DEVELOPING AN AUTHENTIC

Transcription

1 DEVELOPING AN AUTHENTIC TOTAL REWARDS PHILOSOPHY TO MOTIVATE YOUR WORKFORCE

2 A total rewards philosophy plays an important role in an organization. Its overarching objective is to align the mission, values, and goals of a company with its rewards program to ultimately drive performance. While this may sound straightforward on the surface, there are other complex factors to consider. For instance, the philosophy must also be relevant to your workforce, and in order to fulfill its true purposes, it must also be communicated clearly. It s therefore no surprise that, when attempting to develop a total rewards philosophy, many HR professionals are unsure of the best place to begin. While aligning the multiple perspectives and priorities in your organization will surely be no easy feat, there are some practices you can follow to make the process go as smoothly as possible. In this guide, we ll discuss tips for the development, application, and communication of a compelling and authentic total rewards philosophy, with a focus on: The case for a total rewards philosophy Common total rewards perspectives Ways to develop your own authentic philosophy Practical tips for developing and implementing your philosophy We ll begin by discussing why it s so important for organizations to develop a clear, relevant total rewards philosophy that can be communicated to their workforce. Page 2

3 The Case for a Total Rewards Philosophy Research into more than 180 organizations total rewards practices indicates only two-thirds of companies have some form of a total rewards philosophy in place. Of those, just 60% have their philosophy in writing, while only 30% feel they re communicating that philosophy effectively. What, precisely, is holding companies back from developing a documented and well-communicated total rewards philosophy? According to a poll conducted during an HRsoft webinar, 36% of participating HR and total rewards professionals say that lack of leadership support and buy-in is the greatest challenge towards creating a total rewards philosophy. At 32%, differing opinions on rewards came in as a close second in terms of barriers to creating a philosophy. A remaining 18% of respondents said their workload held them back, while 14% said they didn t know how to create a philosophy. These results are telling. While you may be fully aware of the importance of a total rewards philosophy, other business leaders may not understand its full value. Moreover, the second-most cited challenge differing opinions showcases just how challenging it is to take a unified approach to total rewards. Indeed, achieving alignment and developing a philosophy that resonates with your leadership and employees alike can be difficult. Nonetheless, reconciling these differences to develop a total rewards philosophy is important, as it serves some distinct purposes. Page 3

4 The Purpose of a Total Rewards Philosophy An organization s total rewards philosophy is used to: Align the company s mission, values, and objectives to employee pay Attract, retain, and motivate employees Determine how pay impacts employees Provide a clear, direct statement and commitment Reinforce alignment between rewards practices, HR, and business strategies Initiate discussions concerning compensation and rewards The total rewards philosophy can also be used to determine: Where your organization targets and pays out rewards How you balance the various elements of total rewards Moreover, in terms of attracting and retaining employees, the rewards philosophy is a critical piece in developing a unique and compelling employee value proposition. It is a foundational piece on which effective processes can be built, and is a critical element of your business strategy. Unfortunately, developing a total rewards philosophy isn t as simple as choosing from a list. In fact, there are as many individual philosophies as there are organizations. With that being said, many approaches fall under four common perspectives, which will be discussed in the next section. Page 4

5 The Many Total Reward Philosophies There are many different opinions, perspectives, and goals when it comes to total rewards and the philosophies behind them. A critical component in creating an authentic philosophy is the organization s ability to reconcile these many perspectives. While total rewards cannot be approached in a one-size-fits-all fashion, you will likely find that your organization s framework for compensation and benefits fits with one of the four following perspectives. The Traditional Perspective As its name suggests, the traditional perspective of total rewards has been favored for many years, and is the basis on which companies have structured their reward practices for the last century or so. It is widely used in sectors such as manufacturing, government, and the military, but it also tends to be utilized by some organizations in the science and engineering fields. The traditional perspective is defined by: Tenure, seniority, or skill-based pay Strict job structures and hierarchies Base pay + bonus One advantage of this traditional approach is that it is established using clear rules. It can be effective for driving performance in environments that are prescriptive or have a high degree of routine. The approach is also relatively easy to administer and facilitates effective cashflow management. The traditional approach isn t without its flaws, however. It may breed a sense of entitlement, and can also be demotivating among the majority of the workforce. In addition, the approach tends to restrict flexibility. Page 5

6 Meritocracy Another common approach to rewarding employees is meritocracy. It is defined by: Pay for performance Employee evaluations and/or rankings based on past performance Base pay + variable incentives This approach emphasizes individual performance, which can be assessed using any number of metrics. Many organizations favor meritocracy because, when implemented effectively, it rewards results and aligns payouts to company performance. There is also a certain degree of discretion and flexibility. Yet, with that flexibility, there is also the opportunity for plans to become complex, and subsequently, poorly administered. Personal opinions and biases can also have a bigger impact in meritocracy versus other rewards philosophies. Moreover, in using this approach you may be more inclined to experience the top talent conundrum, in which focusing exclusively on the top-performing talent produces a negative impact on morale. The rest of employees, who make up the majority of your workforce, may become demotivated, so this approach runs the risk of becoming counterproductive. Purpose-Driven Approach While not as common as meritocracy or the traditional approach, the purpose-driven approach is a modern total rewards method which is emerging in the tech sphere, non-profits, and entrepreneurial environments. It is characterized by: A focus on a common purpose or autonomy, mastery, and self-direction The objective of removing money as a behaviour driver Base pay + (sometimes group/ organizational bonus) Giving employees a sense of autonomy and making sure they feel fairly compensated can have a motivating effect. It focuses on work effort instead of financial rewards, and can increase engagement as a result. Yet, it requires an exceptionally strong company culture to implement, and will likely be incompatible with rigid, command/control environments. Pay not appear market competitive when this approach is used, and in fact, inability to pay at market-competitive levels is often why the purpose-driven method is used. Page 6

7 Teal/Self-Managed Introduced by strategist Frederic Laloux, the concept behind teal or self-managed organizations is defined by: The teal paradigm, which focuses on self-organization and self-management Self-set compensation and complete transparency Base pay + variable incentives The teal approach shares many of the same pros and cons as the purpose-driven method. It gives people more autonomy than the other approaches listed here and, when implemented effectively, allows the organization to grow and evolve as it needs to. If your organization is like most, its total rewards approach will likely fall under one of the first two options listed. Ultimately, however, it s important to create an authentic philosophy that resonates with your workforce and satisfies your company s unique needs. We ll discuss some considerations for doing just that in the next segment. Page 7

8 Creating an Authentic Philosophy There is a commonly-held assumption that all organizations are looking to be competitive, fair, and equitable in their compensation practices, but that s not necessarily true. Moreover, often these goals contradict each other. Determining what s most important to your company is a key piece of the puzzle when defining your philosophy. As you re discussing your rewards philosophy with stakeholders, consider the following questions: What do we want our rewards program to do to help our organization succeed? What is our organization s capacity to pay? What are the restraints on that capacity? Are we seeking to be fair, equitable, and/or competitive? How will we demonstrate these principles? Of course, certain factors should not be overlooked. Pay equity, for one, demands up-to-date knowledge on relevant legislation so your company can manage its risks proactively. Oftentimes, wage inequality is an act of admission, not a deliberate decision. If your company pays people in similar jobs differently, make sure you have a legally defensible reason for doing so. Factors such as varying education levels and tenure can back up differentiated pay, but it s important that these factors are documented. Once you ve answered the questions listed above, you can then move on to establish your organization s level of competitiveness. If you are comparing yourself to the market, you have three choices: Lead the market Positioning at the 75 th percentile where 75% of your comparators pay less (also referred to as P75 or Q3) Lag the market Positioning at the 25 th percentile where 75% of your comparators pay better (P25 or Q1) Match the market Positioning at the 50 th percentile (median) where half of your comparators pay more and half pay less (P50 or Q2) Answering these questions will help you shape your total rewards philosophy. In the final section, we ll discuss some practical tips for developing and implementing the philosophy. Page 8

9 Practical Tips for Developing & Implementing an Effective Total Rewards Philosophy Now that you ve answered the overarching questions behind your company s stance on total rewards, you can begin to focus on putting the details into place. One important tip to remember is to look at total rewards as a whole, including both financial and non-financial elements. In many cases, companies focus so much on compensation that they forget to step back and look at the big picture. Remember, compensation is only one aspect of total rewards. It must also encompass: Health and wellness Financial security Retirement and savings Life changes and challenges Development These pillars, along with compensation, comprise the core components of the total rewards program outlined by WorldatWork. In addition to these elements, you may also want to consider whether your organization has any additional perks you could include, such as flexible work options. After looking at your company s total rewards package, it s important to reflect back on what your business is trying to achieve. The objective here is to strengthen alignment between your total rewards philosophy and practices and focus them towards goal achievement. In other words, how will you align your total rewards philosophy to your business objectives? How will you engage your employees in your organization s mission and goals? You must define the ways in which performance management is going to align with total rewards. To verify that your total rewards practices are indeed fulfilling their intended purpose, you ll need to determine how you ll measure employees efforts, talents, and results, and continue to revisit these metrics continuously. Page 9

10 Another important tip is to make sure you re communicating your total rewards philosophy effectively. As George Bernard Shaw said, The single biggest problem in communication is the illusion that it has taken place. When considering your total rewards communication, there are three key factors to keep in mind: Know your audience. Will your messaging be consistent for everyone, or might it be different for managers versus employees? Be consistent. Make sure the message is clear and consistent. This will help in fostering trust around pay decisions. Communicate often. When considering frequency for your total rewards communications, determine a goal and then double that. It is better to overcommunicate than to not communicate enough. For most organizations, talking about compensation once or twice per year simply isn t enough. Another factor to consider in effective communication is manager training. Communication around total rewards is three times more effective when it comes from an employee s manager. Make sure your managers are equipped to have performance-based conversations with their direct reports, and that these conversations are taking place frequently. Most importantly, your total rewards philosophy must be fully understood by your managers so that they can communicate it themselves. Page 10

11 Total Rewards Transparency Many organizations are uncertain as to how much transparency they should exercise in their pay communications. While it may be tempting to withhold information in an attempt to maintain negotiating power, this approach can backfire. With many readily available resources for both current and prospective employees to find out pay data, you will likely lose control of the narrative if you attempt to maintain secrecy. Moreover, secrecy can breed confusion, and may make your organization appear unfair or untrustworthy. It can also limit your business impact. Consider this: 80% of employees paid above market believe they are paid at or below market. Transparency, on the other hand, creates clarity and bottom-line results. It can increase your workforce s confidence that decisions are fair and equitable. It also addresses any incorrect perceptions around rewards that may arise. If you re interested in finding out how transparent your organization is, consider conducting a transparency audit. Ask participants to rate your organization s level of transparency in its total rewards philosophy and surrounding how pay decisions are made on a scale of 1 to 10. Conduct the audit for both managers and employees, asking the same question. Compare the results. The bigger the gap, the more critical it is to address. One final recommendation for pay transparency is to adopt the PRESS method: Process Have a clearly defined compensation process and be open about how it works. Ranges Have internal pay ranges available during salary discussions to help employees feel informed and engaged. Equity Put fairness at the front and center. Help employees see that your organization is committed to ensuring that all employees, regardless of race or gender, are on a level playing field. Stretch Always be looking for ways to share something, even if it makes leaders a bit uncomfortable. Default to transparency unless there s a compelling reason not to. Solicit Be willing to solicit feedback to understand the evolution of expectations and perceptions around transparency. Page 11

12 Summary Developing and implementing a total rewards philosophy is one of the best endeavors your organization can pursue. It is a key element of your overall business strategy and plays an important role in communicating your employee value proposition. While the process of developing your total rewards philosophy will require some thoughtful planning, it is possible to reconcile different opinions, achieve alignment among your business goals and your approach to reward, and devise a philosophy that s relevant to your workforce by following the basic framework laid out in this guide. To review some of the topics discussed herein, take a moment to consider the following key themes: Many organizations consider lack of leadership support and differing opinions to be the biggest challenges in developing a total rewards philosophy. Both of these challenges can be met by establishing a clear business case for developing a total rewards philosophy and identifying organizational priorities for your total rewards strategy. Your rewards philosophy can be used to align the company s mission, values, and objectives to employee pay. It also fulfills a number of other distinct purposes, including attracting, retaining, and motivating employees. There are many total reward philosophies, and each organization must determine the approach that fits best for their needs. The four most common perspectives include the traditional perspective, meritocracy, the purpose-driven approach, and the teal/self-managed perspective. To develop your authentic total rewards philosophy, determine what you want your rewards program to do to help your organization succeed. Also, determine your capacity to pay, and whether you re seeking to be fair, equitable, and/or competitive. Establish your level of competitiveness by comparing your pay practices against the market. When developing your total rewards philosophy, don t focus exclusively on compensation. Incorporate the other factors of total rewards as well, including non-financial rewards. Know your audience, be consistent, and communicate often. Consider using the PRESS method to support pay transparency. Although developing a total rewards philosophy may still feel a bit daunting, you now have a place to start. By considering the questions posed here, your organization can make strong decisions when determinizing which approach which will best support its overarching goals as well as the needs and expectations of your workforce. Page 12

13 Resources HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement. Phone: Web: hrsoft.com About the Contributor Kathleen Jinkerson The Talent Company Kathleen is the Practice Leader for the HR & Total Rewards Solutions teams at The talent Company. She works closely with organizations of all sizes across the globe, helping them understand how to leverage proven and trending practices to build and optimize their teams as well as refine their HR, talent, and total rewards strategies and practices. A passionate advocate for elevating talent and people practices within HR and total rewards, Kathleen is an active participant and speaker at events such as the WorldatWork s Canadian Total Rewards Conference, the HRPA Annual Conference, and HRSouthwest. The Talent Company is an HR Solutions firm that helps organizations Find, Keep, Reward and Transition talent. Phone: Kathleen.Jinkerson@TheTalent.Co Web: Page 13