11.2 Hellpful for Discussion on Compensation and Reward

7/27/2019 11.2 Hellpful for Discussion on Compensation and Reward

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Developing a TotalCompensation Strategy


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From Compensation

to Total Reward

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What is

Compensation?

What is

Reward?


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From Compensation

to Total Reward

The definition of Reward has changed signifiantly over the last 5 years and

today covers a wide scope of both financial and intrinsic (non financial)

elements:

Financial:Base Pay, Fixed Benefits, Short Term Incentives, Long Term

Incentives Intrinsic:Career Development and Promotion opportunities, Work/Life

balance, Flexible working environments, Pay for Performance Culture

The challenge for organizations is to understand that it is their ability to

holistically manage all aspects of Reward that will ultimately have the

desired impact on the financial success of the organization.

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Elements of Reward

Long TermIncentives

Short TermIncentives

Base Salary &

Benefits

OrganizationalLevel

Career

Development

Promotion

Opportunities

Work / Life

Balance

Flexible Work

Environment


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The Link between Reward

and Financial Performance

RewardDesign &Delivery

ImprovedEmployee

Behaviours

ImprovedBusiness

PerformanceIndicators

ImprovedCompany

Performance

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Reward Design & Delivery

Historically, traditional financial elements of Reward such as salary, short

term bonus and benefits were managed independently, without looking at

ways to optimize the overall value of the package being provided, for both

the employee and the Company.

All of the research indicates that there is a clear trend towards taking a

more holistic approach to Reward. Why?

With increasing focus on cost control, Companies need their Rewardpackage to achieve the highest impact for their employees in order to

generate the greatest return on their investment.


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Employees expect greater flexibility in their total package to meet their

individual needs and Companies are realizing that those elements which

have the strongest influence on employee behaviours are intrinsic rather

than financial.

However, they only successfully support employee commitment levels,

job satisfaction and reduce turnover if they are underpinned by a

competitive financial package.

While recognizing the need to be able to provide more flexible and holisticsolutions for employees, the increasing proportion of pay at risk and the

continuing focus on building a performance culture remain priority

themes for most large organizations irrespective of geography or industry.


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Holistic Management of Total Reward

Increasing focus on intrinsic rewards

Increasing levels of pay at risk

Greater levels of performance focus

Increasing levels of communication andtransparency.

Siloed Management of purely financial

elements of Reward packageThe value of providing above market levelsof fixed cost rewards is decreasing


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ImprovedEmployee

BehavioursThe Impact on Employee Behaviour

The degree of employee satisfaction in a Reward program can be

measured in terms of levels of employee motivation, commitment,

satisfaction, retention and ultimately in the levels of turnover.

It can often be that pay comparisions are the drivers of comparing jobsonce an employee has decided to leave or join an organization, but once

in a job it is intrinsic aspects (esp. Career development and promotion

prospects) which determine whether an employee is committed and

remains.

The continuing prevalence of putting pay at risk and the increasing focus

on performance drives the question: How can a Company use incentive

compensation to truly motivate employees?

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ImprovedEmployee

BehavioursThe Impact on Employee Behaviour

From the employee's perspective, the degree of motivation felt as a direct

result of an incentive scheme is not driven by whether or not the incentive

scheme in it's entirety make sense but the perceived level of fairness and

appropriateness of the current arrangement:

Drivers of motivation include:

The level of individual opportunity which the scheme provides.

The degree to which the drivers of performance (both at the Corporate and individual

level) are clearly defined, communicated and understood.

The extent to which actual levels of incentive received truly differentiate on the basis of

individual performance and contribution. The perception of the level of fairness of the individual performance review as

supported through the performance management process.

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Business Performance Indicators

A key success factor of an Incentive scheme is to recognize the important

middle link between employee behaviours and overall Company

performancethe Business Performance Indicators.

These indicators are the ones which employees can most directly

influence on a day to day basis and typically focus on elements such as

Customer Service, Productivity and Cost Management.

These indicators represent the translation of Company performance topdown, and the contribution of individuals and teams bottom up, and is

central to a solid performance management process.

ImprovedBusiness


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Business Performance Indicators

A successful performance management and incentive scheme will

recognize and support these links by reinforcing the "red thread" bewteen

behaviors, indicators and overall Company performance.

The choice of performance measures to be used in an incentive scheme isa critical design element for Companies who need to think about this

aspect on multiple levels:

Determine the performance aims of the organization

Identify the indicators available to measure progress

Specify the individual contributions required to influence these indicators

Set the necessary standards of achievement which are required

Incentive scheme drivers and indicators are explore further later in this

presentation.

ImprovedBusiness


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Improved Company Performance

The ultimate link in the chain is the ability to increase the level of

Company performance, the definition of which is dependent upon the

performance aims of the Company:

More profit?

Sales Growth?

Reduced Costs? etc.

Whatever the performance aims may be, affordability of an incentive

scheme is a must and therefore plan funding is a key design consideration

both in terms of financial mesaures which could be applied as well as basic

plan architecture.

ImprovedCompany

Performance

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Building a Compensation Philosophy

What is the objectiveof the organization's compensation system?

to attracting and retaining qualified employees,

to reward employees for good performance,

to motivate good performance,

to create or reinforce a particular type of organizational climate?

What is the communicationpolicy?

How is the organization going to communicate the compensation plan

to employees once it has been developed?

Is the organization prepared to evaluate the effectiveness of any such

communication? If so, how?

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How will decisionsregarding pay be made?

Who will be involved in these decisions?

What decision guidelines will need to be developed?

What is the organization's desired market position relative to pay? Will the organization choose to pay market rates, above market or

below market?

How does the desired market position fit with other strategic goals?

What is the desired mixbetween benefits and cash?

Since benefits are an important form of compensation, how does an

organization use them to maximize the effectiveness of the

compensation plan?

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What role does performancehave in the compensation philosophy?

Does it pay for performance or seniority or some combination?

What is the role of performance appraisal in the organization?

How will the organization manage change to the compensation planonce it has been developed?

What systems need to be in place to implement any changes including

deciding when change is necessary and who decides this?

How does the compensation philosophy and plan fit with the rest of the

organization?

How can the compensation practices reinforce other overall

management philosophies and objectives?

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Compensation Philosophy

Checklist

What is the objective of the organization's compensation system?

What is the communication policy?

How will decisions regarding pay be made?

What is the organization's desired market position relative to pay?

What is the desired mix between benefits and cash?

What role does performance have in the compensation philosophy?

How will the organization manage change to the compensation plan once

it has been developed?

How does the compensation philosophy and plan fit with the rest of the

organization?

What is the impact of Geography? Industry? Size and Maturity of

Organization? Reporting Requirements?

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What is the Compensation Strategy of...?

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11.2 Hellpful for Discussion on Compensation and Reward