WRITING ASSIGNMENT #1

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Designing a Total Rewards Program 4

The following six processes have been identifi ed to assist with formulating a total rewards program.

STEP 1: ANALYZE AND ASSESS

The fi rst activity involved in developing a total rewards program is to get a clear understanding of the existing situation. This involves defi ning the current state, in- ventorying 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 pro- gram to full competitive advantage.

Why Conduct an Assessment?

While a natural reaction is to jump in and get started, it is important to system- atically 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 suffi cient 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 re- wards program should be implemented and provides a framework for build- ing a total rewards program.

Step 1: Analyze and Assess 29

• 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 compar- ing the evaluation phase of the process. Improvements can be documented.

• Assure compliance with the law. Certain laws require recordkeeping and statisti- cal 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 defi nes 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, sal- ary structures, benefi t 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 specifi c 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 iden- tifying 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 se- nior management via individual interviews. Input from line managers can be gathered using focus groups or through conversations with various key lead- ers, 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 cur- rent rewards package. Sample questions could include:

• What is the level of employee satisfaction with pay and benefi ts? • What makes employees satisfi ed in their jobs? • Do employees plan to stay with the company? If not, when do they plan to

leave? • What factors are infl uencing 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

30 Designing a Total Rewards Program

employees generally satisfi ed 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 cul- ture 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 employ- ees be receptive to a total rewards approach? What factors could limit success?

• Defi ne improvement opportunities and goals. The analysis should conclude with relevant implications and specifi c recommendations for change, including fu- ture 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 signifi cantly impact the total rewards program.

• Organizational Culture. Understand the challenges facing the organization. What are the company’s internal and external strengths, weaknesses, oppor- tunities, 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? • Effi cient 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 en-

courages integration and shared vision? • Improving effi ciency 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 or- ganization 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.

Step 2: Design 31

• 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 fl exibility. • 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 pro- gram? What changes might have to be made? A program that is too complex or labor-intensive may threaten success. Likewise, a program could be des- tined for failure if the proper resources are not available to successfully main- tain the plan. Are the fi nancial 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 capac- ity 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 fl ows 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 fi ve facets of total rewards. Establishing a total rewards strategy helps ensure that rewards become a strategic driving force in the accomplishment

32 Designing a Total Rewards Program

of organizational goals. It also helps to align the rewards system with the organiza- tion’s culture and change efforts.

Defi ne 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 refl ect different mis- sions 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 defi ned themselves in the train business instead of in the transportation business. To create success, an organization needs to defi ne 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 af- fect the company’s future.

Defi ne 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.

Defi ne 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

Step 2: Design 33

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.

Defi ne 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 unifi es 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 em- ployees. 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? In-

creasing 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 defi ned in terms of

profi t 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 (identifi cation 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 benefi ts 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 op- portunity to discuss the philosophy, ask questions about it, and give management feedback.

Defi ne Your Total Rewards Strategy

The total rewards strategy determines detail beyond that provided in the total re- wards philosophy. It narrows the HR strategy to the specifi c plan with regard to the

34 Designing a Total Rewards Program

total rewards mix that supports the HR philosophy and strategy. The total rewards strategy identifi es:

• 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 organiza- tions 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 benefi ts 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, fi xed versus fl exible benefi ts).

• Appropriate labor market segments for each employee group in which the market is identifi ed 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 defi ne the marketplace in which the orga- nization 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 defi ned, 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 iden- tifying 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 organi- zation’s culture, objectives, and specifi c needs. In general, program design involves the determination of:

• Purpose and objectives of the program. • Eligibility of individual participants in specifi c aspects of the program. • Baseline for measurement and goals. • Funding of program initiatives.

Step 3: Develop 35

• 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 identifi es critical organizational objectives and their link to the program. For example:

• To enhance recruitment and retention. • To reduce the fi xed 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 fi ve). Characteristics of objectives include:

• Link to corporate mission, vision, business strategy, and total rewards philosophy. • Identify specifi c 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 fl exibility. In designing the pro- gram’s structure, decisions need to be made about which employees or organiza- tional units will benefi t from different elements of the program mix.

• Determine program criteria. Defi ne who will be offered what and what the eligibil- ity 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 em- ployees? Does your rewards mix truly refl ect a competitive advantage?

36 Designing a Total Rewards Program

Baseline for Measurement

Two critical questions in program design involve how to defi ne improvement and how to measure it.

• What is improvement? There is no one correct answer. The defi nition varies by organization and the baselines established.

• How can improvements be measured? Once defi ned, management must iden- tify appropriate measures to collect improvement data.

Good measurement tools tend to have six characteristics in common:

• Refl ect 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 infl uence by outside factors. • Verifi able 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 fi nancial, busi- ness process, and customer. Also, decisions need to be made about what will be mea- sured (retention, employee satisfaction, performance) and how that data will be reported.

Establishing a plan baseline for measurement varies signifi cantly from organiza- tion to organization. There are several options available depending upon how per- formance history is defi ned. 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 fi ve elements of total rewards. For example, productivity improvements can be converted to fi nancial 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 pro-

gram 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 offi ce.

Step 3: Develop 37

• Determine appropriateness. Assess whether improvement, no matter how techni- cally profi cient, is cost justifi ed 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 infl ation and op- portunity 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 pro- gram, 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 suffi ciently 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

confl ict with one another? Do they all support the same philosophy and de- sired outcome?

• Explore various mixes. Map the interrelationships of the components. • Determine the appropriate mix to offer. The fi nal mix should be the one with the

greatest cost-benefi t 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:

38 Designing a Total Rewards Program

• 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 rec- ognition styles all vary greatly from culture to culture.

• Know the laws. Each country has its own set of regulations, policies, and customs. • Balance external competitiveness (based on market standards for geographic lo-

cale; e.g., the same country or region) with internal equity, such as equal re- wards 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 manage- ment. 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?)

Step 4: Implement 39

• 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 infl uential 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 offi cer [CEO]) and who infl uences that person.

• Identify the reasons why various players would support or oppose the program.

• Understand why the program may (or may not) be personally benefi cial 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 implemen- tation 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]).

• Defi ne the team’s role and support mechanisms (expectations/deliver- ables, resources/budget, authority and nature of supervisors/degree of autonomy).

• Provide training on what to do and how to do it. • Defi ne the role of HR.

40 Designing a Total Rewards Program

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 fi ve components of total rewards near and dear. Know what the problematic issues are before introducing the program.

STEP 5: COMMUNICATE

Once a total rewards program is developed, it needs to be effectively communi- cated. Many aspects of HR are not well understood by employees—from how pay is determined to why a company conducts salary surveys or provides certain benefi ts. Educating management and employees on the plan, its objectives, link to the busi- ness strategy, its payout, and what each employee can do to affect the performance measures is critical to the plan’s effectiveness. In essence, an effective communica- tion program is important because it:

• Provides an opportunity for management to share information with employees. • Helps set expectations of the total rewards program. • Helps employees understand the total value of their compensation package. • Conveys commitment to employees. • Lets employees know the opportunities available in their organization. • Is required by law (although most communication is voluntary, some is gov-

ernment mandated).

How organizations communicate with employees plays a key role in creating a high-performance organization, a status sought by most business leaders. To achieve this goal, they are focused on fi nding ways to instill employees with a high level of commitment—a business term for passion.

There’s a strong belief that employees who have passion for their work— especially employees who do cerebral work—will outperform employees who lack it. A key element in creating passion in a business or personal relationship is trust. Where there is little trust, there will be little passion.

If the organization intends to have an honest, straightforward approach in com- municating with employees, but sends out empty slogans that generate more ques- tions than answers, it is saying one thing and doing another. Flunking the say/do test is a trustbuster. Without trust, there’s no passion and no high-performance organization.

Communicating and selling total rewards programs require the utmost integrity. This responsibility is important to total rewards professionals, not only in estab- lished relationships with peers and management, but also with employees. Integrity is telling the truth, establishing trusting relationships, being honest and conveying written or verbal reports that contain no slanting or puffery.

Step 5: Communicate 41

Building a Trusting Relationship

Total rewards professionals can forge bonds, maintain ease in relationships, and in- crease trust through honest two-way communication. The following elements help establish integrity between management and employees:

• Never answer a question if you do not know the correct answer. Rather, respond with, “I will get back to you on that.” Then, promptly follow up with an answer based on facts.

• Do not use buzz, loaded, slanted, or puffed words. (See Figure 4.1.) • Be pragmatic and positive. • Establish good two-way communication by probing and thoroughly understanding the

question or problem. • Verbal and written reports should be clear, concise, and verifi able . Reports and plans

should exclude inferences, but should contain observable and verifi able facts. Many inferences are pure guesses, particularly when loaded with verbiage that can be easily misconstrued.

“Buzz” Words Example

Feedback “Give me feedback on that.”

Spin “What’s the spin on our salary structure?”

Slanted Words Example

Thrifty “Being thrifty is always the best approach in the design of a compensation and benefi ts program.”

Neutralize “Let’s neutralize that situation.”

Loaded Words Example

Free “This program is absolutely free.”

Zero cost “There is zero cost to the company.”

Protection “This new compensation program offers maxi- mum protection against unionization.”

Puffed Words Examples

Greatest “This is the greatest compensation structure I have seen.”

Biggest “This benefi ts plan will produce the biggest ben- efi ts to the company.”

Unqualifi ed “Our compensation program is an unqualifi ed success.”

FIGURE 4.1 Words that fuel miscommunication.

Know the Facts

It is important to never answer questions affi rmatively without knowing the answer. This is one reason why total rewards professionals should continually read, under- stand, and educate themselves about:

42 Designing a Total Rewards Program

• Current outside practices, such as competitors’ compensation practices and salary and benefi ts trends.

• Current federal and state laws, including the Fair Labor Standards Act of 1938 (FLSA), the Employee Retirement Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), and In- ternal Revenue Service case decisions.

• The organization’s current situation.

Crystal Clear Communication

Total rewards professionals should communicate to management and employees in a candid manner. Also, by “walking the talk” through words, actions, policies, practices, and procedures, their communication efforts will be more effective and meaningful.

Employee benefi ts plans should be conveyed as legally required. By adopting a full disclosure policy, both good and not-so-good information is shared. This ap- proach helps eliminate rumor and speculation.

From the communicator’s perspective, total rewards professionals need to under- stand what they are communicating, learn from written and verbal communication, and, lastly, dispose of or decide the issue under consideration. The receiver needs to fully trust and expect all information to be accurate and verifi able.

Honesty: The Best Policy

Being honest pays huge dividends. Employees at all levels will understand and appreciate a straight shooter and modify or mend their own behavior, if nec- essary. Truthfulness also will increase employees’ appreciation and loyalty to the organization.

Conversely, communicating inaccurate information to employees can lead to mistrust, diminishing loyalty, collective bargaining efforts, and increased employee turnover. Employees have a need for security and affi liation with the organization and are not prepared or willing to accept messages from management until a trust- ing relationship exists.

Audience

In developing a communication plan, it is important to consider specifi c employee audiences, the key messages to convey, how those messages will be disseminated, the amount of money available, the timeline for implementation, and how to gather employee feedback. Orientation and education are needed to ensure that partici- pants understand the plan, know how they can affect measurements, and what advantages the new program provides. It’s time to communicate, communicate, communicate!

Communications should be tailored to specifi c audiences. For example, one might start with an executive-level briefi ng, followed by a manager orientation and planning session, supervisor workshops, and fi nally a widespread employee educa- tion and orientation program. The key is that all employees at all levels are able to comprehend the new rewards system.

Step 5: Communicate 43

Management

Different communications may need to be planned for different levels of manage- ment. Plan to communicate details about the total rewards process and any an- ticipated obstacles. Provide exercises on how management can get their employees engaged and provide a list of messages to be communicated. Also, outline manage- ment’s role in the implementation process. Good employee communication typi- cally starts with clarifi cation of the organization’s mission and vision—and that must come from top executives.

Front-Line Supervisors

Front-line supervisors are perhaps the most critical element to success. When com- munication breaks down, it’s usually at this level either because messages don’t make it down from the top or they are misconstrued. Avoid this by holding separate group meetings with front-line managers and ensuring they are informed about the process from the beginning.

Employees

Who are they? What are their interests, needs, and concerns? Demographic infor- mation on age, sex, education, marital status, income, job type, length of service, and geographic location helps determine how messages should be delivered. Face- to-face communications usually are the best because this ensures that employees are receiving consistent messages, and it enhances credibility. But this simply may not be realistic, especially for multinational companies with numerous locations. Decide what would be most appropriate for each employee group.

External Audiences

How will you announce the new program to shareholders? Customers? Vendors? Are there other groups outside the organization who have a “need to know” about the program changes?

Key Messages

Effective communication starts with a clear vision of what you want to accomplish. Let employees know what’s in it for them and what’s in it for the company. Messages should help employees see the advantages of the new approach, instill a new mind- set, and secure their tie-in and commitment. Tips to remember include:

• Keep messages simple, consistent, and timely. • Begin communication at the time of concept approval. • Don’t let up; communicate frequently. • Continue as long as the program is in effect (amount and intensity of com-

munication should vary with need). • Focus on the plan’s main elements: how it works, the advantages to the em-

ployee and employer, and the timeline for implementation.

44 Designing a Total Rewards Program

Media

In today’s fast-paced, multichannel communications environment, it’s not enough to convey a message one time through one medium. The audience and level of complexity in the message should determine the methods used. For example, some employees prefer to read information on a printed page; others prefer to access the information online; and still others prefer the message be delivered face-to-face in team meetings. In some companies, the message may need to be de- livered in a language other than English, or communicated by using sign language or Braille.

The best communication campaign involves multiple messages delivered in a variety of ways over a long period of time. By reinforcing messages using multiple channels, you help to ensure that the program is understood. (See Figure 4.2.) The broken-record syndrome has to be the name of the game.

Audiovisual • Flip charts • Overhead transparencies • Slides • Films/movies • Videotapes • Audiotapes • Teleconferences

Print • Brochures • Booklets or handbooks • Articles in employee newsletters or other company

publications • Letters • Memos • News bulletins • Summary plan descriptions • Compensation manuals • Paycheck stuffers • Personalized total rewards statements • Posters • Bulletin boards • Question-and-answer columns • Reply cards • Special interest bulletins

Personal • Large meetings • Small gatherings • One-on-one counseling • Manager/employee sessions

FIGURE 4.2 Types of communications media.

Step 5: Communicate 45

Budget

Start by looking at what is currently being spent. How are the dollars being allo- cated? Can existing communication dollars be used more effectively? Can addi- tional dollars be obtained by working with other departments, such as employee communications? After fi nding out what is available, the challenge becomes how to get the most bang for your buck. Decide how to best reach the audiences involved with the least amount of money.

Timeline

Establish a timetable that outlines the campaign’s important steps and sets dates for their completion. A realistic production schedule includes time for writing, editing, layout, design, and printing. Time to review and make revisions to drafts or scripts should be included in the timetable. Also, calculate the time and costs associated with duplication, mailing, and distribution.

Feedback

What are employees saying about the total rewards program? Are the right messages getting through to the right audiences? Look for ways to establish two-way com- munication, whether it is through question-and-answer sessions or focus groups. Hold follow-up meetings and issue follow-up reminders. Communicate progress on the goals. Most important, when employees ask questions, get back to them with answers. There’s no better way to build credibility.

How to Communicate Bad News

No one enjoys being the deliverer of bad news, but someone has to do it. It’s not un- usual for people to become angry when hearing bad news; therefore, it’s important to address negative feelings at the beginning of the change process to diffuse any anger. To be successful as the messenger, consider the following guidelines:

• Keep the message short . The goal is to convey facts with minimal embellishment. • Explain why the company decided to make the change . The company’s decision often

is the best in a series of bad options. For example, a company facing a large defi cit may be forced to cut benefi ts or freeze wages. No one wants to hear this.

Electronic • Interactive personal computer programs • E-mail • Kiosks • Telephone voice-response systems (voicemail) • Conference calls • Personalized total rewards statements • Internet • Intranet • Multimedia

46 Designing a Total Rewards Program

But if the alternative is to lay off workers, then cutting benefi ts or wages may be a viable option.

• Ensure that employees clearly understand how the change will affect them. • Have face-to-face meetings with workers . Don’t just rely on written communication.

In the 1990s, a Fortune 500 company announced it was terminating an important benefi ts plan and replacing it with an alternative. The company used e-mail and an internal web site to announce the change. No employee meetings were held. The communication highlighted the benefi ts to employees of the alternative plan, including a sizeable savings for the company. Unfortunately, the company did not make it easy for employees to understand the impact of converting to the new plan.

Company workers took it upon themselves to “fi gure out” the impact. Many workers became outraged when they discovered they would lose considerable coverage com- pared to what they expected to receive under the original plan. In response, employees began communicating among themselves via a web site to plan next steps. Because of the employee “revolt,” the company eventually decided to modify its position.

Fallout from the company’s decision to change the benefi ts arrangement caused:

• Intervention from governmental regulators to determine the appropriateness of the change.

• A serious union drive among employees. • Severe morale problems—many workers felt personally hurt by what they per-

ceived as the company’s insensitivity to them and lack of candor by not ex- plaining how the change would adversely affect them.

• The company to not save the money it had expected.

Changes sometimes are initially perceived as takeaways or negatives. But direct interaction between HR professionals and workers should help employees under- stand the “why” for the change, positive and negative effects of the change, and how employees and the company can benefi t from the change. This type of interaction takes time. However, the end result is greater employee acceptance.

STEP 6: EVALUATE AND REVISE

No program is complete until you fi nd out if it works. A total rewards strategy should demonstrate that it has made a difference. It is important to recognize that straight lines are diffi cult to draw from changes in total rewards programs to organizational performance outcomes, and numerous variables exist. It is, nonetheless, necessary to identify expectations and assess results. The name of the game is measurement. How did the program perform against stated measures of success?

When measuring success, realize that no one program will fully satisfy the needs of every employee. Therefore, evaluate the program based on its ability to retain and reward top performers, recruit highly desirable talent, and motivate and satisfy the broader employee population.

The Review Process

Evaluating and revising the total rewards program is the fi nal, ongoing step in the development process. This is an opportunity to see the plan in action, make adjust- ments, and maintain its currency and value in a changing world.

Step 6: Evaluate and Revise 47

• Who Should Conduct the Audit? Usually, this is an HR function or a function of the design team. Depending on the organization, it also could fall on the shoulders of the operations committee, implementation team, or a dedicated reassessment team.

• How Will the Program Be Assessed? A general course of action is to collect base- line information, measure the qualitative and quantitative results, and review anecdotal and survey feedback from managers and employees.

• When Should the Audit Be Conducted? Review and audit are part of a continuous improvement process and should be conducted regularly and periodically. Usually, a good time to conduct an audit is after a program has been com- pleted (e.g., annually).

• What Should Be Audited? Initially, you may choose to review the entire program. Going forward, perhaps only review selected pieces of the program.

• What Should the Audit Include? In general, the audit should provide: • Information about goal achievement. • A fi nancial review. • A comparison of expected and actual results. • Perceptions of managers, employees, and plan designers regarding the plan.

• How Should the Audit Be Conducted? Audits need to be comprehensive, struc- tured, detailed, and planned according to schedule. There should be a self- managed timetable. If a problem or issue is identifi ed (e.g., absenteeism, turnover, productivity, profi tability, job satisfaction, etc.), look for appropriate measures to evaluate the successful resolution of the problem.

• On Which Output Data Should Focus Be Placed? An audit only identifi es issues. It doesn’t solve anything. Develop recommendations and follow up with appro- priate actions.

Measurements

So, the big question: Exactly how do you measure whether the total rewards pro- gram is supporting and reinforcing the company’s mission, vision, values, strategies, and goals?

There is no one right answer. But most organizations would agree that there are two primary schools of thought, and both are important: quantitative measurements and qualitative measurements.

Quantitative Measurements

To prove to senior management that the amount of money spent on programs like total rewards is worthwhile, quantitative measures are essential. Knowledge of measurements, basic formulas, and ratios—even if they are homegrown statistics— provides increased credibility.

Exactly what should you be measuring? Outcomes can be grouped into three major categories:

• Direct performance outcomes can be largely attributed to the impact of an organization’s total rewards strategy, such as reduced turnover and recruiting acceptance rates.

48 Designing a Total Rewards Program

• Evaluative outcomes are objective conclusions that result from a total rewards design, such as the organization’s competitive market position, its total re- wards cost per employee, and its rewards mix.

• Indirect performance outcomes may be partially attributable to an organi- zation’s total rewards strategy, such as revenue per employee, profi t per em- ployee, productivity, customer retention, and various ratio measures.

There are four key categories of quantitative measures. The measures that should be included in an analysis depend on the specifi c objectives that have been set for the program. (See Figure 4.3.)

Results • Employee attraction and retention • Number of openings • Duration of openings • Number of resignations • Compliance with applicable laws and regulations • Lawsuits • Statistical analyses, such as EEO information, affi rmative action, etc. • Results of performance-based pay policies • Turnover by performance level • Percentage of payroll allocated in a performance-dependent manner • Correlation between pay and performance levels • Cost of total rewards programs (protection of the organization’s fi nancial re-

sources) • Benefi ts expense as a percentage of total payroll • Pay as a percentage of the operating budget (both historical and prod-

uct competitors) • Organization rates and market rates • Mix of the total rewards program • Nontraditional work arrangements • Productivity measures

Process Improvements • Staff productivity • Ratio of HR employees to total employees • Absenteeism • Cost of analytical/data collection activities • Job analysis • Job documentation • Job evaluation • Survey data • Cost of data processing/consulting support • Management’s time • Amount of management time required for rewards program

administration • Backlog of requests for evaluations and re-evaluations

FIGURE 4.3 Quantitative measures to consider.

Step 6: Evaluate and Revise 49

• Timeliness of pay increase planning and processing • Timeliness of performance appraisal data • Claims processing turnaround time • Chart time for claims to be completed

Compliance and Alignment • Pay relationships of employees relative to policy and market considerations • Actual rates and ranges versus market position specifi ed by policy • Compa-ratios • Percent of employees outside of pay ranges • Extent of compliance with pay policy • Salary increase policies • Starting rate policies • Promotional increase “size” (percentage) • Consistency of pay grade and range assignments with job-evaluation results • Compliance with applicable laws and regulations • Equal Employment Opportunity Act (Affi rmative Action) • Family Medical and Leave Act of 1990 (FMLA) • Equal Pay Act of 1963 • Employee Retirement Income Security Act of 1974 (ERISA) • Local wage and hour laws • Fair Labor Standards Act of 1938 (FLSA) • Americans with Disabilities Act of 1990 (ADA) • Compliance of qualifi ed retirement plans with nondiscrimination

requirements • 401(k) limits on contributions • 401(a)(17) combined compensation limits • 403(b)

Documentation • Percentage of employee fi les with current appraisals • Compliance with FLSA requirements • Existence of written policies • Benefi ts plan documentation • Retention of documents for required timeframe

• Results. Do programs add value and achieve results? • Process Improvements. What is the general satisfaction level of customers? What

is the timeliness and effectiveness of program administration? • Compliance/Alignment. Is the program aligned with policy and program

objectives? • Documentation . How effective and effi cient is the recordkeeping and approval

practice?

Warning! Quantitative measurements are just one way to examine program effectiveness. Metrics may not tell the whole story. They get to the effi ciency side of things, but this can be out of context without looking at the value-creation side. For example, hiring people who will never leave can lower turnover rates, but

50 Designing a Total Rewards Program

that’s not necessarily good. The key is to assess strategic value and effectiveness, not just effi ciency.

Qualitative Measurements

Another way to evaluate total rewards is to look at quality improvements that result from the program. While qualitative measurements may be more subjective, they are equally important in determining effectiveness. Many hard and fast quantitative measures have meaningful qualitative components.

For example, was productivity increased without adding staff? Were work-life im- provements added without having an adverse effect on productivity? Do employees say they are more likely to stay with the company? Are they willing to go the extra mile to meet business needs? What is this worth?

One way to look at qualitative measures is to go back to the assessment and de- sign phases. Look at where the organization started and what objectives were set for the total rewards program. Examine where the baseline measurements were and compare them against where the company wants to be. Did the program work? Did it do what it was intended to do? Qualitative measures help provide explanations on why the numbers look the way they do. Ask the tough questions. Did the program accomplish the following?

• Foster and reward the “right” behaviors that are consistent with the total re- wards strategy?

• Offer the “right” incentives? • Adequate? • Equitable? • Competitive? • Appropriate (for employer and employees)? • Valued?

• Attract and retain the “right” people? • Facilitate changes in the workforce? • Help develop the skills needed to remain competitive? • Move the organization closer to its desired culture? • Receive a positive response from employees as well as middle to top

management? • Drop old measures? Add new measures? Offer a well-integrated approach? • Provide communication that created a high level of awareness? Understanding? • Align employees’ interests with the organization’s business objectives? • Deliver a meaningful return on investment for the money spent?

Evaluative Outcomes

After collecting and assembling all of this information, what do you do with it? The program review and audit provide the validation step in the total rewards cycle. (See Figure 4.4.) Some major issues are going to identify themselves (i.e., those parties with issues will let you know). However, other venues for gathering data on the success and/or challenges of the program should be considered. These include employee surveys, focus groups, or questionnaires.

Step 6: Evaluate and Revise 51

Some possible groups to poll in the postimplementation phase include recruiters and HR staff, management, supervisory personnel, a general sampling of employ- ees. Some questions include:

• In general, what went well and what did not go well in the total rewards implementation?

• On a scale of 1 to 10 (1 being “inadequate” and 10 being “terrifi c”), how would you rate our implementation of total rewards?

• Overall, what do you think of the total rewards approach? • What do you think are the advantages to the organization by doing this? • What aspects of the program are problematic? • What ideas or suggestions do you have for the future? • In general, how satisfi ed are you with the total rewards program?

A total rewards program needs to be reviewed to ensure that it meets the organi- zation’s goals and is still aligned with mission, vision, and strategy. In the fi nal analy- sis, the program should be able to be evaluated by comparing the value attributed to the program with the costs incurred by the program. The importance of this ratio- nale is to justify the program to management and provide an overall measurement of its effectiveness. Factors to consider include:

• Plan costs. • Value of performance improvements.

• Financial value. • Operational value. • Nonfi nancial value.

• Ratio of value to costs.

Based on the information collected and the program’s results, it’s time to make a decision on whether to:

• Continue the program as it stands and celebrate its success. • Refi ne the program, building on progress made. (Examine what happened

and what was learned. Introduce “new” plans or adjustments to measures, baselines, targets, etc.)

• Terminate the program (only as a last resort).

• The program has a clear link to the organization’s philosophy and core values. • The program is supported and championed by senior management. • Unit and front-line managers own the plan. • The program is viewed as an investment, not an expense. • The program is tailored to recognize cultural differences. Different forms of

recognition motivate employees from different cultures. The program should be fl exible enough to make adjustments for these differences.

• A high level of communication and education exist throughout the organiza- tion. Employees are engaged in making processes better.

• Any good program is continuously evaluated and renewed for improvement.

FIGURE 4.4 Principles for evaluating success.

52 Designing a Total Rewards Program

In most cases, modifi cations will be necessary. The evaluation should help de- velop a list of recommendations for improvement. As times change and issues arise (e.g., demographics, new/modifi ed legislation, internal/external issues, premium increases, etc.), the program will need to be revised to keep current. The design, de- velopment, and implementation strategies should mirror those explained earlier.