towerswatson.com No Holds Barred Beam Inc. reinvents total rewards to support a new global culture

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1 towerswatson.com No Holds Barred Beam Inc. reinvents total rewards to support a new global culture

2 No Holds Barred Beam Inc. reinvents total rewards to support a new global culture By Lucie P. Lawrence About Beam Inc. One of the world s leading premium spirits companies and the largest U.S.-based spirits company Traces heritage back to 1795 Based in Deerfield, Ill. Sales of $2.8 billion in ,200 employees worldwide Major brands include Jim Beam, Maker s Mark, Sauza and Canadian Club The spirits industry is built on family heritage and that sense of heritage runs deep in our organization, explains Mindy Mackenzie, senior vice president and chief HR officer at Beam Inc. We think of ourselves as a 218-year-old start-up company with extremely high potential. However, a few years ago, it became evident that we had no clear identity; our company values were murky, and our culture was undefined and disparate at best. In 2005, the spirits company experienced major growth through acquisitions. It continued on its transformational journey by enhancing its routes to market and hiring a new CEO several years later. When I arrived at Beam in early 2010, a new, focused, three-point growth strategy had been introduced, but the talent strategy and culture to support that growth were undefined, says Mackenzie. While we had strong subcultures in local market operations and among individual brands, we didn t have unity. There was no one Beam way. It was clear that a significant cultural mind shift was necessary. Mackenzie and the HR leadership team knew they needed to transform HR into a strategic function that could help Beam become a vibrant, cohesive organization, supporting its current position as the world s fastest-growing spirits company. To unite the organization and improve company performance, we really needed a cultural transformation that would inspire deep employee engagement, passion and performance, says Mackenzie. We wanted to rehydrate our culture and build a unified identity. 2 towerswatson.com

3 Mindy Mackenzie, senior vice president and chief HR officer, Beam

4 Listen and Learn It was 1795 when Jacob Beam filled his first barrel of bourbon, laying the foundation for a family business that endured through the hardships of U.S. Prohibition. Following the alcohol ban s repeal in 1933, the Beam family which had grown fruit, mined coal and run a limestone quarry during the ban immediately returned to producing bourbon under the leadership of James (Jim) B. Beam. Seven generations later, the Jim Beam family tradition continues today. In 2005, Frederick Booker Noe III, the great grandson of Jim Beam, filled the company s 10-millionth barrel of bourbon. That same year, Beam purchased more than 20 spirits and wine brands from Allied Domecq. This was a major acquisition executed within a very short time period, explains Kim Pohlschmidt, senior manager, compensation and benefits, at Beam. The transaction doubled the company in size, and the integration left us with significant cultural challenges. Beam s New Total Rewards Strategy Provide performance-based, competitive, cost-effective programs that attract, retain and motivate entrepreneurial and empowered employees. Support a high-performance culture through clearly differentiated awards and ownership opportunities for all employees. Foster a shareholder mentality in all employees. Beam s director of people strategy and solutions, Steve Molony (center), with Kevin McGarvey, senior retirement consultant and account manager, Towers Watson, and Kim Pohlschmidt, senior manager, compensation and benefits, Beam Fast-forward to Mackenzie s arrival in That year, to better understand what was happening within the company, the executive team and HR partnered together, and turned to its global stakeholders, including suppliers, partners, customers and distributors, along with internal senior leaders. We listened and learned, taking an outside-in approach, says Pohlschmidt. We asked stakeholders and leaders to describe their view of Beam s company culture. We also asked, What is Beam s competitive advantage? and What are Beam s organizational strengths and weaknesses? Explains Mackenzie, This nontraditional path of looking from the outside in and from the bottom up revealed valuable opportunities for improvement. After getting detailed feedback on what we needed to work on, we took a long look in the mirror. It really clarified things for us. The feedback identified a set of technical and organizational capabilities to be targeted for development. The technical capabilities became the core competencies at which we must excel in order to beat the competition, and the organizational 4 towerswatson.com

5 capabilities became our statement of cultural intent that is, the environment and behaviors that will create the most shareholder value, says Mackenzie. We aligned these with our growth strategy, embedding the culture and organization priorities in the 10 annual company-wide priorities. These included creating growth through innovation, building a more efficient organization and growing power brands. We were finally on our way to achieving a high-performance culture. Going Public At about the same time, Beam announced it would soon become a stand-alone public company. Fortune Brands (a holding company) had decided to separate the three businesses it then owned. Fortune sold its golf enterprise, and spun off its home and security unit. Then Fortune Brands changed its name to Beam Inc., with a sole focus on the spirits business. Becoming a publicly traded, pure-play spirits company was an exciting step in our history, says Frank Cortese, vice president, compensation and benefits, at Beam. But it meant big changes for HR. While the announcement didn t necessarily alter any part of our cultural journey, it meant that we had to begin thinking about shareholders. Everything we did needed to create shareholder returns. We had to fully understand what being independent and public meant for HR and for the company. It was something we never had to think about before. Beam turned to Towers Watson for help. We d been working with Towers Watson on a variety of projects for the past several years, so they were the logical candidate, says Cortese. We knew that for this initiative to succeed, we d need solutions that were tailored specifically to meet our needs. Because of Towers Watson s experience and expertise, they became an invaluable partner and advisor. They gave us an unconstrained view of the possible. The first step was ensuring that Beam s total rewards strategy and programs would serve its future as an independent public company. The Towers Watson team worked with HR leaders to evaluate the company s existing reward offerings, and to design a reward strategy and programs that would promote the company s vision and support its priorities. Sage Advice Beam s HR leadership team offers the following words of wisdom on reinventing total rewards: While change can be difficult, it s vital because your competition is changing at the same time. Start with the end in mind; with every decision, ask yourself, Will this help me get to the end result? External consultants are beneficial because they bring outside expertise to help you craft a solution that s right for you. When you work at a company, you tend to get an insular view, but working with a trusted advisor allows you to see the risks and benefits as well as the big picture. Leadership support is crucial to effective change. Getting buy-in from senior leaders allows you to create a successful program. Ongoing communication with employees is critical. Develop comprehensive communications that are open, honest, clear and concise. Be radical. Do something different. The status quo isn t always the best path. Take a leap, and try something new. Take the necessary time, and be patient. Change doesn t happen overnight. We definitely had some broken pieces, says Pohlschmidt. And if we were going to advance a revamped culture, and foster ownership and accountability among our employees, changes were essential. We needed a total rewards strategy that would drive employee engagement and superior market performance, and help us continue on our journey of transformation and growth. Bold Choices It was clear from the initial work with Towers Watson that redesigning Beam s total rewards strategy was the next necessary step. Objectives included aligning the reward strategy with Beam s business strategy; optimizing reward program investments to generate value for employees, customers and shareholders; providing flexibility to reward employees for value-creating efforts; supporting Beam s objective to attract and retain top talent; sending consistent messages to all Beam employees globally; and reinforcing the desired culture. Strategy at Work 5

6 Towers Watson s Andy Goldstein (left), senior consultant, executive compensation, and Frank Cortese, vice president, compensation and benefits, Beam With our shift to being an independent, public company, we wanted to link all members of the Beam team to one set of goals, one vision and a mindset of having ownership in all we do, explains Steve Molony, Beam s director, people strategy and solutions. With the help of Towers Watson, we developed a reward philosophy that meets our unique needs. He adds, Bold choices became our theme because we believe life boils down to a series of choices. Bold choices take us where we want to be and will help our company get to where it needs to be. We used this idea to guide our total rewards redesign. Once the strategy (see box, page 4) was put in place, the HR team got to work overhauling numerous reward elements to be more in line with the market, enabling Beam to remain competitive. The first change came in the form of an employee stock purchase plan (ESPP), which gave employees an easy way to become direct owners of Beam stock. Stock was offered at a 15% employee discount, and more than 800 employees took advantage of the opportunity in the first purchase period. Next, the HR team made the decision to freeze the U.S. pension plan for current participants, which provided the needed funding to launch the discounted ESPP. The team also redesigned the longterm incentive plan to give leaders more equity in the company and align all leaders around a common plan; enhanced annual incentive plans, including an enterprise-wide element; rolled out employee value proposition (EVP) programming; and began the process of moving to a center of excellence model for all HR transactional processes. In addition, the HR team is developing a new banding structure to further encourage collaboration, ownership and alignment among employees. Every role, band level and compensation range is being reviewed and remapped to the new structure, says Kevin McGarvey, senior retirement consultant and account manager at Towers Watson. Beam will move from having six ambiguous bands, each with three sub-bands, to a clearly defined 12-band structure. And the salary bands and related reward structure will be fully transparent for all employees. A new, formal recognition program rewards top talent, with the brightest stars receiving global recognition and company stock. Also, several other reward programs were launched or enhanced, receiving positive employee response. These programs include Beam Cares, which offers employees two days a year to volunteer in the community; the Brand Ambassadors program, which encourages employees to promote Beam products by providing an allowance for them to spend on the products; and Beam Unplugged, which offers workers three days off in lieu of company service awards. To help employees understand the many changes taking place within HR, an extensive change management and communication plan is in full swing at Beam. Change, in general, is hard, 6 towerswatson.com

7 explains Molony. And changing HR programs is extremely difficult, because they re so personal and touch employees in very different ways. So it s critical to communicate with the workforce about each and every change and its importance. This communication is being delivered in various ways, from , intranet postings and weekly leadership blogs, to quarterly global town hall webcasts and teleconferences. Constant messaging helps us accelerate the company s cultural transformation, says Molony. A Continuous Journey We are making progress, says Mackenzie. Our new programs have been well received, and more changes are on the way. Employees feel more connected now, and they re proud to work for Beam. Mackenzie points to Beam s recent employee engagement survey, which found a favorable employee engagement level of 74% and a manager effectiveness rating of 85%. And surveys following global town hall forums have found that 96% of employees understand Beam s strategy and their role in executing it. But we have more work to do, she says. Our transformational journey is an ongoing work in progress. Mackenzie maintains that to preserve the marketplace success achieved thus far, Beam needs to continue its emphasis on cultivating a unified culture that will promote sustainable, profitable growth. Management needs to be more accountable for decision making and to focus more sharply on setting priorities, controlling costs and developing leaders. Leaders need to become more involved in championing change. And behavioral change is needed throughout the company, so that all workers are aligned with the Beam vision and desired culture. Next year, we ll go back to our external partners and stakeholders, and ask them what they think of our progress over the past three years, says Mackenzie. So many things change from year to year, and it s imperative to keep asking the important questions and viewing ourselves from the outside in. We re on our way, but we have to maintain the momentum. We must continually engage and lead. It s the only way for our brands and our company to have long-term success. Rethinking Rewards for Today s Business Landscape There has never been a more challenging or productive time to rethink and retool your organization s reward and talent management philosophy and programs. Your review should be comprehensive, from how well your programs align with organizational goals to how well they are understood, delivered and adopted worldwide. When they re effective, reward and talent management programs contribute to your organization s growth, help ensure its success in established and emerging markets, help you identify and attract top talent, and define the organizational culture. Solid programs help you define the EVP, boost employee engagement and improve business results. An effective total rewards program aligns with the business strategy and gives shape to the broader EVP the give and get between employer and employee. A total rewards framework allows an organization to identify the right combination of rewards for its workforce. Reward elements include the foundational (pay and retirement benefits), performance-based (incentives), and career and environmental (training and development programs). The organization must allocate its reward budget among these elements in ways that will encourage the right employee behaviors, deliver high perceived value to employees and improve the organization s return on its investment. Strategy at Work 7

8 About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Copyright 2012 Towers Watson. All rights reserved. NA towerswatson.com