New Hay Group research: part 2 - reward



New Hay Group research: part 2 — reward

Under the spotlight here, the latest report from the Philadelphia-based Hay Group, one of the world's largest human resources consulting firms. Published annually, this vast publication is packed with recent studies carried out by the consultancy. It is a fascinating look at the US reward landscape, covering a broad range of topics with numerous insights into a host of pay and benefits issues. Above all, it offers a comprehensive guide to Hay's reward philosophy.

Hay has 2,000 staff members spread across 34 countries. This influential firm is best known for its HR consulting, particularly in the areas of compensation, work valuation, role design and performance management.

Below we explore in detail some of the more crucial passages regarding strategy, design and implementation in the new Hay report, Compensation and benefit strategies for 2000 and beyond.

Conceptual approach

In short, two key themes underpin much of Hay's reward work:

  • Hay takes an integrated approach that links initiatives to business strategy. One overriding theme running throughout the report is the desirability of organisation's adopting an integrated approach that links reward initiatives to business strategy. It is Hay's contention that the effectiveness of reward programmes is "determined not by the design of the reward programme alone but also the integration of the reward programme with the other levers of business performance."

  • Reward is a support rather than a "driver" of performance. Another powerful message to emerge from even the most cursory reading of the report is Hay's view that "reward should not be expected to drive organisation performance but to reinforce what is important and provide focus to achieve it".

Changes in US reward agenda

The 1990s were, it is said, a decade of unprecedented change in US reward management. In the words of Hay: "The past ten years have been a period of tremendous experimentation. Never has there been so much change in reward programmes".

The picture the report paints is one of "a mature compensation marketplace". The evidence? "Incentive compensation, once rare, is common for many employees; salary increases seem to pattern economic performance; bonuses are bigger for best-performing organisations."

But this news comes with a health warning. The 1980s and 1990s have been littered with a range of reward management practices to which many organisations have been attracted. In the search for the magic pay formula to push their companies ahead of rivals, organisations have been lured into adopting new approaches. Yet there are many examples of failure and, indeed, much dissatisfaction among employees with some of these less than effective reward creations.

As Hay observes, "too much change and too little effectiveness seem to be all too common". Wave after wave of fine-tuning, it seems, "has left employees unclear about the rules of the game."

So is reward management any better at doing any of the things it is supposed to be doing? "Amid all the change, some vital questions remain unanswered: Are you getting appropriate value for your investment in new compensation programmes. Do employees feel better about the newer programmes. And does this translate into better performance?"

Alignment and implementation

Hay's research into organisations with "truly best practice" suggests that success in managing performance hinges on two essential elements.

First, it is vital to develop pay design structures and pay delivery processes that align with culture, work profile, market, and performance measurement criteria.

      "High-performing organisations have a passion for determining what is important and aligning all of their efforts with these goals. High-performing organisations clearly define their organisational mission, vision, and values. These goals form the basis for both strategy and culture. They align their HR philosophies with their desired culture and strategy." — Hay.

The second essential element is implementation. Hay is ready to acknowledge that execution is more critical than design. It's all very well having a dazzling strategy, says Hay, but it's not what differentiates the best from the rest.

      "Implementation is the key to achieving the desired strategy and culture. Yet so often, it is in the area of implementation where organisations fall short. Implementation requires more effort than design of effective strategies. Implementation requires building organisational capability and ensuring that individuals perform up to their full capability." — Hay.

However, Hay's essential message is not that the design of the actual programme is unimportant. Clearly, a poorly conceived plan has little chance of succeeding. What’s more, it is likely to do damage.

      "Our premise holds that the success of any programme relies on how it is implemented and managed in the context of overall change in the organisation. Failing to focus on the co-ordination, implementation, and change-management aspects of new compensation programmes will almost always guarantee less-than-hoped-for results." — Hay.

Performance pay pitfalls

Hay avoids the temptation to try and present easy answers. It is terribly complex out there. Indeed, Hay has a stark message for those organisations planning to introduce some form of performance-related pay:

      "Paying for performance is not easy. It requires a clear understanding of performance expectations, the ability to measure and manage performance, the ability to pay for superior performance, and the willingness to deal with poor performance. This is the difficult part. Paying for outstanding performance is reasonably easy; dealing with poor performance is not."

Criteria for success

So what are the golden rules to ensure that your reward programmes create value? We've distilled some of Hay's "new rules for success".

1 Focus on the middle

Too often the focus in reward and performance management systems is on nurturing and developing the high performers.

      "The real challenge is managing the performance of employees in the middle. Small performance improvements from the largest part of your employee population will yield huge increases in organisation performance." — Hay.

2 View reward in its broadest context

Long gone are the days when reward was just about cash and benefits; it also now includes work environment and quality of life considerations, the opportunity for advancement and recognition. Hay has dubbed this concept "emotional reward".

      "Even when the 'total reward' picture is developed, it often is only a small piece of the bigger picture. Equally — or even more important — are the emotional elements of reward. These are both the monetary and non-monetary factors that influence each and every employees' feeling about 'what they get back' from their efforts." — Hay.

3 Secure the commitment of line managers

      "Line managers must own reward and performance. They must see the management of performance as a key accountability. Line managers are increasingly becoming the champions of reward system change. They are dealing with the day-to-day challenges, and they are ones who will be held accountable for success." — Hay.

4 Plan for and manage change in reward design

      "At the end of the day, well-designed reward programmes are important. But more importantly, sustainable value comes from the ability to implement performance and reward systems that can manage and cope with change in the marketplace." — Hay.

5 Invest in capability

      "This means not just paying for the market value of work and the immediate market value of people, but investing over the long-term in the capability of people. This includes all forms of emotional reward. Ultimately, turnover is the most significant operational cost to the organisation, not the differential pay that outstanding performers receive." — Hay.

Want to know more?

Title: The Hay report: compensation and benefit strategies for 2000 and beyond.

Availability: contact Susan Hale, report co-ordinator in Massachusetts, USA, tel: (001) 781 239 1111.

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