Reward next practices The future of reward programs >>
2 Reward next practices 2009 Hay Group. All rights reserved
1ContentsAbout the study 3 Key ndings 4Reward strategy 8Reward design 12Reward program implementation 15Impact on the reward professional 18Participant demographics 19
2 Reward next practicesIn early 2009, Hay Group and WorldatWork “conducted a study into reward next practices. The intention was to determine how reward program strategy, design and implementation would evolve over the next two to three years, particularly in light of rapidly changing business conditions. ” 2009 Hay Group. All rights reserved
3About the studyRespondents were asked to rate the current emphasis their organization places on di erent aspects of broad-based reward programs as well as whether they would increase, decrease or maintain their focus on these aspects of reward in the future. Respondents were asked to rate each or Hay Group clients. Typical organizations question relative to current focus on a participating were multi-national 1 to 5 scale (strongly disagree to strongly organizations of $1 billion in revenues and agree scale) and rate each question relative above, across a wide range of increased future focus on a 1 to 5 scale (much less focus to much greater focus). In addition to an online web-based e percentages reported for current focus survey, Hay Group and WorldatWork are the combined strongly agree and agree also conducted interviews with 30 percentages. e percentages reported for large, multi-national organizations to future focus are the combined future focus gain deeper insights regarding where and much greater future focus percentages. their organizations plan to place their Note that a key nding of the study is that reward program focus in the future. very few respondents reported a decreasing Data collected in the research includes focus on any of the questions. Combined organizational changes to base salary, scores of much less focus and less focus short-term and long-term incentive were less than six per cent in total for the programs, as well as changes to other vast majority of questions. is suggests reward-related programs (. bene ts that reward practitioners will be at least plans, sta ng and work rules programs maintaining if not increasing their current and training and development programs). emphasis across the areas surveyed. For more information on the study, A total of 763 organizations from 66 including additional details on results countries participated in the research. and implications for your organization, Respondents were mid-to-high level please contact your local Hay Group reward professionals who are WorldatWork o ce, or email members, registered users, rewardservices@.
4 Reward next practicesKey ndings – Reward Next PracticesWhile the focus of the research was on what reward practices would look like in two to three years, many corporate reward leaders were preoccupied with the challenges of the current economic climate and how their organizations were responding. As the economic downturn continues Respondents indicated that the main to deepen around the world, reward leaders concern for the next year will be to recognize that reward programs will likely manage employee expectations and experience an “evolution as opposed to maintain engagement, in the face of a revolution” over the next two to three constrained nancial rewards and the years. Reward leaders expect to see their threat of job rst getting themselves healthier, in terms of better aligning labor costs Balance and integration is crucialwith new realities, and then preparing for Based on our research, many future growth when the economy improves. organizations report moving from With many organizations undergoing external benchmarking of their reward restructuring, introducing job cuts and program design to a more holistic view freezing salaries, the priorities for the of reward program management. ey short to mid-term are:are also progressing towards a more ‘enterprise-wide’ approach to reward, Aligning labor costs with economic realities Aligning rewards with business strategy incorporating all reward elements and business units. Furthermore, these and performance metrics Engaging sta worganizations are concentrating on ith limited nancial linking their reward programs to business rewardsstrategy, talent management strategy Leveraging corporate scale, philosophies, processes, and organizational performance. 2009 Hay Group. All rights reserved
5Organizations are reportedly placing As part of this balanced approach, increased emphasis on strategic alignment organizations are better aligning the of reward programs and rationalizing them needs of their employees with the internally. While external benchmarking needs of the still be important, organizations are seeking a better balance between external competitiveness and internal equity. Our plan is to retain a very strong pay for performance philosophy. Should “ our business performance weaken, we would fully expect our bonuses to go down and potentially zero awards if the performance warrants this. In this way, we can retain some of the important aspects of our employment value proposition that di erentiate McDonald’s, such as a strong retirement savings and health care plan, sabbatical and training and development programs.” McDonald’sWe are looking for our reward systems to transcend the cycles that the “ economy may have. We need and value a well balanced approach.” DeereWe are not going to cut pay to save jobs; we can save money in other ways. “ We are viewing this as an opportunity to make changes. Now that we have a burning platform, it could be a little easier.” Large consumer goods organizationEven in the current market, there is still a war for talent. This is also a huge “ opportunity for HR to step forward. Volatility creates opportunity and now is the time for leaders in our eld to de ne reality and provide hope.” Large industrial organization
6 Reward next practicesUnderstanding employee needs is becoming Not only look at target amounts, more signi cant as organizations seek to but ensure that the right performance keep employees engaged and energized metrics are in placeabout the future. Implementation and Concentrate on achieving the communication will be key in achieving appropriate balance between a balanced approach. Additionally, there short-term and long-term measuresmust be an enhanced focus on the total value of the reward package, rather than Aim for balance between the types of measures (. nancial, customer, the individual elements. operational and human capital)A critical component for the future of Align employee actions and behaviors reward programs will be better aligning pay with long-term strategic goals and and performance. Organizations are now the measures that drive nancial concentrating on the design and management performance. of their short and long-term variable pay programs. It is paramount that in future they:Employee involvement in reward program design:We do employee surveys every two years and make action plans based “ upon the survey results. One key nding is that we need to do a better job at communicating the total value of reward to our employees. ”HeinekenThe real power is when you actually start talking with your employees. We “ design our reward programs, invest in new programs, and beef up current programs based upon the feedback we receive from our employees.”McDonald’s 2009 Hay Group. All rights reserved
7Figure 1: Total rewards frameworkTotal reward framework eedsofn t heeh tc oerma ptaanhy?Wrewl aatrodTAlignmentReturn on investmentGuaranteedcashIntangibleAnnualrewardvariableLong termBenefitsincentivesChangeEngagementTodtramanagementl rewaW?eheayt oalrpem teh ee nhet eds ofWe are striving to nd the right balance between employee motivation, “ cost control, and market competitiveness in our reward programs.” Amway Internationalness straitseugyBple stratoeegyPal rewtaordTtegtrasyResultsnemetaltpiomnI
8 Reward next practicesReward strategyAs part of this increased emphasis on a more balanced and integrated approach to total reward program management, organizations are developing more consistency in reward strategy and design across employee 2: Core reward strategy objectivesIs externally68%50%competitiveIs internally fair73%44%Is motivational48%64%Rewards at a76%53%reasonable cost80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureThe imFpinoanrctialnce of consistency71%50%performanceWe have great consistency in reward programs at the executive level. We’ll Customer“ 41%44%be placing more emphasis on consistency of approach below the executive satisfactionlevel so as to better enable achievement of corporate programs and the Human capital29%48%ddeevelolopmpemntent of talent to the executive level. This will also better support the achievement of more of a performance culture. A culture of25%44%”innovationAkzoNobelEmployee40%57%engagementSome of our reward programs are di erent around the world. We will try to “ harmonize where it makes sense, while respecting local/business di erences 80%60%40%20%0%20%40%60%80%% current focus% greater focus in futurein strategy and implementation.”Sara LeeThere will be a greater focus on achieving global consistency on our reward “ programs and greater focus on governance.”Achieving short-termScotiabank78%39%objectivesAchieving long-term31%50%objectives80%60%40%20%0%20%40%60%80%% current focus% greater focus in future 2009 Hay Group. All rights reserved Our organization regularly20%57%measures the return onits total reward investment80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureBase cash/72%38%wage programsShort-term variable63%55%pay programsLong-term variable42%47%pay programsFinancial recognition35%36%programs80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureMarket pricing61%42%processesJob leveling/58%49%grading processesPerformance management55%67%processesLine managers e ectively manage24%67%the overall pay for performancerelationship for employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEducation and54%50%training programsCareer/development48%60%opportunitiesFlexible work48%40%arrangementsNon- nancial40%52%recognitionWork climate/57%53%cultureWork-life48%44%balance80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureSigni cant variation in salaryincreases between top and38%50%average performersSigni cant variation in48%52%incentive payouts betweentop and average performers80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEmployees appreciate reward35%63%program consists of total rewardsLeaders regularly sustain reward 33%64%and performance communicationsEmployees are provided with35%48%individualized total reward statementsManagers e ectively communicate15%67%total rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in future
9Greater importance will be placed on the Financial performance is still king, motivational value of reward, managing but other measures are gaining steamtotal remuneration more holistically, Given the current economy, it is no Is externllyand viewing reward as an investment as 68%50%surprise that organizations currently competitiveopposed to a a strong focus on nancial performance and will continue to do Is internally fair73%44%Increased emphasis on so. However, an increased number of employee motivationorganizations will be considering more Is motivational48%64%When compensation budgets are tight, balanced and integrated measures in maintaining an engaged workforce is more the future, with a strong emphasis on Rewards at achallenging than ever. Financial rewards are 76%employee engagement. Forty p5e3r% cent reasonable costlimited and organizations are required to of organizations indicated they currently seek new, creative ways to keep employees focus on employee engagement measures, 80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureengaged and motivated. In light of this, while fty seven per cent reported they many organizations will be looking at the would pay more attention to this in motivational value of reward programs the future. Human capital development relative to other core program objectives, and innovation will also rate more highly Financialsuch as external competitiveness and in the coming years (see Figure 3).71%50%Is externallyperformance68%50%internal fairness (see Figure 2).competitiveCustomer41%44%satisfactionIs internally fair73%44%Human capital29%48%developmentIs motivational48%A culture of64%25%44%innovationEmployeeRewards at a40%57%76%53%engagementreasonable cost80%60%40%20%0%20%40%60%80%80%60%40%20%0%20%40%60%80%% current focus% greater focus in future% current focus% greater focus in futureFigure 3: Performance measure typesFigure 4: Performance timeframesFinancial71%50%Achieving short-termperformance78%39%objectivesCustomer41%44%Achieving long-termsatisfaction31%50%objectivesHuman capital29%48%development80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureA culture of25%44%innovationEmployee40%57%engagement80%60%40%20%0%20%40%60%80%Our organization regularly20%57%% current focus% greater focus in futuremeasures the return onits total reward investment80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureAchieving short-term78%39%objectivesAchieving long-tBase cash/erm31%50%72%38%wage programsobjectives80%60%40%20%0%20%40%60%80%Short-term variable% curren63%55%t focus% greater focus in futurepay programsLong-term variable42%47%pay programsFinancial recognitionOur organization regularly35%36%20%57%programsmeasures the return onits total reward investment80%60%40%20%0%20%40%60%80%80%60%40%20%0%20%40%60%80%% current focus% greater focus in future% current focus% greater focus in futureMarket pricingBase cash/61%42%processes72%38%wage programsJob leveling/Short-term variable58%49%grading processes63%55%pay programsPerformance managementLong-term variable55%67%processes42%47%pay programsLine managers e ectively manageFinancial recognition24%67%the overall pay for performance35%36%programsrelationship for employees80%60%40%20%0%20%40%60%80%80%60%40%20%0%20%40%60%80%% current focus% greater focus in future% current focus% greater focus in futureMarket pricingEducation and61%42%54%50%processestraining programsCareer/development48%60%opportunitiesJob leveling/58%49%grading processesFlexible work48%40%arrangementsPerformance managementNon- nancial40%52%55%67%recognitionprocessesWork climate/57%53%Line managers e ectively manageculture24%67%the overall pay for performanceWork-life48%44%relationship for employeesbalance80%60%40%20%0%20%40%60%80%80%60%40%20%0%20%40%60%80%% current focus% greater focus in future% current focus% greater focus in futureEducation and54%50%training programsCareer/development48%60%opportunitiesFlexible work48%40%arrangementsSigni cant variation in salaryincreases between top and38%Non- nancial50%40%52%average performersrecognitionSigni cant variation inWork climate/57%53%48%52%incentive payouts betweenculturetop and average performersWork-life48%44%balance80%60%40%20%0%20%40%60%80%% current focus% greater focus in future80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEmployees appreciate reward35%63%program consists of total rewardsSigni cant variation in salaryLeaders regularly sustain reward increases between top and33%64%38%50%and performance communicationsaverage performersSigni cant variation in48%52%incentive payouts betwEmployees are provided witheen35%48%top and average performersindividualized total reward statements80%60%40%20%0%20%40%60%80%Managers e ectively communicate% current focus% greater focus in future15%67%total rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEmployees appreciate reward35%63%program consists of total rewardsLeaders regularly sustain reward 33%64%and performance communicationsEmployees are provided with35%48%individualized total reward statementsManagers e ectively communicate15%67%total rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in future
10 Reward next practices ere is currently a tendency to concentrate A big di erence between the organizations on short-term objectives - again given the that measure the ROI of reward and those economic situation this is not unusual. who don’t is likely a function of how However, in the future there is likely to reward programs are viewed – that is, be a substantial shift towards long-term whether rewards are viewed as a cost or objectives (see Figure 4). e nancial as an investment. If organizations view industry in particular has received pay as a cost, the goal is to keep it down. considerable media coverage due to its If pay is viewed as an investment, the perceived focus on short-term objectives goal is to leverage its value. e to the detriment of long-term , its managers, and its HR function are likely to behave quite di erently depending on their becoming more importantAs more organizations review and rede ne When pay is viewed as a cost, there is an their reward strategy, consistency is ultra-focus on managing pay levels and becoming more important. Organizations pay designs against external benchmarks that have a broad range of business and is in e ect a “follow the herd units or a wide geographic footprint are mentality.” External benchmarking is implementing strategies and programs that one of the primary determinants of the can be consistently applied across all areas nature of the reward program as Figure 6 of the organization. However, this does illustrates. Reward is more of a reaction not mean they are utilizing a “one size ts to outside in uences, rather than an all” approach. Local nuances and di ering internally derived, strategic way to improve employee demographics are not being organizational . Where needed the strategy is exed and adapted to meet the needs However, when pay is seen as an of the organization and its , the view of rewards is much broader and longer-term. Is pay a cost or an investment?Organizations with this viewpoint are also more likely to e ectively leverage is research, as well as our previous the power of the managers in research, shows that the majority of communicating and implementing organizations do not evaluate the return on reward programs as well as to measure investment (ROI) of their reward programs. the ROI of their reward programs. Of the twenty per cent of organizations currently focusing on ROI, many do not have rigorous processes in place and/or don’t regularly measure ROI (see Figure 5). 2009 Hay Group. All rights reserved
Is externally68%50%competitiveIs internally fair73%44%Is motivational48%64%Rewards at a76%53%reasonable cost80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFinancial71%50%performanceCustomer41%44%satisfactionHuman capital29%48%developmentA culture of25%44%innovationEmployee40%57%engagement80%60%40%20%0%20%40%60%80%% current focus% greater focus in future11Achieving short-term78%39%objectivesAchieving long-term31%50%objectives 80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFigure 5: Return on reward investmentOur organization regularly20%57%measures the return onits total reward investment80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFigure 6: External benchmarking drives compensation budgetingBase cash/72%38%wage programsDeterminants of base salary budgetPrevalenceImportanceWhat other rms doShort-term variableHighHigh63%55%pay programsOrganizations ability to payMediumMediumLong-term variable42%47%Desired competitive labor market positionMediumMediumpay programsOrganizations performanceMediumMediumFinancial recognition35%36%programsEmployee turnoverLowLowEmployee morale/satisfactionLowLow80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureMarket pricing61%42%processesJob leveling/58%49%grading processesPerformance managementOrganizations with an ROI focus tend to Organizations seem to realize the 55%67%processesdirect more attention to aligning:value of taking a stronger ROI focus Line managers e ectively managein the future (see Figure 5). As such, 24%67%the overall pay for performance Reward strategy and business strategyorganizations will be well served relationship for employees Employees’ interests with the to take a more holistic approach 80%60%40%20%0%20%40%60%80%organization’s interestsin measuring ROI – measuring % current focus% greater focus in future Reward programs with other human the perceptions and behaviors of their capital management processesemployees in addition to the operational Pay and nancial results achieved. Education and54%50%training programsCareer/development48%60%opportunitiesFlexible work48%40%arrangementsNon- nancial40%52%recognitionWork climate/57%53%cultureWork-life48%44%balance80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureSigni cant variation in salaryincreases between top and38%50%average performersSigni cant variation in48%52%incentive payouts betweentop and average performers80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEmployees appreciate reward35%63%program consists of total rewardsLeaders regularly sustain reward 33%64%and performance communicationsEmployees are provided with35%48%individualized total reward statementsManagers e ectively communicate15%67%total rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in future
12 Reward next practicesReward designAs organizations revamp their reward strategy and pay for performance processes, there will be a greater emphasis on short and long-term variable pay programs, paying for contributions, and intangible rewards. Figure 7 illustrates the shift to short and to e ectively implement reward and long-term variable pay programs, with performance management programs increased emphasis in better aligning these (see Figure 8). programs with the business strategy as well as performance metrics. In addition, Intangible rewardsmany organizations are more e ectively e payback in investing time with line communicating these programs and managers should be sizeable as managers ensuring that pay for performance design often have the most in uence over the mechanics are of rewards the organization provides, particularly the non- nancial (or intangible) Fixing the foundationrewards. Often, it’s these intangible rewards erthat drive the organization’s “employer e are several “core” foundational processes that support reward programs. of choice” platform and are the primary ese include market pricing, job leveling, vehicles in attracting and retaining talent. perIn this context, managers play a signi cant formance management, and supporting line managers to manage the overall role in creating the work climate of an pay for performance relationship for organization and in creating development and career growth opportunities for employees. Perhaps not surprisingly, there We ensure that the objectives “ employees. Moreover, the immediate is currently substantial focus on market in our STI program are pricing and job leveling processes. ersupervisor is often the lead in uencer in the e is broad, simple, quanti able, admittedly not as much attention wheremployee’s satisfaction with the organization. e it measurable and accurately Hay Group’s retention studies over the years is needed the most – helping line managers re ect the key fundamentals have found that when it comes to voluntary e ectively manage the pay for performance of our business. ”employee turnover, people tend to leave relationship. In the future, organizations Heinekenwill incrbad bosses rather than bad be helping line managers 2009 Hay Group. All rights reserved
Is externally68%50%competitiveIs externallyIs externally685068%50%copetitivecompetitiveIs internally fair73%44%Is internally fair7344Is internally fair73%44%Is motivational48%64%Is otivational4864Is motivational48%64%Rewards at a76%53%reasonable costReards at aRewards at a765376%53%reasonable costreasonable cost80%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureFinancial71%50%performanceFinancialFinancial715071%50%perforanceperCfoursmtoamnceer41%44%satisfactionCustoerCustomer414441%44%satisfactionHumsaatnis fcaacptitoanl29%48%developmentHuan capitalHuman capital294829%48%developentdeAv ceuloltpumree onft25%44%innovationA culture ofA culture of254425%44%innovationinEnmopvlaotyioeen40%57%engagementEployeeEmployee405740%57%engageentengagement80%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureAchieving short-term78%39%objectivesAchieving short-terAchieving short-term783978%39%objectivesAchieving olobnjgec-teivrems31%50%objectivesAchieving long-terAchieving long-term315031%50%objectivesobjectives80%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in future13Our organization regularly20%57%measures the return onur organization regularlyiOtsu tro otargl raenwizaartdio inv resgtumlaernlyt205720%57%easures the return onmeasures the return on80%60%40%20%0%20%40%60%80%its total reard investentits total reward investment% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureFigure 7: Stronger emphasis on variable payBase cash/72%38%wage programsBase cash/Base cash/723872%38%age prograswage programsShort-term variable63%55%pay programsShort-ter variableShort-term variable635563%55%pay prograspay programsLong-term variable42%47%pay programsLong-ter variableLong-term variable424742%47%pay prograspay programsFinancial recognition35%36%programsFinancial recognitionFinancial recognition353635%36%prograsprograms80%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureFigure 8: Substantial increase in managing pay for performance programsMarket pricing61%42%processesarket pricingMarket pricing614261%42%processesprocessesJob leveling/58%49%grading processesJob leveling/Job leveling/584958%49%grading processesgrading processesPerformance management55%67%processesPerforance anageentPerformance management556755%67%processesprocessesLine managers e ectively manage24%67%the overall pay for performanceLine anagers e ectively anageLine marnealagteiorsn seh iepc ftoivre elmy mplaonyaegees2467the overall pay for perforance24%67%the overall pay for performancerelationship for eployeesrelationship for employee8s0%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureFigure 9: Intangible rewardsEducation and54%50%training programsEducation andEducation and5450Career/development54%50%training prograstraining programs48%60%opportunitiesCareer/developentCareer/development4860F48%60%lexible workopportunitiesopportunities48%40%arrangementsFlexible orkFlexible work4840Non- nancial48%40%arrangeentsarrangements40%52%recognitionon- nancialNon- nancial4052W40%52%ork climate/recognitionrecognition57%53%cultureork cliate/Work climate/5753W57%53%ork-lifecultureculture48%44%balanceork-lifeWork-life484448%44%balancebalance80%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureSigni cant variation in salaryincreases between top and38%50%Signi canatv veararigaeti opne rifno srmalaerysSigni cant variation in salaryincreases beteen top andincreases between top and385038%50%Signi cant variation inaverge perforersaverage performers48%52%incentive payouts betweentop anSdig anvie rcagnet vpaerifaotriomne irnsSigni cant variation in4852incentive payouts beteen48%52%incentive payouts betweentop and average perforers80%60%40%20%0%20%40%60%80%top and average performers% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in futureEmployees appreciate reward35%63%program consists of total rewardsEployees appreciate reardEmployees appreciate reward356335%63%progra consists of total reardsprogram consists of total rewardsLeaders regularly sustain reward 33%64%and performance communicationsLeaders regularly sustain reard Leaders regularly sustain reward 336433%64%and perforance counicationsand performance communicationsEmployees are provided with35%48%individualized total reward statementsEployees are provided ithEmployees are provided with354835%48%individualized total reard stateentsindividualized total reward statementsManagers e ectively communicate15%67%total rewards to employeesanagers e ectively counicateManagers e ectively communicate156715%67%total reards to eployeestotal rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in future8060402002040608080%60%40%20%0%20%40%60%80% current focus greater focus in future% current focus% greater focus in future
14 Reward next practicesIntangible rewards are a key motivator and do not cite pay as the primary reason for driver of employee engagement. Intangible leaving a job. Organizations are recognizing rewards are often a big miss for organizations as this, especially in light of limited nancial they don’t consider the impact of work climate, resources, and are increasing their focus on career opportunities, non- nancial recognition, intangible rewards to improve employee the quality of the work itself and other retention and engagement. Career/intangibles as key retention vehicles. Often, development opportunities (sixty per cent the HR function may not “own” these future focus) and non- nancial recognition intangible reward programs, and in many ( fty two per cent future focus) are the two organizations – no one owns them. Research areas where organizations report placing the has shown that the majority of employees most incremental future focus (see Figure 9).Intangibles: a key component of the reward packageWe’ll provide much more focus on non-monetary forms of rewards “ and recognition. ”Collective BrandsWe’ll have much more focus on a variety of non nancial rewards.“ ”Ericsson Network Services, is one of those things that is free but worth a fortune.“ ”Large industrial organizationWe continue to stress the importance of intangible rewards as well as “ tangible ones and we will strive to have quality training and development processes to promote individual growth and team results.”Rock Bottom RestaurantsWe are going to continue to look for non-cash rewards that are meaningful “ to our employees and will drive the behaviors we are looking for.”Dave & Buster’s 2009 Hay Group. All rights reserved
Is externally68%50%competitiveIs internally fair73%44%Is motivational48%64%Rewards at a76%53%reasonable cost80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFinancial71%50%performanceCustomer41%44%satisfactionHuman capital29%48%developmentA culture of25%44%innovationEmployee40%57%engagement80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureAchieving short-term78%39%objectivesAchieving long-term31%50%objectives80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureOur organization regularly20%57%measures the return onits total reward investment80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureBase cash/72%38%wage programsShort-term variable63%55%pay programs15Long-term variable42%47%pay programsFinancial recognition35%36%programs80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureReward program implementationMarket pricing61%42%processesWhJob leveling/ile relatively incremental shifts are being taken in reward program 58%49%grading processesstrategy and design, there are signi cant changes in how organizations Performance managementwill be approaching reward program implementation in the future. 55%67%processesLine managers e ectively manage24%67%the overall pay for performance e increased focus on employee in the future as organizations seek relationship for employeesengagement and likely constrained nancial a stronger linkage between pay and 80%60%40%20%0%20%40%60%80%resources make reward implementation performance. is is important as % current focus% greater focus in futureand communication more important than the return on investment in reward ever. Organizations are recognizing the can be improved via greater di erentiation need to ensure that employees more fully in pay. However, for this to e ectively understand and value their entire reward happen, performance linkages must program and are motivated to achieve the be clear and managers need to be Education and54%50%training programsperformance the organization trained and prepared to make Career/developmenttough calls on how rewards are to be 48%60%opportunitiesDi erentiationdistributed as well as to increasingly Flexible work48%40%arragementssee merit and incentive funds as Di erentiation in the rewards for top Non- nancialinvestments rather than will become more important 40%52%recognitionWork climate/57%53%cultureWork-life48%44%balance80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFigure 10: Greater focus on pay di erentiationSigni cant variation in salaryincreases between top and38%50%average performersSigni cant variation in48%52%incentive payouts betweentop and average performers80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEmployees appreciate reward35%63%program consists of total rewardsLeaders regularly sustain reward 33%64%and performance communicationsEmployees are provided with35%48%individualized total reward statementsManagers e ectively communicate15%67%total rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in future
16 Reward next practicesCommunicate, communicatefunction. Our research shows that ,communicatemany organizations are expecting line managers and senior leadership to take e area of reward communications sees greater ownership in communication the biggest shift in current versus future and implementation of rewards. is focus. Sustained communication from is the single largest gap between current management and senior leadership and future focus in our study and it will help establish and reinforce the represents a fundamental shift for many organization’s reward strategy, help organizations. HR must be prepared employees understand the value and to take the lead in assisting managers intent of their reward packages and and leadership in learning to e ectively enable organizations to more e ectively communicate rewards. Additional “put its mouth where its money is.”training, tools, and one-on-one assistance in this process will help managers to Currently, the onus of communicating better communicate rewards and rewards is largely placed on the HR e ectively manage performance. Increased focus on communication:Implementation e ectiveness begins with senior leadership compensation “ rst followed by changes in eld compensation. Executives need to model the behavior change before it is accepted by others. ”Medco Health SolutionsWe work hard to communicate total rewards. This is a big emphasis for us. “ We tie total rewards into all communications.”Dow ChemicalWe will be placing much greater focus on communicating the value of total “ rewards.”ScotiabankWe will be generating more analytics in assessing the value of our programs, “ then coaching business leadership on more e ective program design and value communication to employees.”Westinghouse Electric will be greater attention to aligning plans with enterprise strategies. “ More emphasis on customer service balanced with business pro t/ nancials.”Nationwide Insurance Co. 2009 Hay Group. All rights reserved
Is externally68%50%competitiveIs internally fair73%44%Is motivational48%64%Rewards at a76%53%reasonable cost80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFinancial71%50%performanceCustomer41%44%satisfactionHuman capital29%48%developmentA culture of25%44%innovationEmployee40%57%engagement80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureAchieving short-term78%39%objectivesAchieving long-term31%50%objectives80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureOur organization regularly20%57%measures the return onits total reward investment80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureBase cash/72%38%wage programsShort-term variable63%55%pay programsLong-term variable42%47%pay programsFinancial recognition35%36%programs80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureMarket pricing61%42%processesJob leveling/58%49%grading processesPerformance management55%67%processesLine managers e ectively manage24%67%the overall pay for performancerelationship for employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureEducation and54%50%training programsCareer/development48%60%opportunitiesFlexible work48%40%arrangementsNon- nancial40%52%recognitionWork climate/57%53%cultureWork-life48%44%balance80%60%40%20%0%20%40%60%80%% current focus% greater focus in future17Signi cant variation in salaryincreases between top and38%50%average performersSigni cant variation in48%52%incentive payouts betweentop and average performers80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureFigure 11: Reward communicationsEmployees appreciate reward35%63%program consists of total rewardsLeaders regularly sustain reward 33%64%and performance communicationsEmployees are provided with35%48%individualized total reward statementsManagers e ectively communicate15%67%total rewards to employees80%60%40%20%0%20%40%60%80%% current focus% greater focus in futureLine manager role in communicationOne of our key priorities is to provide increased manager training on “ understanding and communicating reward programs and reward program results. ”Sun Life FinancialOur total reward communication will be improved by senior and line “ management focusing on shaping and delivering consistent messages.”Xerox Magyarország We will be focusing on achieving higher levels of employee and management “ communication in a more transparent manner.”Saudi AramcoWe need better support for managers to be able to better explain the reward “ programs and how they link to individual and company performance.”Microsoft
18 Reward next practicesImpact on the reward professionalOur research suggests that there will be set of behaviors and competencies required changes to the role of reward professionals to do the job. In recent Hay Group research in the next two to three 40 US reward professionals, the following ve competencies were identi ed Doing more with less: as budgets get smaller, as being integral to the future evolution of reward professionals need to utilize limited the to accomplish even thinking: ability to identify Communications: sustained patterns or connections between situations communication of the entire reward that are not obviously related, and to package with reinforcement of key identify underlying issues in complex performance messages will be . It includes using creative or Educating and coaching line managers: inductive reasoning. line managers play a critical role in Impact and in uence: intention to communicating reward and performance. persuade, convince or in uence in order to HR must coach and educate line managers have a speci c impact. It includes the ability on how to best communicate this to their to anticipate and respond to the needs and of others. Di erentiating rewards: in coaching Change management: helping the line managers, reward professionals organization understand what the change need to make sure top performers are means to them and providing the ongoing being rewarded appropriately and poor guidance and support that will maintain performers are getting the “tough love” enthusiasm and commitment to the change they . Intangible rewards: these will play a Listening and understanding: ability to bigger role in attracting and retaining accurately listen and understand, and then talent. Reward professionals must be respond appropriately when interacting creative in the intangible space and with individuals and this is communicated. Integrity: acting in a way that is consistent with what one says is important, that is, one’s Shifts in required competenciesbehaviors are consistent with one’s values As the role and accountabilities of the (. values from business, society, or personal reward professional changes, so too does the moral codes). 2009 Hay Group. All rights reserved
19Participant demographics Participants represent a broad cross section of industries, countries, and company size. South America 7 63 organizations; 66 countries; 6 continents1% 5 9 per cent of respondents have more than 5,000 employees 8 1 per cent are publicly traded or privately owned 37 per cent operate in more than 20 countriesAsia Paci c22% 1 5 per cent of respondents are Fortune Most Admired CompaniesNorth AmericaIndustry% of 52%respondentsEMEA25%Finance services14%High technology9%Services8%Healthcare7%Fast moving consumer goods7%Retail7%Industrial goods6%Chemicals5%Pharmaceuticals5%Transportation5%Communications, media and technology5%Oil and gas5%Public sector4%Consumer durables4%Restaurant, leisure and hospitality3%Utilities2%Construction2%Basic resources (. mining)2%Education2%
20 Reward next practicesAuthorTom McMullentom_mcmullen@ 2009 Hay Group. All rights reserved
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