Reward next practices - Hay Group

Reward next practices A Study of Reward Leaders WorldatWork Conference - Philadelphia APRIL 29, 2013

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Presenters Tom McMullen Hay Group Chicago [email protected] +1.312.228.1848 and Dr. Dow Scott Loyola University Chicago [email protected] +1.312.915.6597

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About Hay Group Hay Group consults with 9,000 clients worldwide in a wide variety of areas, including: Organizational effectiveness Managerial and executive assessment Compensation and benefits Performance management Executive remuneration and corporate governance Employee and customer attitude research © 2013 Hay Group. All rights reserved

85

2600

9000

Offices in 48 countries

Employees worldwide

International clients 3

About Dow Scott

Dow Scott, Ph.D. is a 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. Dr. Scott’s consultation and research has focused upon:

    

Compensation and incentive pay

Attendance improvement Team and HR development Recruiting and staffing systems HR program evaluation

Performance Development International, LLC PDI is dedicated to helping our clients create a competitive advantage through people. We are committed to providing quality and personalized service. We support our clientele through:  Customized evaluations and assessments of specific HR strategies, policies and programs.  Development of “state of the art” customized HR programs and high performance organizations.  Employee involvement at all levels, thereby fostering commitment and accountability for results.  Linking HR programs to organizational performance.

© 2013 Hay Group. All rights reserved

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01 Background

Issues with reward practices today 

Strategy and design  Lack of robust reward strategies   



Little input from employees on reward strategy and design Extreme focus on benchmarking for many and little concern given to affordability of pay programs Reward components managed in isolation of each other

Implementation    

Performance management processes often weak The value and intent of “total rewards” not understood by employees Line managers are not well engaged in reward implementation Little done in terms of reward ROI assessment


6

C-suite concerns 

The current global economic environment has created a new landscape in how executives are thinking about reward program management.



Per a 2013 Conference Board Survey of CEO Challenges, human capital concerns rank #1.



Dominant C-suite reward-related themes (*) are:  Optimizing productivity and cost effectiveness  Improving employee engagement   

Development and retention of key talent Improving performance management processes Aligning human capital and reward systems to business strategy

(*) Note: via Hay Group research of various 2011-2013 studies © 2013 Hay Group. All rights reserved

7

Key research questions

How has the economic collapse and recovery changed reward strategies and programs? How effective are current reward strategies, programs and process? How will reward strategies, programs and processes change over the next 2-3 years?


8

Rewards examined from four perspectives

Characteristics of reward strategies Effectiveness of reward program design Implementation of reward programs Degree of reward program consistency


9

2013 Reward Next Practices Survey 

Invitations to complete the survey sent to a sample of WorldatWork members between Dec 2012 and Jan 2013



303 senior reward professionals completed the survey



Data analyzed using frequency distributions, ANOVA, T-tests and Duncan tests



Qualitative analysis used to analyze open-end responses



Structured interviews were conducted with several senior reward leaders to obtain further insight into the data



This study replicates a 2009 study


10

2013 participant demographics Ownership Organization Size

Industries


11

Representative participants


12

02 Characteristics of reward strategies and programs

Is reward a cost or an investment?

Our organization regularly measures the ROI on its reward investment 80%

60%

11% 40%

20%

48%

0%

% current focus

20%

40%

60%

80%

% greater focus in future

Why do we care? 

If pay is a cost, the obvious goal is to minimize it



If pay is an investment, the obvious goal is to optimize it


14

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


15

Core reward strategy objectives

Increased emphasis on motivational value of reward programs Is externally competitive

64%

Is internally fair

53%

75%

41%

Is motivational

39%

Rewards at a reasonable cost

67%

74%

80%

60%

47%

40%

20%

% current focus


0%

20%

40%

60%

80%


16

Reward program consistency Increased focus on consistency across rewards Market pricing processes

74%

44%

Job evaluation processes

47%

Base pay programs

56% 34%

Short term variable pay programs

32%

Long-term variable pay programs

38%

62% 80%

60%

61% 40%

20%

% current focus


42%

0%

20%

40%

60%

80%


17

Key reward linkages Future focus on links between reward programs and individual performance

Between reward programs and overall corporate performance

51%

Between reward programs and business unit/team performance

41%

Between reward programs and individual performance 80%

53%

49%

45%

60%

40%

57%

20%

% current focus


0%

20%

40%

60%

80%


18

Balanced performance

Timeframes Achieving short term objectives

66%

40%

Achieving long term objectives

25% 80%

40% % current focus


46% 0%

40%

80%


19

Balanced performance

Measure types Financial performance

66%

Customer satisfaction

39% 41%

39%

Human capital development

15%

A culture of innovation

21%

Employee engagement 80%

42%

32% 60%

40%

20%

% current focus


39%

56% 0%

20%

40%

60%

80%


20

Reward strategy trends

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


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03 Reward program design

Core compensation program effectiveness Across the board focus on increasing compensation effectiveness Base cash/wage programs

74%

44%

Short term variable pay programs

47%

Long term variable pay programs

56% 34%

Financial recognition programs

32%

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

38%

62% 80%

60%

61% 40%

20%

% current focus


42%

0%

20%

40%

60%

80%


23

Benefits program effectiveness Health and welfare program seen as highly effective Health and welfare benefits

72%

46%

Defined benefit retirement plans

46%

Defined contribution retirement plans

14%

59%

80%

60%

30%

40%

20%

% current focus


0%

20%

40%

60%

80%


24

Compensation process effectiveness Performance management primary focus in the future Market pricing processes

62%

Job leveling/grading processes

51%

Performance management processes 80%

50%

53%

41%

60%

40%

69%

20%

% current focus


0%

20%

40%

60%

80%


25

Non-financial reward program effectiveness Career development opportunities primary focus in the future Education & training programs

50%

Career/development opportunities

39%

Flexible work arrangements

32% 38%

43%

57%

Work-life balance

48% 48%

Meaningful job design 80%

63%

50%

Nonfinancial recognition Work climate/culture

54%

38% 37%

60%

40%

31% 20%

% current focus


0%

20%

40%

60%

80%


26

Reward design trends

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


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Engagement and enablement are key to effectiveness      

Clear & promising direction Confidence in leaders Quality & customer focus Respect & recognition Development opportunities Pay & benefits

Employee engagement 

Commitment



Discretionary effort

Productivity

Financial performance

Attraction and retention of talent

EMPLOYEE EFFECTIVENESS

Drivers

Customer loyalty

     

Performance management Authority & empowerment Resources Training Collaboration Work, structure, & process


Employee enablement 

Optimized roles



Supportive environment

Innovation

Enhanced corporate reputation

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04 Reward program implementation

Differentiation in pay

Pay differentiation not effective, with more emphasis in future

Salary increases between top and average performers

21%

Incentive payouts between top and average performers 80%

60%

30%

40%

20%

% current focus


50%

44%

0%

20%

40%

60%

80%


30

Differentiation in pay Difference in pay increases for TOP performers vs. average (all companies)

But Most Admireds find a way (Companies w/ a 2X differential)

80%

68% 40%

32% 0% We pay 1.5 times or less

We pay 2 times or more

Source: Hay Group, Dow Scott, Ph.D., Loyola University Chicago, WorldatWork

“

The A’s (the top 20%) should be getting raises that are two-to-three times the size given to the B’s. B’s should get solid increases recognizing their contributions every year. C’s (the bottom 10%) must get nothing Jack Welch, former Chairman & CEO, GE


”

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Reward program communications Reward communications is a challenge and substantive future focus Employees appreciate reward program consists of total rewards

30%

Leaders regularly sustain reward and performance communications

Employees are provided with individualized total reward statements 80%

60%

64%

21%

38%

40%

45%

20%

% current focus


62%

0%

20%

40%

60%

80%


32

Role of line managers Future focus for managers to effectively communicate total rewards

Managers effectively implement and communicate total rewards to employees

11%

Managers effectively manage overall payfor-performance relationship for employees

80%

60%

15%

40%

20%

% current focus


61%

57%

0%

20%

40%

60%

80%


33

Summary: reward implementation trends

FROM

TO

Reward program design

Reward program implementation

Consistent treatment in pay

Performance-based differentiation

HR-led implementation

Line manager-led implementation

Ad-hoc reward communications

Sustained senior leader messaging


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05 Impact on the reward professional

Key headlines from research

Managing Cost Base

  



Alignment

 

Pay for Performance

  



Total Rewards

 


Aligning total labor costs with revenues and profitability Multi-faceted cost reductions Eliminating low-perceived value programs Linkage with business and human capital strategy Appropriate consistency across organization Linkage with employee needs and wants The right metrics and right behaviors Differentiated performance and rewards Balance in measure types and timeframes Focus on intangibles and role in engagement Leveraging total rewards value proposition Leveraging managers and technology in implementation

36

Macro trend 

More holistic management of reward programs that are better aligned with business strategy, talent management strategy and organization performance

Guaranteed cash Intangible reward

Annual variable

Benefits Long term incentives


37

Impact on reward professionals

Doing more with less

As agenda becomes more strategic, reward professionals need to utilize limited resources to accomplish even more

Communications

Sustained communication of the entire reward package with reinforcement of key performance messages

Coaching line managers

More focus on coaching line managers on how to best communicate and implement rewards

Differentiating rewards

In coaching line managers, reward professionals need ensure top and poor performers’ rewards are appropriately differentiated

Non-financial rewards

Given it’s renewed focus, reward professionals must be creative in the non-financial reward space and how these are leveraged


38

Suggests increasing focus in certain areas

Business acumen

Awareness of business issues and opportunities and how they impact organization performance, human capital and reward programs

Consulting

Achieving results via influence and persuasion vs. formal organization authority

Total rewards

Better understanding employee needs and optimizing reward mix and leveraging motivational value of the suite of intangible rewards

HR Marketing

Increased use of marketing techniques in creating, deploying and sustain reward and performance “brand equity”


39

Questions