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TOTALREWARDS.docxSTEP 1: ANALYZE AND ASSESS The first activity involved in developing a total rewards program is to get a clear understanding of the existing situation. This involves defining the current state, inventorying current rewards, assessing the current total rewards mix in terms of both people and dollars, and listening to what current and potential employees regard as important. Collectively, this data provides critical clues that will help identify the type of rewards that best suit an organization and how to use a total rewards program to full competitive advantage. Why Conduct an Assessment? While a natural reaction is to jump in and get started, it is important to systematically create a total rewards program that supports an organization’s current and emerging business strategy. Why conduct an assessment? Avoid incomplete information. Moving too rapidly, forming assumptions too quickly, or shortchanging the process could be dangerous. Succumbing to temptations without sufficient time and effort could result in a total rewards program with limited or no long-term business strategy. Substantiate your position. An assessment provides the reasons why a total rewards program should be implemented and provides a framework for building a total rewards program. Increase credibility with management. Backup data provide the ammunition needed to sell the total rewards program. Assessments also are useful when making changes or introducing new programs because they provide a starting point for comparing the evaluation phase of the process. Improvements can be documented. Assure compliance with the law. Certain laws require recordkeeping and statistical analysis in defense of charges against the company. It is important to not lose sight of this as decisions are made about a total rewards program. How to Conduct an Assessment An assessment provides a reality check about an organization’s current practices and values. It forces organizations to think about “what is” and “what should be.” The gap defines the elements to be addressed in the actual design phase of the project. So how is an assessment conducted? Essentially, an assessment requires the effective collection, organization, and analysis of data. What exists needs to be documented. Glean readily available internal and external data. Internal Data. Employee demographics (age, gender, ethnicity, geographic location, lifestyle), employee opinion surveys, performance objectives, salary structures, benefit options, employee contributions. External Data. Government statistics (Bureau of Labor Statistics, Chamber of Commerce), salary survey data, cost-of-living data, employment data from competitors, industry surveys, vendor reports from outsourced functions, court case law, data from professional associations. Benchmark the organization’s strategies, policies, and practices against top-performing companies. This will help gain a more in-depth understanding of how specific reward elements are used and integrated, and will provide a picture of how successful organizations use reward elements to support key values, changes, and results. For example, Fortune magazine conducts an annual survey identifying the “100 Best Companies to Work For” in America. Using benchmark information from these organizations may provide data to assist in attraction, motivation, and retention issues. Collect additional data, both formal and informal. Questions can be posed to senior management via individual interviews. Input from line managers can be gathered using focus groups or through conversations with various key leaders, depending on the organization’s size and complexity. Information from employees can be obtained through focus groups, opinion surveys, or other questionnaires. It is helpful to ask what management most wants employees to know, do, and care about. That is what the rewards system should reinforce. It is helpful to ask employees what they value and how they perceive their current rewards package. Sample questions could include: What is the level of employee satisfaction with pay and benefits? What makes employees satisfied in their jobs? Do employees plan to stay with the company? If not, when do they plan to leave? What factors are influencing their decisions to stay or go? Synthesize business data from various sources into an accurate and thematic summary. Is the company perceived to be a high, moderate, or low paying employer? Are employees generally satisfied with pay levels? Is there a strong nonmonetary recognition and rewards practice in place? To what extent is the current focus understood and valued by employees? Is there a statement of the desired culture regarding employee involvement? Assess your current practice in light of the goal to create a total rewards program. What are the critical aspects of culture that should be reinforced by the total rewards structure/strategy? What values should total rewards reinforce? Would employees be receptive to a total rewards approach? What factors could limit success? Define improvement opportunities and goals. The analysis should conclude with relevant implications and specific recommendations for change, including future intentions and needs wherever possible. What to Consider in an Assessment After learning the lay of the land, look at several other considerations that could significantly impact the total rewards program. Organizational Culture. Understand the challenges facing the organization. What are the company’s internal and external strengths, weaknesses, opportunities, and threats? Does your organization have a bureaucratic or highly entrepreneurial leadership style? Is management directive or participative? Is the company viewed as a great place to work? Does the organization have the talent it needs to be successful in the future? Does it have the leadership strength to be successful? Does the company create an engaging environment for employees? Role of Human Resources. Look closely at how HR is viewed in the organization. Is it perceived as: A business partner? An enabler to attracting and retaining top talent? Providing effective support systems to employees? Efficient and effective with regard to processes and transactions? Helping meet the needs of external customers? Being supported by company leadership to create an environment that encourages integration and shared vision? Improving efficiency through the use of technology? A propagator of competitive plans and programs? Cost-effective? Employer Needs. Know from the outset what the company wants to accomplish and how a total rewards program will get you there. For example, is the organization moving from a domestic to a global business? From manual to automated production? From a knowledge- to technology-based company? Process map the organization’s way of doing business. Each company is in a different stage of development, and each has different needs and resources. Also, consider whether current employees’ competencies and skills mesh with current and future organizational needs. HR professionals need to balance the current state with the desired state. Employer desires could include: Improve recruitment. Retain and motivate. Manage cost effectively. Increase competencies. Improve organizational performance. Support organizational change. Align behaviors with business strategy. Employee Needs. Determine why people join and remain with the organization. Retention plans fail when they are too complicated or the rewards are not meaningful to the intended group. Investigate what people value, what they enjoy, and what gets them excited. Explore employees’ “motivational buttons” and learn how to push them. Employee wants and needs could include: Stock options or opportunities. More competitive salary. Positive work environment. Lower health care costs. Rewards and recognition. Increased flexibility. Career opportunities. Budgetary Concerns. Conduct a cost analysis to examine the company’s current investment in total rewards programs. Can costs be eliminated or combined? What did it cost other organizations to implement total rewards programs? Are benchmark data on total rewards available from other companies in the industry, or does a benchmark investigation need to be conducted? Administrative Process. Consider the current process for administering rewards programs. What kind of structure is in place to support a total rewards program? What changes might have to be made? A program that is too complex or labor-intensive may threaten success. Likewise, a program could be destined for failure if the proper resources are not available to successfully maintain the plan. Are the financial and human resources available to administer the program? If not, are they obtainable? Readiness for Change. Finally, assess the organization’s readiness to implement a new total rewards program. Timing is everything. Does the capability or capacity for change exist? Would the proposed program align with organizational and cultural shifts? Is a paradigm shift required? Are managers, who may be asked to increase their involvement in a given process, willing and able to make the adjustment? Know the odds of creating a winning program before venturing out the starting gate. Can the organization afford not to consider a total rewards approach?
STEP 2: DESIGN A design process starts with the corporate mission, vision, and business strategy. The HR philosophy flows from this and serves as a guiding light in the design of all HR programs. Total rewards philosophy and strategy are incorporated within the HR philosophy and strategy. From this, strategies and practices/programs are developed within the five facets of total rewards. Establishing a total rewards strategy helps ensure that rewards become a strategic driving force in the accomplishment of organizational goals. It also helps to align the rewards system with the organization’s culture and change efforts. Define the Corporate Mission and Vision The corporate mission is an organization’s reason for existence or purpose for being. Some conglomerates have more than one mission to reflect different missions for different industry sectors. Knowing “what business you are really in” is key to an organization’s survival and growth. For example, railroads stopped growing because they defined themselves in the train business instead of in the transportation business. To create success, an organization needs to define itself in terms of the market and the customer, rather than the products or services it offers. The corporate vision delineates the organization’s aspirations and goals. While the mission concentrates on what the organization needs to do in the immediate future for growth and success, the vision provides a blueprint for the organization’s long-term viability. It’s how you see the organization 3, 5, even 10 years from now. The corporate vision keeps you on course as you make decisions and plans that affect the company’s future. Define the Business Strategy Business strategy is a company’s plan for competitively positioning its products or services with the intent to accomplish or support corporate mission and vision goals. Business strategy drives HR philosophy and total rewards design. Business strategy elements include: Pricing. Quality. Product innovation. Service excellence. Market responsiveness. Required rate of return. Cost structure. Target market. Marketing and sales. Production. Finance. Product design. Differentiation from competitors. Distribution. Define the HR Philosophy and Strategy The HR philosophy consists of management’s values and beliefs about its approach to the employee relationship. Both HR philosophy and business strategy are key components to the development of an HR strategy. HR strategy consists of the organization’s overall plan for recruitment, retention, and talent management of employees. The total rewards strategy follows from the HR strategy. It consists of the plans that will be used to support the organization’s HR strategy. Define the Total Rewards Philosophy Statement The total rewards philosophy statement expresses management’s values and beliefs about total rewards. The process of developing a statement unifies management’s thoughts about total rewards programs. The total rewards philosophy statement serves many purposes: Communicate commitment and expectations to employees. Facilitate HR plan design. Serve as a reference point to measure the success of total rewards programs. Reinforce company culture and goals. A starting point to develop a total rewards philosophy statement is to ask broad questions about current rewards programs, the organization, its culture, and its employees. Answering these questions thoroughly and systematically can generate the essential elements of the philosophy statement. What is the company culture and environment? What needs to be done to attract, motivate, retain, and engage employees? What are your objectives? (In employment? Retention?) What is the role of HR? (Attracting employees? Retaining employees? Increasing employee satisfaction? Achieving the organization’s performance goals?) What are the company’s performance goals? What cost constraints on the total rewards program can be defined in terms of profit or revenue and expense? Once these questions are answered, it’s time to begin putting together the total rewards philosophy statement. Components of that generally include: Program objectives. Desired competitive position in the labor market (often stated as a percentile of the market). Values regarding factors that should be considered in maintaining internal equity (identification of compensable job factors, the relationship of pay and performance and the relationship between pay and tenure). Values regarding total rewards communication (open versus secretive). Values regarding benefits cost sharing. Desired mix of total rewards elements. The total rewards philosophy statement should be communicated widely and regularly. Employees should understand the statement. They should have the opportunity to discuss the philosophy, ask questions about it, and give management feedback. Define Your Total Rewards Strategy The total rewards strategy determines detail beyond that provided in the total rewards philosophy. It narrows the HR strategy to the specific plan with regard to the total rewards mix that supports the HR philosophy and strategy. The total rewards strategy identifies: The optimal mix of total rewards elements for each employee group. The mix may be high in some elements and low in others. For example, more organizations are moving toward placing a higher emphasis on work-life. In addition, the life cycle of the business can affect the mix. In a high-tech startup, there may be a cash shortage, so wages and benefits may be low, but stock options and work-life may be high. The manner in which each element will be earned and allocated (performance versus entitlement, individual versus group incentives, fixed versus flexible benefits). Appropriate labor market segments for each employee group in which the market is identified according to industry, size, geographic location, or performance. Desired competitive position in the marketplace for each employee group. Many companies want to offer a rewards program targeted at the 50th percentile in the market. However, the average in one market may be considered high or low in another. Therefore, it is important to define the marketplace in which the organization operates. Without a sense of vision and overall strategic direction, people don’t feel as invested in what they’re doing. Therefore, as the total rewards strategy is defined, it is important to remember how it will be viewed and embraced by key players, both within and outside of your organization. (Chapter 3 elaborated on the critical formulation of a total rewards strategy.) Key stakeholders include: Senior management/board of directors. This group needs to approve and be willing to support the philosophy and strategy. They also are important for buy-in and ownership. HR leadership. This group articulates the HR philosophy and strategy, while its staff facilitates the process. Employees. Internal, external, or exit surveys may provide guidance in identifying the relative importance of total rewards elements to various employee groups. Outside consultants. If outside consultants are used, they should work closely with HR to facilitate the process.
STEP 3: DEVELOP Developing a total rewards program is both a science and an art. The steps shown constitute the general steps followed in the development process. Organizations may want to add steps. The key is to have a basic process and adjust it to the organization’s culture, objectives, and specific needs. In general, program design involves the determination of: Purpose and objectives of the program. Eligibility of individual participants in specific aspects of the program. Baseline for measurement and goals. Funding of program initiatives. Plan selection and structure. Course of action and timeline. Program Purpose/Objectives Rewards systems represent both a major cost to the organization and a critical means of linking employees to business performance. As such, total rewards programs should be strategically designed for the purpose they are intended to plan and the results they are trying to drive. Your purpose statement should communicate why the program is being developed and how the company plans to gain a competitive advantage. The purpose statement normally identifies critical organizational objectives and their link to the program. For example: To enhance recruitment and retention. To reduce the fixed compensation element of the total rewards opportunity. To help develop people so they can make greater contributions to the organization. To celebrate individual effort or group cooperation. To reward innovation and creativity. To reinforce performance improvements. Guiding principles describe the program’s key attributes. For example: Changes in the rewards system will support business objectives and the desired culture. Anticipated support from managers and participants will be considered and factored into the program design. The program objectives give a clear description of what the company wants to achieve. It is recommended that the number of objectives be limited to three or less (no more than five). Characteristics of objectives include: Link to corporate mission, vision, business strategy, and total rewards philosophy. Identify specific performance areas and outcomes of program targets. Complementary to objectives of other plans. Clear and easily understood. Measurable. Acceptable to stakeholders. Eligibility A key advantage to a total rewards program is its flexibility. In designing the program’s structure, decisions need to be made about which employees or organizational units will benefit from different elements of the program mix. Determine program criteria. Define who will be offered what and what the eligibility criteria will be. Consider the implications of exclusionary programs. For employees not included, will morale be affected (“haves” versus “have nots”)? Look at competitive practices. Do competitors offer similar rewards to their employees? Does your rewards mix truly reflect a competitive advantage? Baseline for Measurement Two critical questions in program design involve how to define improvement and how to measure it. What is improvement? There is no one correct answer. The definition varies by organization and the baselines established. How can improvements be measured? Once defined, management must identify appropriate measures to collect improvement data. Good measurement tools tend to have six characteristics in common: Reflect objectives. Send the appropriate message to employees reinforcing business unit objectives. Tangible, visible, complete measures that are clear and unambiguous. Credible to all parties, free of undue influence by outside factors. Verifiable and accurate. Understandable to eligible participants. Affected by participants (line of sight). In designing the measurement process, consider the metrics and targets by which management will judge performance, the ease of administration in evaluating the program, and the credibility that the measures will carry with the organization and its employees. The three most common types of measurements are financial, business process, and customer. Also, decisions need to be made about what will be measured (retention, employee satisfaction, performance) and how that data will be reported. Establishing a plan baseline for measurement varies significantly from organization to organization. There are several options available depending upon how performance history is defined. Baselines and targets generally are set using: Historical averages. Recent experience. Projected future performance. Internal reference points (e.g., equity in salary ranges and midpoints). External reference points (e.g., competitors). Funding Funding will come from a combination of costs incurred and savings derived from the five elements of total rewards. For example, productivity improvements can be converted to financial savings based on increased production and reduced labor per unit produced. Develop an initial cost estimate. Estimate a worst-case scenario. Set realistic budget constraints. Adequate funding of a new total rewards program should consider the allocation and reallocation of dollars among the components. Assign a price tag to each initiative. Keep an eye out for pesky hidden costs. For example, if you are considering a telework program, calculate what it would cost to purchase equipment supplies for a home office. Determine appropriateness. Assess whether improvement, no matter how technically proficient, is cost justified and value added. Sometimes a change may be needed, but could be too costly to make. Evaluate legal and tax implications. There may be a legal necessity to change something, even though costs may be excessive. Determine available alternatives to meet program goals and budget constraints. The Concept of Present Value When projecting the program’s long-term cost, remember the concept of present value. A dollar is worth more today than it is in the future due to inflation and opportunity costs. Be sure to equate any capital expenses back to today’s dollars. Selection of Rewards Elements and Structure Now, down to the nitty-gritty. Which elements will be offered in the total rewards program, and how will it be structured? Generally, the total rewards equation should: Embrace the full range of things that employees value in their work, so there’s a sufficiently compelling proposition for people to join and stay with a company. Link with business objectives, so employees get the right signals about desired actions and behaviors and deliver the necessary return on investment for the organization. Track with projected shifts in demographics and labor market patterns so the company can position itself to become an employer of choice for the types of people who are critical to its future success. Creating the Rewards Mix Which rewards would most help to bring about the desired behaviors in your organization? Identify the behaviors desired by the organization. Link rewards to these behaviors. Identify where overlaps and gaps exist in your current programs. Do the programs conflict with one another? Do they all support the same philosophy and desired outcome? Explore various mixes. Map the interrelationships of the components. Determine the appropriate mix to offer. The final mix should be the one with the greatest cost-benefit ratio for the individual and the organization. Involve employees in the design and administration. Test progress along the way to ensure the program is understood and on the right track. Global Considerations Most employers can no longer view rewards programs solely through U.S. glasses. They need to offer rewards that are meaningful and valued across cultures. When developing a multinational total rewards program, remember: Be sensitive to cultural issues. Weigh rewards in the context of the employees’ social, cultural, and geographic backgrounds. What motivates U.S. employees may not work for their counterparts in Latin America, Asia, or Europe. Worse, the same action might be inappropriate or produce negative reactions. For example, individual versus team incentives, communication methods, and recognition styles all vary greatly from culture to culture. Know the laws. Each country has its own set of regulations, policies, and customs. Balance external competitivenesss (based on market standards for geographic locale; e.g., the same country or region) with internal equity, such as equal rewards for equal work regardless of geography. Don’t swerve too far off the map. The design should have broad commonality around the company’s global strategy and values. Course of Action/Timeline What is your planned course of action? Consider what the company is capable of managing. Some organizations move slowly, implementing changes over time. Others take a progressive approach and revamp their programs at one time. Develop a reasonable timeline. Include time for management approval, pretesting the program, and production of communication materials. Decide which individuals and departments will be in charge of which areas and responsibilities. Plan to continue tracking, monitoring, and assessing the program periodically to ensure that its measures and structure are still relevant.
STEP 4: IMPLEMENT The implementation process is the “action” part of the plan. It’s where the rubber meets the road. Obtain Senior Management Approval You’ve done your homework. Now it’s time for the test. A convincing case for total rewards needs to be built, and it should be accepted and supported by management. Identify and communicate to management the following elements: The strategic need for total rewards. What the competition is doing. Total rewards philosophy. The new program’s purpose/objectives. Proposed design (What are the changes to the current program? How much will the program cost?). Competitive market trends. Implementation schedule and timing of rollout. Key participants. (Who are the key players? Will you require a top management sponsor? Will you have a multifunctional team lead the effort? Who is the project coordinator?) Level of employee involvement (How much time will be required for program design and administration?). Communication plan to introduce the program. Evaluation plan. When making a presentation to senior management, remember to talk their language. Executives have their own agenda and will support a proposal for their reasons, not yours. While a proposal may be great for the company, it won’t go anywhere unless the key decision makers accept your reasons as valid. A few tips to ensure the presentation is successful include: Do some prospecting. Find out what the needs are, then provide the appropriate solutions. Get to know the system and the “whys” behind company policies and practices. Develop a rapport with key decision makers. These can include not only top executives, but well-respected middle managers or other “swing” people who are influential in the organization. Understand the power structure and how decisions get made. Sketch a framework for the decision-making process. Identify the ultimate decision maker (it may not be the chief executive officer [CEO]) and who influences that person. Identify the reasons why various players would support or oppose the program. Understand why the program may (or may not) be personally beneficial for each player. Weigh your credibility. Players who view the HR professional as highly credible will tend to accept recommendations more quickly. Assure management that there is a plan to follow up with periodic reports highlighting the new program’s impact. Form an Implementation Team To avoid having the program tagged as strictly another “HR program,” involve other employees in the implementation process. Don’t be a stage hog; share the spotlight. Convening a task team of employees to help with design and implementation of the new program sets you up for success. Anytime someone is asked to accept a new program or policy change—even if it is for the good—that person is really being asked to change. The possibility that the recommendation could be viewed as threatening always exists. But when key players are involved in the design and implementation, most employees will look forward to new programs. When forming a team: Choose members with broad-based representation (including key functional groups and top management sponsor[s]). Define the team’s role and support mechanisms (expectations/deliverables, resources/budget, authority and nature of supervisors/degree of autonomy). Provide training on what to do and how to do it. Define the role of HR. Finally, it is advisable to conduct a pilot test of the total rewards program with a small group of employees before going public. Are they receptive to the total rewards concept? What are their concerns? What do they like best about the program? Do they see the new program as a gain or a loss? What would they change? What suggestions do they have for communicating about total rewards? It is critical to check the organization’s pulse before proceeding. Remember: Employees hold the five components of total rewards near and dear. Know what the problematic issues are before introducing the program.
