REWARD MANAGEMENT
Reward design not keeping pace with changing business environment
The business landscape is currently undergoing one of the biggest shifts in living memory but reward and performance management programmes are not keeping pace, undergoing only incremental changes resulting in business needs not being met. This is one of the conclusions from a new report by consultants Towers Perrin looking at rewards and performance management strategy in organisations in 21 countries.
Despite the bleak diagnosis, Towers Perrin does offer advice to companies on how to overcome such problems using a four-step approach.
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Shifts in the business landscape – driven by increased competition, cost pressures, globalisation, ageing populations, technology advances, and skill and labour shortages, to name just a few – require dramatic action, the report argues, but most companies have made minimal changes.
At best, this has involved changes in the design and delivery of their base pay, incentive and performance management programmes. As a result, current programmes do not appear to be meeting talent and people management needs effectively, especially in an environment increasingly focused on attracting and retaining people at all levels in an organisation.
About the study
The Towers Perrin research, the fourth in a decade-long series of studies, presents data from 637 HR and compensation executives in mid-size and large companies in 21 countries in North America, Latin America, Europe and Asia.
Just over 50% of those surveyed came from organisations reporting more than $1 billion in revenues in 2005. The survey builds on similar research from 1995, 1999 and 2003, to compare changes in reward and performance management programmes over time.
Incremental changes
In such a changing environment, Towers Perrin said it expected to see comparable innovations in rewards practices but, instead, found most companies simply adding or eliminating measures in variable pay plans, broadening or cutting back on eligibility for incentives, and shortening or lengthening the pay communication cycle.
In particular, it noted a growing “say/do” gap around reward design and delivery. As a result, it warns: “Put simply, our data confirm what amounts to a pattern of ‘tweaking’ at the edges of programmes, rather than creating the more systemic and integrated approach required to address the scope, intensity and magnitude of change on the business side.”
Other trends highlighted in the study
Among the other trends found by the survey were:
Overall, Ravin Jesuthasan, managing principal and practice leader, said: “On one hand, it’s encouraging to see that companies are emphasising performance and talent retention. On the other hand, what they’re doing to reward and improve performance is not particularly effective, or in line with overall business performance and strategy. There’s a clear disconnect between the contributions senior management wants to elicit from the workforce and the specific tactics organisations are engaging in to realise this contribution.”
Study recommendations
To help companies break the cycle, Towers Perrin recommends four steps they should consider when revamping reward programmes:
1. Think big, bold change. Shake things up, but in a way that aligns with core business goals for performance, cost, talent management and employee engagement.
2. Identify required changes in terms of desired business outcomes, and prioritise and sequence those changes based on an analysis of the efficiency, effectiveness and impact or strategic relevance they will have in meeting specific business goals.
3. Place calculated and systematic bets on specific programmes and segments of the workforce that align with business objectives and priorities. Avoid the “one size fits all” generic approach to rewards because it lacks focus and can marginalise the return on investment.
4. Develop a balanced set of metrics that encompass the key outcomes needed, and measure results against those metrics, adjusting course over time as required.
A final word
“Overwhelmingly, we found that companies are making very incremental changes in reward and performance management programmes and they’re doing so year in and year out. What makes this of concern is that business changes have been anything but incremental. In fact, it’s fair to say the last decade has been among the most turbulent in recent business history, encompassing the dot-com boom and bust, post-9/11 cycles of recession and recovery, and dramatic technological and workforce shifts that are changing both the way companies do business and the way people do their work.” - Ravin Jesuthasan, Towers Perrin.
Want to know more?
Title: Reward Challenges and Changes Survey 2007, Towers Perrin.
Availability: The report on this research is currently in production and not available at present. In the meantime, to view a summary click here
Or to take a look at the press release at click here
Towers Perrin is a global professional services firm that “helps organisations improve their performance through effective people, risk and financial management”. Areas of focus include employee benefits, compensation, communication, change management, employee research and the delivery of HR services. More information about Towers Perrin is available at www.towersperrin.com