Four ways to get the most out of your benefits and rewards strategy Four ways to get the most out of your benefits and rewards strategy

Four ways to get the most out of your benefits and rewards strategy
04 Oct 2017

Legislative, economic and political changes, which are contributing to the pressure on limited pay budgets worldwide, mean that 2017 is proving to be another challenging year for managing pay and rewards. The reality for most employers is that pay pots are not growing, recruitment is challenging, and hanging onto key talent even harder.

As a result, it is critical to understand the importance of pay in the employee engagement equation and how it can drive productivity and performance. This means working with leaders - as business enablers - to ensure that every penny going on employee compensation is spent wisely and shows a return in investment. So what do you need to bear in mind here?

1. Understand what you are paying for

The best place to start is in having a long, hard look at what you are actually paying for. Pay differentiation is a challenge in a low wage growth environment and many employers are choosing the easy option of blanket rises for all because it is easier and seen as non- discriminatory. Bt1t such an approach has little real strategic benefit.

Even if you are employing a simple pay-for­ performance policy - that is, linking salary and merit increases to performance ratings with some form of bell curve distribution - it is necessary to take a closer look at the impact. The reality of taking a bell curve approach when distributing pay budgets is that you actually end up focusing most of that budget on average performers rather than the high performers driving productivity.

Another key area to evaluate is out of cycle/ad-hoc wage rises. Most companies check the total cost here and reconcile it with the real annual percentage wage increase, but you also need to understand who is getting these off-Cycle awards and why.

If left unchecked, such awards can destabilise the effectiveness of a well-defined pay-for­-performance system.

Moreover, from a pay equity perspective, recent research has shown that more off-cycle awards go to men because women are less assertive about asking for a salary increase in the first place.

A further point to consider is whether you are paying simply for tenure rather than actual performance. To understand this situation, it is useful to undertake an analysis of average wage increases by the length of service.

When it comes to variable pay, meanwhile, if you are using a wholly discretionary approach to bonus allocation, you will need to see if there is any real link to the performance where the money is actually going and to which groups of employees. It is also worth bearing in mind that unconscious bias is harder to control when pay decisions are very discretionary.

In the case of key performance indicator (KPI)-based schemes, there is merit in reevaluating how your policy’s' metrics relate to individual performance, contribution and productivity. If you are a companywide metric - either as a standalone KPI or as a multiplier on individual performance - ultimately it means that everyone will receive the same award irrespective of individual contribution.

While compensation will be in line with company performance, you will not be incentivizing the employees who contribute most to productivity. But is this really the message you want to give to staff?

2. Ensure you know what high performance and talent look like in your organisation

For most employers, rewards focus on compensating performance. But if you are unsure what great performance looks like in your organization, how can you be sure you are paying the right amount for the right thing?

The notion of effective performance management is currently under the microscope, with many organisations considering whether to adapt their existing annual review-based approach to one based on ongoing feedback and coaching. There is also a trend towards introducing a broader pay-for­ talent approach.

Pay-for-performance tends to be a backward­ focused activity as it rewards performance for the prior financial year. Pay-for-talent on the other hand, seeks to address this bias by taking other talent metrics such as future skills, market worth and attrition retention risk into consideration when evaluating an employee's worth and allocating pay.

But whatever track you take, it is important to have the conversation on what performance and talent means to your organization and how you can best recognise and evaluate it.

3. Consider the balance of intrinsic vs extrinsic reward

A lot of people are now questioning the true power of cash to motivate employees in today's working environment and whether it may actually generate dissatisfaction from a motivational point of view. But if work is becoming a matter of discretionary effort, it is important to recognize that too truly engage personnel, space must be created so they can collaboratively share ideas, innovate, gain skills and have new experiences.

In the right environment, intrinsic can actually Become more important than extrinsic reward with meaning being the new currency. But it is still important that extrinsic needs (money or pay) are covered adequately, otherwise, they are likely to disproportionally crowd out any other efforts you make on the intrinsic reward front.

This means that getting basic remuneration right is vital, but when considering how to do more with limited pay budgets, it is also worth considering intrinsic reward as part of your overall proposition.

4. Use technology to improve decision-making

Whichever approach you choose to manage performance and reward, the reality is that pay decisions will never be wholly objective. Ultimately, decisions are made based on subjective judgements.

As a result, there are some clear benefits in using technology such as data analytics and visualization tools to support your reward programmes. Firstly, automation can make the process simpler and give participants in the process more time to focus on the desired outcome.

But technology can also unlock compensation data's potential by giving managers qualitative information. This information should help them differentiate between different individuals' performance or to explain decisions made about pay.

Conclusion

Many businesses today fail to demonstrate how remuneration links to either their reward or business strategy. They also have only a limited understanding of what intangible value they are Receiving from their employees.

But more than ever, it is, worth taking a good look at what you are actually paying for and thinking more creatively beyond traditional pay reference period approaches. Remember that one size does not fit all but, given today's unrelenting pace of change, it is vital you find, ways of future proofing your reward strategy nonetheless.

 

Ruth Thomas is a founder and senior consultant at Curo. With over 20 years of global HR and reward management experience in the financial services sector, she has international expertise in managing compensation processes and the design of pay and benefit structures, salary progression systems and management incentive plans. Her corporate experience includes working for LloydsTSB Group, Price Waterhouse Coopers, DowJones Group and Credit Suisse.

Legislative, economic and political changes, which are contributing to the pressure on limited pay budgets worldwide, mean that 2017 is proving to be another challenging year for managing pay and rewards. The reality for most employers is that pay pots are not growing, recruitment is challenging, and hanging onto key talent even harder.

As a result, it is critical to understand the importance of pay in the employee engagement equation and how it can drive productivity and performance. This means working with leaders - as business enablers - to ensure that every penny going on employee compensation is spent wisely and shows a return in investment. So what do you need to bear in mind here?

1. Understand what you are paying for

The best place to start is in having a long, hard look at what you are actually paying for. Pay differentiation is a challenge in a low wage growth environment and many employers are choosing the easy option of blanket rises for all because it is easier and seen as non- discriminatory. Bt1t such an approach has little real strategic benefit.

Even if you are employing a simple pay-for­ performance policy - that is, linking salary and merit increases to performance ratings with some form of bell curve distribution - it is necessary to take a closer look at the impact. The reality of taking a bell curve approach when distributing pay budgets is that you actually end up focusing most of that budget on average performers rather than the high performers driving productivity.

Another key area to evaluate is out of cycle/ad-hoc wage rises. Most companies check the total cost here and reconcile it with the real annual percentage wage increase, but you also need to understand who is getting these off-Cycle awards and why.

If left unchecked, such awards can destabilise the effectiveness of a well-defined pay-for­-performance system.

Moreover, from a pay equity perspective, recent research has shown that more off-cycle awards go to men because women are less assertive about asking for a salary increase in the first place.

A further point to consider is whether you are paying simply for tenure rather than actual performance. To understand this situation, it is useful to undertake an analysis of average wage increases by the length of service.

When it comes to variable pay, meanwhile, if you are using a wholly discretionary approach to bonus allocation, you will need to see if there is any real link to the performance where the money is actually going and to which groups of employees. It is also worth bearing in mind that unconscious bias is harder to control when pay decisions are very discretionary.

In the case of key performance indicator (KPI)-based schemes, there is merit in reevaluating how your policy’s' metrics relate to individual performance, contribution and productivity. If you are a companywide metric - either as a standalone KPI or as a multiplier on individual performance - ultimately it means that everyone will receive the same award irrespective of individual contribution.

While compensation will be in line with company performance, you will not be incentivizing the employees who contribute most to productivity. But is this really the message you want to give to staff?

2. Ensure you know what high performance and talent look like in your organisation

For most employers, rewards focus on compensating performance. But if you are unsure what great performance looks like in your organization, how can you be sure you are paying the right amount for the right thing?

The notion of effective performance management is currently under the microscope, with many organisations considering whether to adapt their existing annual review-based approach to one based on ongoing feedback and coaching. There is also a trend towards introducing a broader pay-for­ talent approach.

Pay-for-performance tends to be a backward­ focused activity as it rewards performance for the prior financial year. Pay-for-talent on the other hand, seeks to address this bias by taking other talent metrics such as future skills, market worth and attrition retention risk into consideration when evaluating an employee's worth and allocating pay.

But whatever track you take, it is important to have the conversation on what performance and talent means to your organization and how you can best recognise and evaluate it.

3. Consider the balance of intrinsic vs extrinsic reward

A lot of people are now questioning the true power of cash to motivate employees in today's working environment and whether it may actually generate dissatisfaction from a motivational point of view. But if work is becoming a matter of discretionary effort, it is important to recognize that too truly engage personnel, space must be created so they can collaboratively share ideas, innovate, gain skills and have new experiences.

In the right environment, intrinsic can actually Become more important than extrinsic reward with meaning being the new currency. But it is still important that extrinsic needs (money or pay) are covered adequately, otherwise, they are likely to disproportionally crowd out any other efforts you make on the intrinsic reward front.

This means that getting basic remuneration right is vital, but when considering how to do more with limited pay budgets, it is also worth considering intrinsic reward as part of your overall proposition.

4. Use technology to improve decision-making

Whichever approach you choose to manage performance and reward, the reality is that pay decisions will never be wholly objective. Ultimately, decisions are made based on subjective judgements.

As a result, there are some clear benefits in using technology such as data analytics and visualization tools to support your reward programmes. Firstly, automation can make the process simpler and give participants in the process more time to focus on the desired outcome.

But technology can also unlock compensation data's potential by giving managers qualitative information. This information should help them differentiate between different individuals' performance or to explain decisions made about pay.

Conclusion

Many businesses today fail to demonstrate how remuneration links to either their reward or business strategy. They also have only a limited understanding of what intangible value they are Receiving from their employees.

But more than ever, it is, worth taking a good look at what you are actually paying for and thinking more creatively beyond traditional pay reference period approaches. Remember that one size does not fit all but, given today's unrelenting pace of change, it is vital you find, ways of future proofing your reward strategy nonetheless.

 

Ruth Thomas is a founder and senior consultant at Curo. With over 20 years of global HR and reward management experience in the financial services sector, she has international expertise in managing compensation processes and the design of pay and benefit structures, salary progression systems and management incentive plans. Her corporate experience includes working for LloydsTSB Group, Price Waterhouse Coopers, DowJones Group and Credit Suisse.