Should you change rewards?
Take a look at Exhibit 1. It shows the relationship between strategy and rewards. You see translation is necessary so goals cascade from top to bottom. We have found five goal categories useful: financial, customer, operational, people, and future-focused. However, any goal combination can be used to translate the priorities of strategy to the actions of people to execute the goals.
It’s unreasonable to expect people throughout manufacturing, engineering, information technology, sales, and general administration to “get in there and improve earnings per share” or some other measure of business success. It’s possible and necessary however, for them to understand what they can do in their own area of influence to positively impact business strategy and direction.
Agility is important because strategy and tactics must be adaptable. Companies are rapidly and continuously changing the way they do business to improve organizational effectiveness and better compete in today’s global economy. Is your company ready to tackle the way it pays the workforce and align pay and rewards with business strategy and goals? Is your company ready for change? Exhibit 2 lists some key questions you should answer before revamping your company’s pay solution to better align it with the business strategy:
If you decide change is in order, the first step is to design a total reward strategy that clearly communicates your business strategy. Mentally tear up the pay checks and start from scratch as you frame a total pay solution that clearly communicates your company goals, priorities, and direction.
Companies need to develop a business case for changing pay. This starts with asking some key questions that determine the fit between the current pay and reward solutions and the realities of the business. The business case should communicate why change is needed, the role of the workforce in making the business a success, measures of success, the basis of the win-win partnership between the workforce and the company, and what’s in it for the workforce to make the company a success.
Superkeepers makes executing strategy difficult
If you think Microsoft and Burger King have nothing in common, you might be surprised to learn that the technology conglomerate and hamburger chain share the same dilemma. With high general unemployment, the problem is a basic cadre of top skilled workers needed to execute strategy, and it’s being felt in a wide variety of industries—from information technology, to engineering, to the fast-food industry. By superkeepers we mean people who are in the top 20% of the workforce in terms of critical skills and the ability to translate these skills into performance.
Many companies attempt to attract and retain the top 20% of their workforce simply by increasing their pay through sign-on bonuses, retention awards, salary increases, referral bonuses, and even counter-offers to people who are ready to walk out the door. But this outdated strategy only solves the superkeeper-talent problem temporarily and does little on its own to keep prized employees from jumping ship. Instead, companies should adopt a “better workforce deal” and “total reward” approach to tackle the problem of scarce talent.
Companies should adopt a four-point solution for dealing with talent that includes not only total pay (such as salaries and incentives) but also opportunity for individual growth, a positive workplace, and a compelling future. Pay may lead the change, but you must recognize the critical role of people in the company. These four reward components are proving to be the integrated package that can help make a company be a great place to work. Some companies may emphasize only one or two components, but the focus is on improving more than just total pay.
One of the key strategies is to identify the top 10 to 20 percent of the critical people on staff and take special care to keep them. These key people may be high-potential individuals or those who are critical to completing a major project or moving the business in a new direction. They are the superkeepers. However, companies should not lose sight of the big picture. All people who perform satisfactorily count, and smart companies realize this. Companies do not become great because of only a few superkeepers—everyone who meets performance goals must count all the time. In general, companies use a combination of the four components of creating total rewards and provide opportunities for individual growth, a positive workplace, a compelling future, and total pay. Successful strategies for securing scarce talent are outlined in Exhibit 3.
Great companies are not in the business of buying talent at any price. Companies that have proven themselves over the years focus on strategies that keep key people who add value. The solution is total rewards. It’s more than just how much people are paid or how many options they have. People expect more from the places they work—more than just pay and benefits. It’s likely a new and more aggressive strategic view of the challenge will best fit companies for years to come.
Rewards need a strategic tune up?
The name of the business strategy game is profitable growth. This requires having enough quality talent to make your business a success. But often this comes on the heels of downsizing, flattening, delayering, reengineering, rightsizing, and outsourcing—all of which demoralize and disenfranchise a workforce. The truth is that enterprises have discovered they must grow, not shrink, to greatness. If people are the stuff of which growth is made, companies must make themselves more attractive to the people they need. However, it’s hard to move staffing from “slow” to “grow” without powerful tools that distinguish your company from others.
Pay and rewards are part of the formula. Many companies have pay and reward solutions that were developed when they had more people than jobs. These are often not well suited to the current situation where there are more jobs to fill than qualified people to fill them.
Do you think you’re at a disadvantage for talent recruitment and retention? How do you know if your pay and rewards need revisiting? Exhibit 4 outlines a few clues. Just paying more may not be the answer. It may be only partly a matter of how much you spend—it may be a function of how you spend it. More than just pay is important and may be an issue. In our experience, some of the highest paying companies have to pay highly because they lack much else that people want when selecting a work partnership.
People want more than pay
People want more than pay from the place they work—they want a rewarding work experience. IBM changed its entire reward solution to emphasize incentives for everyone in the workforce to keep people focused on business results. Amazon.com uses stock options throughout the enterprise to make people stakeholders in the business and to do whatever is necessary to make the business grow profitably.
Solectron, a two-time Malcolm Baldrige Award winner, implemented incentives based on team rather than individual performance to encourage people to help make their small teams a success. General Mills is known for providing a family-friendly workplace so top talent can effectively balance work and home commitments. But this doesn’t mean your business should copy these practices—in fact, it’s probably better to invent your own.
Let’s look at some alternative ways to design pay and rewards to make your enterprise more attractive than others. But first there are some things that probably are not going to work. People don’t stay just for T-shirts and coffee mugs. Many books will give you a lot of recognition ideas that are easy to implement, but it will likely take much more than a few parties and gifts to make your company more attractive.
Don’t be surprised if you need to make some very major changes to get the people you want. But pay and rewards are hard to change—unless of course all you want to do is pay people more.
Approach #1:
Commodity view – more of how you pay now
Approach #2:
Total pay – offer a balanced package comprising base pay, variable pay (cash incentives and stock), recognition, and benefits
Approach #3:
Total rewards – move to a solution that is more than pay by providing a compelling future, individual growth, positive workplace, and total pay
This isn’t a one-size-fits-all proposition. However, it’s clear that companies like Sun Microsystems, Intel, Hewlett Packard, Southwest Airlines, and the companies we named above have moved to total rewards solutions that match their workforce strategy. Examine each of the approaches to see what might be best for your situation.
Approach #1: Commodity view
Most businesses focus their recruitment and retention pay efforts on a commodity approach—they “crank up” current pay levels and hope for the best. This most often means more base pay, more options, more perquisites, and perhaps more benefits. This has worked for years, and old habits are hard to break. It’s the “show me the money” view of pay and rewards—outbid the other company to buy the talent you need. The commodity view focuses on paying based on supply and demand.
What’s wrong with this approach? The question is whether it communicates anything positive about the business and workplace. Also, merely paying more is easy to copy—there’s not much differential advantage in doing something everyone else is doing. One executive said to us, “We only worry about our people when we have trouble hiring and keeping them. Are we missing something?” The truth is, if the only time you try to make your company attractive to your workforce is when they’re leaving, something is amuck.
At best, a commodity view of pay and rewards is a stopgap process. It may hold until your enterprise has the time to implement a longer-term solution. But it’s an expensive way to deal with a workforce, especially since it may not attract and retain the people you need.
Approach #2: Total pay
A more balanced solution addresses the four elements of total pay: base pay, variable pay (cash and stock), recognition and celebration, and benefits. Why is balance important? – Because different total pay tools do some things better than others. For example, base pay is great for addressing changing skills and matching competitive practice. Variable pay does a fine job of emphasizing performance results. Recognition serves as the overdrive for total pay—it’s the spice on the total pay pudding. Benefits can make a company uniquely attractive. For example, flexible benefits, 401(k) plans with company stock matching, and employee stock purchase plans can provide sticking power for the type of workforce you need.
The best part of a total pay perspective is the opportunity to involve the workforce in the actual design process. This is important because it’s the workforce the company is trying to solidify. What better marketing for total pay than a solution that the workforce helped design and thus committed to? Current workforce members are often a primary source of new talent (and of course in retaining existing talent). Because total pay is a powerful communicator of directions and values, it’s also a superb forum for leadership to communicate with the workforce.
For example, what skills and competencies should total pay reward? What measures and goals that add value to the business should be used for pay? The objective is to do what will best attract the desired workforce and to give the signals about the business that defines the role people play in making the business a success.
Approach #3: Total rewards
Because pay and rewards are tools of the business, changing them requires a strong business case to justify what’s being done and to inform all the parties why there is a change. Total rewards are important because they define the deal the company and workforce are making in terms of what the work will be like, what the win-win is from the work effort, and how the future will unfold for people and the enterprise. Making the company attractive to top talent is likely to require addressing everything about the workplace. This involves the following elements of total rewards:
Compelling future:
Companies must be economically successful to provide attractive work that people want to do. People want to work for an enterprise with a vision and values they support, a positive image and reputation, and a way for people to share in the future they help to define.
Individual growth:
People want to add value to their business. They want to work for a company that will invest in their growth through training and development and career enhancement. They want feedback and coaching to help them chart what they must do to become increasingly valuable.
Positive workplace:
We hear a lot about becoming an “employer of preference” or a “best place to work.” This means a company that believes people count, provides them with a chance to be involved in the business, commits to and trusts them, and establishes open communications about what is going on and what they can do to make a difference. People also want excellent co-workers and leaders as well as interesting and desirable work.
Total pay:
Here, total pay is a component of total rewards—part of the solution but not all of it. It fits into the total package and addresses the economic aspects of total rewards.
Think about the companies in Collins and Porras’ book Built to Last—Motorola, Sony, Wal-Mart, GE, Nordstrom, 3M, Procter & Gamble, and some of those already mentioned. All of them know what they’re about and communicate this to their workforce. Whatever terms they use to describe their workplace, they comprise the components we have called total rewards.
But all of them put the pieces together differently. Some emphasize the compelling future—making the company worth workforce stakeholdership. Others are noted for their ability to provide their workforce with unusual developmental and career opportunities. Others maintain a very supportive and positive workplace. When a company is a bit short in one area, it can make up for it in one or more of the other reward components.
The power of total rewards is in taking the pressure off pay inflation in commodity pay and avoiding extremely high levels of total pay, if this is your strategy. Total rewards attract people who want “more than just pay” as part of a great place to work.