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Is Your Company’s Rewards Package Out of Sync

December 1, 1999
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Even though companies continue to strive forincreased competitiveness, many are finding that their compensation and benefitsprogram is out of sync with today’s new business imperatives, according to anew study by New York City-based Towers Perrin, a management and human resourcesconsulting firm.

Managers and employees were polled about thedegree to which today’s rewards programs support current business goals anddeliver value to the organization. Many companies are discovering the loosepatchwork of programs created at different times for differing purposes"does little to support a performance-based deal with employees," saysRichard Meischeid, principal and member of the firm’s total rewards consultingpractice. "In fact, it may undermine it."

Survey findings suggest that, while currentprograms may be less flexible, key program variables can and should be adjustedas business cycles change. For example, most current programs don’t supportthe rewards-for-performance risk equation, and aren’t key drivers ofindividual employee performance.

Company-sponsored employee rewards programs canmiss the mark in a critical respect -- keeping up the new realities in aworkforce that’s changing in dramatic ways. Towers Perrin in its surveysuggests that plan designs move away from the traditional entitlement-basedapproach to one that emphasizes flexibility and shared responsibility withemployees.

To help you figure out if your company’srewards program is out of sync with workforce trends, Workforce asked Meischeidabout developing rewards that are aligned with business goals.

Do today’s rewards programs support businessgoals and deliver value to organizations?

Some do and some don’t. Companies with rewardsprograms that support current business goals tend to have a clear line of sightbetween what the organization needs to achieve and what steps or actionsemployees need to take to achieve those same objectives.

For example, if a company sets a goal to equalor exceed its cost of capital, then the company also needs to define how therole or activities of each employee or team of employees contribute to therequired outcome. The process is reinforced if one or more components of therewards program, e.g., variable pay or the 401(k) plan contribution, is alsoaligned with the company’s goals.

How do you know when the alignment is achieved?

Alignment is achieved when the company’sexpectations and employees’ expectations come together in a "deal"that accomplishes two goals: (1) it balances the company’s requirement to earna competitive return for its investors, and (2) it allows employees to grow anddevelop as individuals.

What makes you think rewards programs are out ofsync with today’s new directions and business imperatives?

Employers tell us they have competitive rewardsprograms, but they haven’t seen a change in performance. Employees, on theother hand, tell us the programs don’t meet their expectations.

How does the "loose patchwork" ofrewards programs undermine performance-based deals with employees?

We think the loose patchwork undermines aneffective performance program by putting too much of the resources into programsthat today’s employees don’t value. For instance, younger employees don’thave the same career expectations as their older counterparts. Therefore, thesignificant cost of providing a retirement program which emphasizes longevityconsumes resources that could be better applied in a well-designed variable payplan or training and development opportunities.

Do most companies lack clearly stated objectivesand links to their business goals?

Companies often have clearly stated high-levelobjectives, but they haven’t been able to translate these down to theday-to-day activities of their employees. Many high performing companies haveinvested in business literacy or economic education programs that help employeesconnect their role with the overall workings of the business. This investmentsignificantly enhances the effectiveness of programs tied to businessperformance and the level of employee engagement and commitment.

Why are program costs so out of sync with what’sneeded in rewards programs?

As mentioned earlier, most of today’s rewardsprograms evolved over a period of years. Retirement plans have generally beenaround the longest while variable pay or employee stock plans are relativelyrecent additions. The result is a layering of plans and their related costs thathave not been rationalized on an integrated basis.

Additionally, recent research on what employeesvalue shows a shift from past employee benefits to things like learning anddevelopment and the environment in which they work. Companies need to take amore holistic or integrated approach to their programs and allocate resources ina manner that maximizes the fit with what their current and employees value.This doesn’t necessarily mean spending more but spending wisely.

How can an HR manager determine if his or hercompany’s rewards program is out of sync?

For openers, they can conduct research with bothemployees and managers. The starting point for any project we undertake is asurvey of employees and managers to test the alignment of the rewards program.

A key component of this research is to presentemployees with information on the current allocation of resources and ask themto reallocate those resources in a way that would better meet their needs.Another way is to measure your program design and cost with programs ofcompetitors in your industry. Lastly, the true test is how well are yourshareholders are doing compared to your competitors. In the long run, you haveto provide a competitive return on investment.

If current programs are less flexible, how cankey program variables be adjusted as business cycles change?

Even in programs that aren’t optimallydesigned, we’ve made strides in the last five years to make them moreflexible. If you look at pay and benefit programs, almost all the changes overthe last several years have been away from fixed or entitlement-based designs toones that are variable and provide employee choice. As indicated, what’s alsoneeded is to broaden the definition to include learning and development and workenvironment programs, as well as the traditional pay and benefit plans.

Why do most current programs fail to support therewards-for-performance risk equation?

By putting more variety into their programs,companies create the opportunity for a meaningful rewards-for-performance link.However, without taking the steps necessary to build the alignment discussedabove, most performance management systems are stuck in neutral, or worse, senda confused message to employees.

How can companies provide effective and conciserewards program communication?

By linking it back to the company’s vision andvalues. Everything should flow from the company’s vision and values, and thatshould translate into the kinds of behaviors required for success andperformance expected from employees at every level of the organization.

Workforce,December 1999, Vol. 78, No. 12, pp. 115-116 -- Subscribenow!

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