Employers urged to adopt total reward approach

TOTAL REWARD

Employers urged to adopt total reward approach

A new European survey by Mercer Human Resource Consulting suggests companies need to re-evaluate their approach to pay and other components of a total rewards programme. 

Key survey results The survey, covering 360 companies in 19 European countries, found: only three in ten companies believe their rewards programme is very effective in attracting and retaining talented employees only two in ten companies believe their rewards programme is very effective in influencing the right employee behaviours just half the rewards programmes differentiate between high and low performers nearly a third of the companies surveyed expressed concern that rewards costs will become unsustainable in the next five years.

Link to business strategy

Just 57% of respondents believe their employee rewards strategy is linked to the company’ s business strategy. "A rewards programme should motivate employees to achieve business objectives," said Paul O’ Malley, principal at Mercer. "If the rewards strategy is not linked to the business strategy, an organisation could find itself moving in two directions."

"Organisations are under increasing pressure to get a return on their investment in employee rewards," O’ Malley said. "The key is to ensure the rewards package strikes a balance between employer, employee and cost perspectives and supports what the business is trying to achieve. By taking a more holistic approach to rewards, organisations will be able to better manage costs, ensure they retain their best people and remain competitive. Moreover, as European companies compete for skilled employees globally, it is more crucial than ever for organisations to ensure their rewards programmes help to attract and retain key staff."

Areas of progress

The Mercer survey found that European companies are making progress in some areas.  As many as 53% of companies have specific guidelines on how to manage employees’ careers.  Said O’ Malley: "Traditionally, companies have focused purely on pay and benefits when designing their employee rewards programmes. It is encouraging that more employers are now expanding their rewards approach to include training and career development."

He added: "High-performing employees stay with organisations that invest in their career progression and have clear processes to manage their development." 

Employee performance

On average, only half the respondents believe they adequately differentiate between high and low performers in rewarding employees. However, the overall results masked considerable differences between sectors:

• 65% of companies in the banking and finance sector differentiate on the basis of performance
• 48% in the high-tech industry
• 36% in insurance
• 29% in the pharmaceutical sector. 

There are also significant differences between countries, with companies in Spain and Germany distinguishing most between high and low performers (63% and 58% respectively) and Belgium and Ireland the least (32% and 34%).

• Luis Sebastian de Erice from Mercer’ s Madrid office said: "Increasingly, Spanish organisations are taking a more progressive approach to rewards management. There is now greater emphasis on ensuring employee objectives support the business strategy and providing superior rewards to high performers." 
• Bernd Thomaszik from Mercer in Germany said: "It is promising that many German employers are differentiating between high and low performers, as this contributes greatly to improvements in productivity levels and helps Germany to continue to be competitive within Europe."  

Rewards costs

• Just over a quarter of respondents (27%) prepare employee rewards cost projections for the next five to ten years. 
• Almost a third (32%) believe the cost of their current rewards programme will become unsustainable within five years. 
• The main reasons cited for this are that rewards costs are not linked to business performance (37%), the fact that variable pay programmes are ineffective (25%), benefit costs are out of control (22%) and base pay increases are too high (16%). 

O’ Malley said: "Reward programmes must foster the knowledge, competencies and behaviours necessary for business success. That business success, in turn, can help ensure that rewards costs are affordable and sustainable. Such an approach is necessary if companies are to constructively address the concern about the sustainability of their current rewards programmes, which was a serious issue for nearly a third of the companies we surveyed." 

"Employers need to understand what is driving cost increases to enable them to make changes in their rewards investments which really make a difference to their bottom line. Otherwise, the potential gains from generating extra productivity may be lost in funding their rewards programmes."

A final word

Want to know more?

Title: European Total Rewards Survey 2005, Mercer Human Resource Consulting.

Survey sample: The survey was carried out in July/August 2005 and involved 367 companies from the following countries: Austria, Belgium, Czech Republic, Denmark, France, Germany, Hungary, Ireland, Italy, Luxembourg, Poland, Portugal, Russia, Spain, Sweden, Switzerland, Netherlands, Turkey and the UK. 

Availability: To request a free copy of the survey results visit www.mercerhr.com/totalrewardseurope.  

Mercer Human Resource Consulting is the "global leader for trusted HR and related financial advice, products, and services". It has more than 15,000 employees serving clients in over 190 cities and 41 countries and territories worldwide. To find out more visit www.mercerhr.com

Posted 11 November 2005