role in getting an organization’s message across to its shareholders, customers, vendors, and employees. Crafting and it is all about “crafting” the message, will determine how bad news is perceived and how good news is accepted. The Department for Business, Innovation & Skills, the UK’s counterpart to the US Small Business Administration suggests that organization’s hold regular meetings, use language employees will understand, keep the communications focused, use open-ended questions, ensure communications reach all employees, and use social events to break down barriers.

Work and Life Balance

During the recent economic downturn, organizations reduced staff, consolidated roles and responsibilities, and cutback on services whenever and wherever possible. Reductions, consolidations, and cutbacks were a natural reaction by organizations to the most severe recession since the Great Depression of the 1930’s. Many employees found themselves performing the work of 2 or 3 former cohorts, with little or no increase in pay and maybe even a reduction in benefits. The Mayo Clinic points out that all work and no play may have a negative effect on both the employee’s career and personal life including physical and mental fatigue, lost time with friends, family, and loved ones, and increased expectations from the employee’s management.

Workforce Intelligence

Understanding how a workforce perceives their organization’s culture is of equal importance as understanding how a business’ shareholders, customers, and vendors view that organization. While opinions of line managers are certainly valuable information, it cannot and should not replace well-designed and timed surveys, and as is often noted, “one survey does not a trend make”. In Tower Watson’s 2010 Global Workforce Study, TW noted, “Confidence in leaders and managers is disturbingly low”. Understanding how an organization’s workforce perceives its leadership is vital to maintaining and sustaining an effective workforce.

Friday, February 4, 2011

Positioning Total Rewards as the Economy Continues to Recover

Friday, February 04, 2011

While the economy appears to continue on a steady but slow recovery, organizations are beginning to feel pressure on their labor forces.   In December private-sector employment was up by 113,000, health care industry added 36,000, and the hospitality industry was up by 47,000 net new jobs.   Although unemployment is still at historically high levels, some markets are recovering at a faster pace than others are. Just as the economy cooled at different rates for different sectors, the economy will strengthen at different rates.  What should organizations be doing to prepare their compensation practices as the economy continues on its recovery?  The issues facing organizations during a recovery are going to focus on employee retention, productivity, and expansion.

Many organizations were forced to reduce staff, close facilities, and withdraw from markets during the recession.   As those markets and business lines begin to spin back up, talent is going to be looking for opportunities after several years of minimal or no salary increases, benefit cut-backs, and declining bonuses.  Those organizations, which have been pre-positioned to reward and recognize performance are going to be the organizations who will be in the forefront of their competitors.  It is essential that an organization’s total rewards strategies must align with and support the goals and objective of the business. If they have not done so already, many organizations will want to review their total rewards strategies for both short and long-term gains.

The organization’s current total rewards strategies must align with the expectations and vision of the C-suite leadership and drive the results needed to achieve market position and penetration. Rewards and recognition that got the business through the hard times will not work as the economy heats-up. A rewards strategy that does not engage and excite the team is incapable of delivering results. This does not translate into giving the bank away, but to get results, a rewards strategy must be effective. If the organization has not been gathering feedback on what the troops are thinking and saying, the organization needs to act now. Leadership cannot expect stellar results from the front lines if no one has faith in the rewards and recognitions of the organization to motivate employees to take action.

What are competitors doing? Organizations who are out front already know what their top competitors are doing because they have been tracking it for the last several years. Remember, organizations have to know who their competitors are and it may be someone in another industry, across the street or a hemisphere away. After all, labor is a commodity, and it will flow to the highest bidder.

When was the last time the organization updated job descriptions, evaluated pay levels, reviewed short and long-term incentives? Depending on the organization’s business segment, jobs, job descriptions, and job families should be reviewed and evaluated at least every 3-5 years. Yes, job descriptions are still important, even in flat, self-directed organizations.

Careful attention should be paid to both short and long-term bonus and incentive plans. If they were adjusted in the recession to account for down markets, their payouts may be out of alignment with expanding markets. A 25% incentive payout in a depressed market might require adjusting to 15% to avoid a windfall. On the other hand, a 10% incentive payout in an emerging product market may need to be upped for the organization to focus on and corner a particular market.

Organizations have an opportunity to send a strong message every time an employee is paid. Even if the organization does not utilize a total rewards statement, the employee’s pay stub or check deposit is a means of reinforcing the competitive value of the employees rewards.
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