In the last decade, major companies made moves to total rewards. Some companies implemented creative total reward designs that align pay with concrete goals that add value to their business. 2 For other companies, good business times led them to a strategy of becoming a "best place to work," by liberalizing pay, benefits, and workplace experiences. Whatever the solution, the objective is always to create a positive bond between people and organizations.
What´s in the cards for the next few years? New directions or remaining on track with a successful total reward strategy? Consensus is that if a reward strategy were built with both good and bad times on the radar screen, the organization would stay the course. However, a number of companies have decided that low points in the business cycle will influence what they do in the shorter term. That´s what this article is about.
Course Correction?
Let´s look at some tactics companies are putting into action to handle dwindling pay budgets and a labor market where the talent supply is often exceeding demand. Some of these apply in good times and bad, but they become more apparent when pay dollars are especially scarce.
1. Achieve Maximum "Bang" for Compensation Expenditures.
2. Place an Urgent Priority on Keeping Critical Talent.
3. Add More "Beef" to Performance Management.
4. Shore Up Variable Pay/Lump-Sum Awards.
5. Hold Managers Accountable for Budget Management.
The important thing is these tactics are linked. Most organizations say they are just basics of sound pay management, no matter what the business cycle. Let´s examine these and the reward planner´s role that is quickly evolving into a business manager for reward dollars.
Achieve Maximum "Bang" for Compensation Expenditures
More than ever, companies need to get more of whatever they want from their workforce per compensation dollar expended. Prioritization of demands on compensation dollars is the latest trend. The time has passed (at least for now) for companies to believe they can distribute budgeted dollars until they are expended and then "return to the well" to get more for some unexpected or unplanned compensation. Accountability is clearly in vogue and increasingly becoming a critical manager job requirement.
But isn´t getting more "bang for the buck" just normal for contemporary companies facing uncharted waters? Yes, but getting more mileage from talent strategies and tactics is of heightened interest now because of the slumping economy and the fact that this downturn is becoming increasingly protracted. Company leaders are calling on compensation planners to "show me the beef" in the bottom-line impact of new human resource programs. This includes setting baseline performance levels in real terms and subsequently attempting to isolate the positive impact program changes have on moving these baselines higher and higher. If the objective is to improve the talent pool or to better achieve some business unit goals, how has the reward solution helped in measurable terms? How have the connections between measures such as quality, productivity, customer satisfaction, and other key company goals been helped by how compensation dollars are allocated? If the company is spending dollars to achieve some returns, can we track the relationship between what they get and what they spend in some sort of measurable terms?
How can compensation planners help to get this "bang"?
Remember scarce talent and the search for gaining advantage by attracting the very best people? Well, it´s still getting attention from top people responsible for managing human resources to accomplish goals and objectives. This commonly requires identifying the skills and capabilities that are most essential to your organization and selecting the top performers who have these skills and can effectively apply them to achieve the required results.
The new emphasis is on the "Superkeeper" that companies need to be successful-the people who have the critical core competencies and are most effective in applying the competencies to get business results. These people are required in both good times and bad but when pay dollars are scarce, companies must make sure that they have first call on available dollars. Thus it is essential to be able to identify the Superkeeper and build a carefully focused strategy to keep the ones you have and attract more of those you need. 3
The reward planner must assist the senior management team in defining and executing a Superkeeper strategy that "brings home the bacon" for the company. And the company is measuring reward effectiveness in terms of how successful it is in filling the slots with critical talent and in making sure the best people remain excited and motivated under any and all economic circumstances.
Bottom-line tactics for the reward planner
To direct compensation resources to the people who can help your company best, you need a way to identify critical skills and evaluate the individual performance of those who have them. An effective performance management solution becomes a vital tool in effectively allocating money to the people who are strong performers and are most critical to the core business. Limited compensation budgets place a high priority on making sure your performance management solution can effectively get pay dollars to the people who are most essential to the future of your organization. And of course, performance management systems are crucial tools for identifying your company´s Superkeepers.
The reward planner is also essential to developing and implementing performance management solutions that are effective in cascading goals from the company´s business strategy to the workforce that is called upon to make real performance differences. This involves coaching and training in translating corporate goals into goals more under the workforce´s influence. It also means "branding" your company as a "best business place to work" rather than just a "best place to work" because of highly liberal benefits and pay that are shared by both the top performers and those that may not fully add value to the business. 4
Tactically, the reward planner must:
Base pay adjustments have historically served many purposes-to respond to competitive realities in the labor market, reflect differences in the value of the role employees play in making the company a success, reflect performance on an individual level, respond to internal pay relationships among workforce members, and pay for the acquisition and application of skills and competencies. The challenge with base pay adjustments is that once granted they are a fixed cost to the organization. They lack the agility or flexibility that contemporary organizations need to respond to changes in organizational staffing and workforce requirements.
Making variable pay and lump-sum awards work effectively is a clear priority especially under limited budgets. Variable pay based on key goals can put limited compensation dollars into the pockets of employees who are most important to making the company a success. And variable pay provides the agility and versatility the organization needs to acknowledge changes annually or more frequently. Variable pay has lost some luster because of missed performance goals over the last few years, so restoring confidence in this powerful tool is a necessity for organizations seeking to shore up their compensation solution tool kit.
But isn´t it right that the workforce should not receive variable pay awards when goals are missed? The role of the compensation planner is to make sure that the goals used for variable pay are set reasonably based on the company´s business expectations. Thousands of new variable pay plans have been implemented for workforce members below the management level. These plans add value to the business because they permit companies to make employees stakeholders in achieving reasonable goals that make the company grow and prosper. The new role of reward planners is to help senior management set these goals, translate them so they are understood by employees, and make sure they can be achieved based on the existing business climate. 5
The challenge for reward planners is to:
Too often managers aren´t held accountable for managing to the annual compensation budgets for which they are responsible. This is changing. Organizations are training managers to assume responsibility for budget allocation and for telling employees under their direction why they receive the compensation treatment they do and what they must do to earn more of the compensation budget allocated. Increasingly managers are the primary communicators of the implications of the pay program. And a key tool is the company´s goals that are translated through the performance management system and reflected in the base pay or variable pay outcomes that result from the process.
Managers should be accountable for the entire increase budget-not just merit or annual increase but also promotions and any other types of increases. Companies are budgeting and tracking promotions to historical levels to avoid increased and unwarranted spending. Others are attempting to at least partially fund programs from base pay savings generated by natural workforce attrition. The compensation planner must be an educator to help managers become responsible for effective reward budget management. This means developing and implementing training tools that help managers better direct their scarce pay increase dollars toward attracting and retaining the Superkeepers the company needs to thrive during tough times.
What can the reward planner do to help?
We´ve been in times of limited compensation budgets before. And sometimes we´ve missed the boat on managing ourselves out of these challenges positively. Compensation planners are again being tested from both a strategic and tactical standpoint. Again we have the opportunity to get it right so we can gain the benefit of what we learn going forward. It´s our belief that although our five suggestions are important when budget times are tough, they remain critical for the long-term health of compensation management during any economic times and in all workforce circumstances.
Side Bar: Compensation Basics for Lean Budget Times
Here´s what companies should be doing to get the most out of compensation dollars. Although the focus is on lean compensation times, these basics make excellent sense no matter what the state of the business or compensation budget may be:
1Charles Peck. "Compensation Plans in Curious Times: Salary Increase Budgets Being Reduced," Executive Action No. 39. New York: The Conference Board, December 2002.
2Zingheim, P.K., and Schuster, J. R. Pay People Right! Breakthrough Reward Strategies to Create Great Companies. San Francisco: Jossey-Bass, 2000.
3Zingheim, P.K. "Winning the Battle for Superkeepers: Talent Your Company Needs to Thrive." In L. A. Berger and D. R. Berger (eds.), The Talent Management Handbook: Creating Organization Excellence through Identifying, Developing, and Positioning Your Best People. New York: McGraw Hill, 2003.
4Zingheim, P.K., and Schuster, J.R. "Creating a Powerful Customized Workplace Reward Brand." Compensation & Benefits Review, November/December 2001, 33 (6), 30-33.
5Schuster, J.R., and Zingheim, P.K. The New Pay: Linking Employee and Organizational Performance. San Francisco: Jossey-Bass, 1996.