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Uncertainty is the Guiding Light for 2001

April 5, 2001
Related Topics: Compensation Design and Communication, Featured Article
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It is our view that 2001 will be a "watershed" year for pay andrewards. Companies will have a host of critical decisions to make -- all of themwill be important and all of them will be challenging. A few words may bringsome of the issues into clearer focus:

  1. Companies are transitioning from one of the longest periods of economicgrowth to a time of uncertainty. For the last few years "everything"we did relative to pay and rewards seemed to "work." Now we will seethe need for a powerful business case for everything we do. It must add value tothe business -- good news for a change.

  2. We are going from a time when companies we may have been "tossingmoney" at scarce talent -- inflating base pay, granting equity, andcreating "new entitlements." Now we have an environment where we arelaying off talent in one part of the enterprise and scratching to attract andretain it elsewhere. No more "one size fits all" reward solutionsgoing forward; internal equity has been redefined.

  3. Hiring is changing -- from recruitment that placed a premium on all skillsto a situation where hiring is more selective. Companies that couldn't build aperformance culture employment model before have another shot now. Rather thanjust designing rewards to get and keep everyone, now we need to emphasizerewards that are attractive to people who want to add value. Some companies willmiss this second chance again.

  4. Companies are offering incentives and equity lower in the workforce ranksthan ever before. Because business times were good, nearly any incentive planpaid off. Also every share of stock became more valuable. This has stopped. Itis important now to link rewards to what drives business -- a chance to userewards as the accelerator pedal that makes the company go again.

  5. We now know that stock options are not the "secret sauce" offinancial rewards. This gives us an opportunity to re-start our equity-sharingstrategies. Hopefully these new strategies will include communication andeducation so people know that company stock can go up and down -- and in afairly short time period.

  6. Employees have gained the "upper hand" because they have accessto more competitive compensation data on the Internet than ever before.Companies need to train their managers to deal with a workforce that is more"pay and reward savvy" -- call it "re-arming managers with theinformation they need to do their jobs."

  7. Companies did not need to follow the basic rules of reward design --everything "paid off." We will now see a return to good and basicblocking-and-tackling design. The elements include workforce involvement,alignment with business metrics, win-win for company and people, and simplicity.

  8. Our pay and rewards were designed for a business environment where wecould pass all our people costs on to customers. So we just continued to pilemore costly answers on the fire. Now we may have a reward solution that isfocused on keeping people -- all people regardless of value-added. It is time toconsider pay and reward solutions that are more cost justified based oncontribution to the business.

  9. We grew to realize that people work for more than pay -- at least the onesyou want to keep, anyway. Total rewards in the form of providing a compellingfuture that people you need find attractive; individual growth so peoplecontinue to add value and adapt as they grow in economic value; a positiveworkplace where people want to do well; and lastly total pay comprised of basepay, incentives, recognition and celebration, and benefits.

WorkforcePay and Rewards:
Compare 2000/Start of2001

2000

Start of 2001

Business very strongBusiness extremely mixed
All talent was scarceSome talent scarce, some not
Hiring full speed aheadLayoffs and selective hiring
Continue move to broad-based incentivesIncentives not paying off
Options viewed as "the answer"Options "underwater"
E-pay gives workforce "data"E-pay still going strong
Everything workedSome solutions struggling
Adding pay was the solutionStronger alignment of pay with performance results necessary
Total rewards on radarContinue focus on total rewards
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