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Designing an Effective Total Rewards Strategy
Michael F. MaciekowichNational Director
Astron Solutions, [email protected]
www.astronsolutions.com
Designing an Effective Total Rewards Strategy
Michael F. MaciekowichNational Director
Astron Solutions, [email protected]
www.astronsolutions.com
Introduction
Given the turbulent economic environment, HumanResource Professionals are facing significant challengesand changes within their organizations.
Short-term financial stress may force alternative cost-cutting measures for immediate implementation.
So, how can total rewards be restructured to maintainworkforce engagement?
And what should be your long term approach to creating atotal rewards system that is adaptable, flexible, and alignedwith your strategic business direction?
2
Given the turbulent economic environment, HumanResource Professionals are facing significant challengesand changes within their organizations.
Short-term financial stress may force alternative cost-cutting measures for immediate implementation.
So, how can total rewards be restructured to maintainworkforce engagement?
And what should be your long term approach to creating atotal rewards system that is adaptable, flexible, and alignedwith your strategic business direction?
Total Rewards “Tools”
External PositionEquity
Internal PositionEquity
Employee Pay andRecognition Equity
Total “Non-Cash”Compensation –
Benefits/ Retirement
Ability to Fund allAspects of the
Program
• Competitiveness interms of Geography.
• Competitiveness interms of industry.
• Level ofcompetitiveness byorganization andposition.
•Recruitment andRetention Trends.
• Determineorganizational value ofpositions regardless ofmarket value.
•Determine value ofpositions not matchedto the market.
•Determine thedifferences among“families” of jobs.
• Determineinternal pay levelsof employeesbased onseniority,performance, orother methods.
• Determineappropriatemethods torecognizeemployeeperformance andcontributions.
• Understandingthe impact of“Generations” incompensationdecisions.
• Addressing the risingcost of insurance inplan design.
• The need to havemore employee costsharing.
•Understandingpressures fromorganized labor.
•The need forflexibility inaddressing“generational”differences in bothbenefit and pensiondesign.
•Impact of fluctuatingstock market onpension designstrategies.
•Funding all aspects ofthe programunderstanding theimpact of currentindustry trends.
•Determining the“ROI” of all programsto demonstrate theimpact on effectiverecruitment andretention of staffrequired for theorganization tosucceed.
•Proactivelydeveloping strategiesthat reduce costimpacts whileremaining effective.
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• Competitiveness interms of Geography.
• Competitiveness interms of industry.
• Level ofcompetitiveness byorganization andposition.
•Recruitment andRetention Trends.
• Determineorganizational value ofpositions regardless ofmarket value.
•Determine value ofpositions not matchedto the market.
•Determine thedifferences among“families” of jobs.
• Determineinternal pay levelsof employeesbased onseniority,performance, orother methods.
• Determineappropriatemethods torecognizeemployeeperformance andcontributions.
• Understandingthe impact of“Generations” incompensationdecisions.
• Addressing the risingcost of insurance inplan design.
• The need to havemore employee costsharing.
•Understandingpressures fromorganized labor.
•The need forflexibility inaddressing“generational”differences in bothbenefit and pensiondesign.
•Impact of fluctuatingstock market onpension designstrategies.
•Funding all aspects ofthe programunderstanding theimpact of currentindustry trends.
•Determining the“ROI” of all programsto demonstrate theimpact on effectiverecruitment andretention of staffrequired for theorganization tosucceed.
•Proactivelydeveloping strategiesthat reduce costimpacts whileremaining effective.
Responding to the Fluctuating Economy:
Short Term Responses
Responding to the Fluctuating Economy:
Short Term Responses
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Short Term Responses(2011 Towers Watson)
• Freezing or reducing the base pay increase budget;
• Increasing employee contributions for group health coverageand/or increasing deductibles, copayments, or annual out-of-pocket expense maximums;
• Delaying pay increases (i.e., from 12 months to 15 months);
• Eliminating ineligible dependents from the organizations grouphealth plan;
• Reducing discretionary contributions to a defined contributionretirement plan; and
• Replacing current-year increases in base pay with lump sum meritand/or recognition awards.
• Freezing or reducing the base pay increase budget;
• Increasing employee contributions for group health coverageand/or increasing deductibles, copayments, or annual out-of-pocket expense maximums;
• Delaying pay increases (i.e., from 12 months to 15 months);
• Eliminating ineligible dependents from the organizations grouphealth plan;
• Reducing discretionary contributions to a defined contributionretirement plan; and
• Replacing current-year increases in base pay with lump sum meritand/or recognition awards.
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Questions Generated by Short Term Actions
• How will actions taken impact theorganization’s ability to attract andretain strategic talent needed tomaintain a competitive advantage?
• What are the strategic, financial, andoperational issues that management isdealing with?
• What are customer expectations?
• How can total rewards be restructured tomaintain workforce engagement?
• How will actions taken impact theorganization’s ability to attract andretain strategic talent needed tomaintain a competitive advantage?
• What are the strategic, financial, andoperational issues that management isdealing with?
• What are customer expectations?
• How can total rewards be restructured tomaintain workforce engagement?
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Alternatives To Be Considered
• Providing rewards to selected individuals in the form ofequity, in lieu of a pay increase or bonus;
• Renegotiating the terms of the employment relationshipwith strategic, high-performing talent (e.g., work schedule,change in job mix);
• Providing for greater participation by selected individuals inthe decision-making process of the business, and access toinformation;
• Restructuring retirement programs to better predict andcontrol annual costs;
• Providing rewards to selected individuals in the form ofequity, in lieu of a pay increase or bonus;
• Renegotiating the terms of the employment relationshipwith strategic, high-performing talent (e.g., work schedule,change in job mix);
• Providing for greater participation by selected individuals inthe decision-making process of the business, and access toinformation;
• Restructuring retirement programs to better predict andcontrol annual costs;
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Alternatives To Be Considered
• Providing financial incentives to improve employee health andproductivity, including participation in health risk assessments,wellness, and condition management programs;
• Delivering lump sum recognition awards (i.e., cash and/or non-cash), particularly for delivering exceptional customer service;
• Providing enhanced professional development opportunities;
• Restructuring incentive plan performance conditions and/ortargets to align rewards with new or revised strategic initiatives;and/or
• Linking stay bonuses to accomplishment of new, strategicinitiatives.
• Providing financial incentives to improve employee health andproductivity, including participation in health risk assessments,wellness, and condition management programs;
• Delivering lump sum recognition awards (i.e., cash and/or non-cash), particularly for delivering exceptional customer service;
• Providing enhanced professional development opportunities;
• Restructuring incentive plan performance conditions and/ortargets to align rewards with new or revised strategic initiatives;and/or
• Linking stay bonuses to accomplishment of new, strategicinitiatives.
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Responding to the Fluctuating Economy:Long Term ResponsesResponding to the Fluctuating Economy:Long Term Responses
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Long-Term Total Rewards StrategicPlanning
Reinforce an organizational culture of:
Continuous change;
High performance;
Employee health and well-being; and
Active employee involvement.
Reinforce an organizational culture of:
Continuous change;
High performance;
Employee health and well-being; and
Active employee involvement.
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Long-Term Total Rewards StrategicPlanning
Allocating rewards resources in a mannerthat maximizes ROI.
Viewing rewards as an investment withan expected return.
Demonstrate the ultimate impact of suchrewards on the customer valueproposition and financial performance.
Allocating rewards resources in a mannerthat maximizes ROI.
Viewing rewards as an investment withan expected return.
Demonstrate the ultimate impact of suchrewards on the customer valueproposition and financial performance.
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Long-Term Total Rewards StrategicPlanning
Continuously communicating with employees about:
Business strategy;
Customer expectations;
Strategic initiatives;
Knowing and addressing their health risk factors;
Business performance; and
How individual contributions link to the above.
Continuously communicating with employees about:
Business strategy;
Customer expectations;
Strategic initiatives;
Knowing and addressing their health risk factors;
Business performance; and
How individual contributions link to the above.
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Long-Term Total Rewards StrategicPlanning
Continuously engaging high performing, strategictalent.
This can be accomplished by keeping strategic,high-performing individuals and groups informedon the current state of the business and activelyinvolving them in strategic and operationalplanning processes.
This is a form of reward and recognition thatsends a clear signal that the organization valueskey individuals regardless of their level in theorganization.
Continuously engaging high performing, strategictalent.
This can be accomplished by keeping strategic,high-performing individuals and groups informedon the current state of the business and activelyinvolving them in strategic and operationalplanning processes.
This is a form of reward and recognition thatsends a clear signal that the organization valueskey individuals regardless of their level in theorganization.
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Long-Term Total Rewards StrategicPlanning
Building a balanced total rewards system that:
Reinforces shared employee and employerresponsibility, particularly in containinghealthcare cost increases;
Includes all employees in some form of variablepay;
Recognizes and rewards individual talentdevelopment;
Encourages employee involvement; and
Rewards financial results and performance thataligns with the business strategy.
Building a balanced total rewards system that:
Reinforces shared employee and employerresponsibility, particularly in containinghealthcare cost increases;
Includes all employees in some form of variablepay;
Recognizes and rewards individual talentdevelopment;
Encourages employee involvement; and
Rewards financial results and performance thataligns with the business strategy.
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Challenge for the Future
• In the short term:
to make the business case for continuedinvestment in rewards that arestrategically allocated and effectivelydesigned to reward performance thatdrives future economic prosperity and;
• In the long term:
to align rewards with other HR systemsthat create a more adaptable and changeoriented culture.
• In the short term:
to make the business case for continuedinvestment in rewards that arestrategically allocated and effectivelydesigned to reward performance thatdrives future economic prosperity and;
• In the long term:
to align rewards with other HR systemsthat create a more adaptable and changeoriented culture.
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THE “ROI” of Total Reward ProgramsTHE “ROI” of Total Reward Programs
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Changing the Mind Set in HR ProgramDesign
• Instead of no identified business need for a newprogram, the proposed program is linked to a specificbusiness need.
• Instead of no assessment of program performanceissues, the program is assessed for performanceeffectiveness.
• Instead of no specific measurable objectives, specificobjectives are set for behavior and business impact.
• Instead of no effort being made to prepare programparticipants to achieve results, specific expectationsregarding results are communicated to participants.
• Instead of no efforts to build partnerships with keymanagers, the establishment of partnerships with keymanagers helps to create buy-in for the newapproach.
• Instead of no identified business need for a newprogram, the proposed program is linked to a specificbusiness need.
• Instead of no assessment of program performanceissues, the program is assessed for performanceeffectiveness.
• Instead of no specific measurable objectives, specificobjectives are set for behavior and business impact.
• Instead of no effort being made to prepare programparticipants to achieve results, specific expectationsregarding results are communicated to participants.
• Instead of no efforts to build partnerships with keymanagers, the establishment of partnerships with keymanagers helps to create buy-in for the newapproach.
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Determining “ROI”: Simple Approach
• Divide the monetary benefits by theprogram costs to determine the ROI.
• For example, if a wellness programinitiated by your company that cost$20,000 resulted in 400 fewer physicianoffice visits by employees that year at atotal savings of $30,000, the ROI for costsavings would be 1.5, or 150 percent.
• Divide the monetary benefits by theprogram costs to determine the ROI.
• For example, if a wellness programinitiated by your company that cost$20,000 resulted in 400 fewer physicianoffice visits by employees that year at atotal savings of $30,000, the ROI for costsavings would be 1.5, or 150 percent.
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Measures to Avoid
There are “soft” HR measures that you should avoid, if yourexecutives demand ROI level proof. They include:
-Performance appraisal improvement (Some will accept this)-Satisfaction surveys (Managers or employees)-Engagement surveys-360 degree results-Low turnover rates (It could because your workers are notdesirable)-Number of applications received
There are “soft” HR measures that you should avoid, if yourexecutives demand ROI level proof. They include:
-Performance appraisal improvement (Some will accept this)-Satisfaction surveys (Managers or employees)-Engagement surveys-360 degree results-Low turnover rates (It could because your workers are notdesirable)-Number of applications received
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“Balanced Scorecard” Compensation StrategicPlanning
Based on the “Balanced Scorecard” Concept ofStrategic Planning
The Balanced ScorecardTranslating Strategy Into Action
FinancialTo succeed financially, how shouldwe appear to our stakeholders?
CustomerTo achieve our vision and carryout our mission, how should weappear to ourcustomers/community?
GrowthTo achieve our vision,how do we sustainour ability to change,grow, and improve?
OrganizationSuccess
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CustomerTo achieve our vision and carryout our mission, how should weappear to ourcustomers/community?
Quality
To satisfy our stakeholders andcustomers, in what services mustwe excel?
GrowthTo achieve our vision,how do we sustainour ability to change,grow, and improve?
OrganizationSuccess
Human Resources
To achieve employeesatisfaction, what humanresource programs do we needto provide/excel?
• Objectives
• Measures
• Targets
• Initiatives
The Balanced ScorecardSetting Targets/Measuring Performance
Financial• Operating margins
• Capital budget
Customer•Satisfaction surveys
Growth• Sales/volume
• New product/servicedevelopment
• Expandedregions/markets
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Customer•Satisfaction surveys
Quality
•Processimprovement
•Outcome measures
Growth• Sales/volume
• New product/servicedevelopment
• Expandedregions/markets
OrganizationSuccess
Human Resources
•Employee feedback/surveys
The Balanced Scorecard Job Content Evaluation Model(For Both Traditional Job Analysis or New “One Job per Person” Model)
Financial Accountability• Direct or Indirect
• Revenue or Expense
CustomerAccountability• Direct or Indirect
• Internal or External
Growth• Direct or Indirect
• Internal or External
• Process or Outcome
OrganizationSuccess
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CustomerAccountability• Direct or Indirect
• Internal or External
QualityAccountability
• Direct or Indirect
• Process or Outcome
Growth• Direct or Indirect
• Internal or External
• Process or Outcome
OrganizationSuccess
Human ResourcesAccountability
• Direct or Indirect
• Individual or Team
The Balanced Scorecard Competency BasedPerformance Management Model
Financial Performance•Utilization of Resources•Core Competencies Required
Customer Performance•Customer Interactions•Core CompetenciesRequired
Growth Performance• Process
Improvement• Core Competencies
Required
OrganizationSuccess
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Customer Performance•Customer Interactions•Core CompetenciesRequired
QualityPerformance
•Process
•Core CompetenciesRequired
Growth Performance• Process
Improvement• Core Competencies
Required
OrganizationSuccess
Human ResourcesPerformance
•Teamwork/Interaction
•Core CompetenciesRequired
The Balanced ScorecardIndividual Incentive Model
Financial Performance•Utilization of Resources• Outcome or Result• $ Value
Customer Performance•Customer Interactions• Outcome or Result• $ Value
Growth Performance•ProcessImprovement
• Innovation• Outcome or Result• $ Value
OrganizationSuccess
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Customer Performance•Customer Interactions• Outcome or Result• $ Value
Quality Performance
•Process
• Outcome or Result
• $ Value
Growth Performance•ProcessImprovement
• Innovation• Outcome or Result• $ Value
OrganizationSuccess
Human ResourcesPerformance
•Teamwork/Interaction
• Outcome or Result
• $ Value
