The Manager’s Guide to Rewards

What You Need to Know to Get the Best for—and from—Your Employees

Authors: Doug Jensen, Tom McMullen and Mel Stark
Pub Date: 2006
Your Price: $24.95
ISBN: 0814408869
Format: Hardcover

 

• Overview
• Praise for this book
• Sample Chapter
• Table of Contents
• Request an Evaluation Copy, INSTRUCTOR ONLY!

Chapter 1
Why This Book Is Important

MOST BOOKS WRITTEN about compensation are targeted to human resources (HR) professionals or senior executives. As a result, they are often conceptual or theoretical, or they focus on technical and compliance-oriented matters with little attention to practical implementation. But today more than ever, decisions for managing rewards programs are being made by line managers, not by the HR department. We believe there's an unmet need to inform and educate managers about how to reward their employees most effectively to achieve their organization's goals. This book bridges the gap between designing reward programs and making them work.

Throughout this book, we provide practical guidance on compensation-related topics for line managers (managers with profit-and-loss accountability in their organization). We use actual client cases and tell "war stories" to examine real-life experiences. And we draw from our research in partnership with Fortune magazine on its annual World's and America's Most Admired Companies lists, as well as our research partnership with WorldatWork and Loyola University Chicago in the rewards practices of effective organizations. We also reference findings from our global Hay Group Insight employee database of employee opinions, which is one of the largest databases of employee opinions in the world today.


The Problems with Compensation Programs

Ask most managers in companies today about their organizations' compensation programs and you'll hear sharp criticisms about how they are not working. Our consulting experience and research support this general reaction. Do the following statements sound familiar? Do they describe your reactions or your employees' feelings about your organization's compensation programs?

* Available Funding: "How can I motivate and keep my best people when I can give my employees only a 3.5 percent salary increase?"

* Appropriate Authority: "I'm allowed to make major business decisions costing hundreds of thousands of dollars, but I can't spend $10,000 to reward my best people. Something is wrong with the pay program here."

* Line of Sight: "The bonus plan doesn't work. My employees see no connection between what they achieve and how much in bonuses they are paid."

* Performance Orientation: "Pay here is unfair. Your salary is more a function of how long you've been around and what department you work in than what you contribute."

* Market Measurement: "I am told that we must pay the market rate, but the market values don't reflect what I know my key employees are worth."

* Compliance: "It's more important that I comply with the compensation budget than deliver superior results."

Today's managers generally don't believe that their company's compensation programs are effective in helping get the results for which they're held accountable. Yet this perceived inability of rewards programs to deliver superior results signals an enormous missed opportunity. That's because, for most managers, compensation is their largest controllable operating expense. Indeed, other programs would likely be cancelled if they cost as much and delivered as little. If you believe the opportunity to earn more money can influence employees' behavior and performance, then figuring out how to manage compensation should be a priority for you. Successfully managing the compensation you offer your employees gives you an incredible tool to achieve improved business results.

If compensation is a large cost of doing business, and compensation is linked to employee motivation, then what's the problem? Is it one of design or of implementation? How do you make your company's investment in compensation work for the company instead of against it? Why is compensation not held to the same return-on-investment (ROI) standard as other business costs? Do we believe employees are an asset or an expense?

Most organizations do one of two things when it comes to compensation:

1. Follow the herd: Many organizations go to great lengths to understand the market and then follow it pretty much blindly. If they applied this logic to other aspects of their business, they would pay market rates for their supplies, charge market rates for their products and services, and advertise their products using "Me too!" ads. Ironically, companies strive to distinguish themselves when it comes to products, services, and price, but when it comes to managing their investment in human capital, most strive to be in the middle of the pack.

2. Reach for the stars: While it's laudable that some organizations innovate the way they manage compensation, often they merely go after something promoted as new and different rather than sort out whether these new programs are aligned with their business strategy and work culture. Unfortunately, a lot of organizations are interested in doing something different just to be different, rather than ensuring their compensation programs are successful. Many innovative programs fail because they don't align with business needs or the way they get things done.

As a manager, you may be faced with having to live with "Me too" and "New and improved" programs that haven't been well thought out. It's no wonder that you are confused about how best to use compensation to support business success. So, if your compensation programs are problematic, what constitutes "best practice"? Simply stated, best practice is what works for you and your organization.

Our research and experience with clients suggest that best practice is often not so much about sophisticated and different design as about effective alignment and execution. Jeffrey Pfeffer, professor at the Stanford University School of Business, agrees, saying, "A knowledge of what constitutes best practices in all domains, and certainly in the area of managing the employment relation, is transmitted with increasing rapidity. The source of real competitive advantage resides in the ability to actually implement practices that other organizations find difficult."¹

Sports teams rarely win based on new plays. They win with great players, great coaches, and the ability to execute as a team. Likewise in business, compensation can and does play an important supportive role in achieving success, but it rarely causes performance. In our experience, too much weight is placed on compensation, yet not enough is placed on alignment; there's too little focus on what's truly important. Moreover, the KISS principle (Keep It Simple, Stupid) is very important if compensation programs are to have true motivational value.


Compensation to Align with Culture

Line managers have more impact on an organization's rewards program than they may realize. In fact, Hay Group research has shown that up to a 30 percent variance in business results can be explained by differences in the work climate as created by the manager.²

Work climate comprises individual, manager-specific behaviors and styles that set the tone for a work unit, group, or department. Accordingly, climate is measured at the individual-manager level by direct subordinates. Employees in positive work climates are more likely to undertake discretionary efforts in support of their work units. This suggests that managers who are attuned to the climate and who can enhance the work environment create an aspect of total rewards that money can't buy. And those rewards are significant in terms of retention.

In addition, a positive work climate inspires unusual commitment on the part of employees, who in turn deliver discretionary effort—a valuable return on the investment made by a manager to create a robust and engaging work climate. Thus, this book is a practical guide to help managers get more out of their organization's rewards system. Using compensation techniques common to most companies, it shows managers what they can do to leverage their rewards program and help achieve success.

We want to make it clear: There are no "silver bullet" compensation programs. There is no one best approach to reward employees that is right for all organizations and for all employees. When Jack Welch retired as CEO at General Electric (GE) and wrote his book Jack—Straight from the Gut, which included his approach to rewards, many managers tried to replicate it. Most failed. Why? Because they adopted the mechanics of the GE reward system but they didn't have the capability and cultural alignment to support it.

Compensation must be aligned with organizational culture. It's akin to putting your money where your mouth is. For example, if you preach the importance of being a team player and of achieving quality standards, but you rank order employees based only on their individual quantitative results, you can't expect the compensation to support these goals. For compensation to be effective, you need to identify what drives value in the organization and then relentlessly and consistently reward these outcomes.


Total Rewards—It's More Than Money

When managers criticize their organization's rewards programs, they usually focus on money. But people are motivated by more than money. In fact, some people say that money is not a motivator for them at all. So before pointing the finger at how unfairly money is allocated to employees, managers should consider how to use intangible rewards as well as monetary ones. For example, you can get a lot of mileage out of structuring jobs and career paths so that employees understand what they need to do to progress to the next level, as well as ensure that only individuals who demonstrate these capabilities are promoted. If you promote people because of tenure and then complain about the inability to reward your best people, you're missing an easy fix.

This book is about how to use rewards in their broadest context to achieve business success. Thus, rewards include both tangible monetary rewards and intangible (nonmonetary) rewards such as meaningful job designs, career development opportunities, work culture and climate, and work-life balance. So, for most of this book we talk about how managers can impact the total rewards programs, as opposed to the monetary compensation programs alone. Figure 1-1 illustrates this model of a total rewards program, which includes both tangible rewards, such as base salary, incentives, and benefits, and intangible rewards.


The Manager's Tool Kit

While we're concerned here about the impact a manager can have on an organization's rewards programs, managers have many other tools at their disposal to drive organizational success and achieve a positive return on their investment in people. The model in Figure 1-2 provides a useful way of thinking about the levers an organization has to translate business strategy to end results. They all relate to people. Managers who achieve the highest level of success are the ones who align these levers with one another. Managing people effectively is hard work, but it's the kind of work that rewards organizations who do it well.

A summary of each of these seven organization people levers follows.

1. Leadership: The leadership group knows its own goals, roles, and processes. There's a united and compelling vision that inspires the new organization. Individual leaders know how to "walk the talk" and create clear expectations for others.

2. Values and Culture: Culture is shaped by those activities, operations, and behaviors that the organization supports, encourages, and rewards. It's specific enough to lead to behavior changes. Managers take steps to create understanding and buy-in, and the "new employment contract" is understood and accepted.

3. Work Processes and Business Systems: People know how to sustain process improvements for new ways of working. Work processes flow across organizational boundaries to cross-pollinate and take hold in departments, work groups, or business units. Rewards and behaviors support and reinforce this. Information flows to where it's needed, when it's needed.

4. Organization, Team, and Job Design: Jobs are defined and designed; there's clarity about how roles are valued and measured. People know what success looks like and how it links to work culture and business strategy. Teams and individuals understand their roles and accountabilities. There are optimum layers and levels of management throughout the organization.

5. Individual and Team Competencies: Individual and team competencies (valued and desired behaviors) have been identified. The right people are being attracted and retained, and outstanding performers have been matched to pivotal roles.

6. Management Processes and Systems: The business strategy has been translated into specific performance measures. Scorecards are in place for key jobs. Performance planning, coaching, and review processes are linked to reward programs.

7. Rewards and Recognition: Reward systems and processes support business direction, work culture, business processes, and job design. There's a clear tie between rewards and performance measurement. Work is valued and rewarded according to its contribution to the organization. The organization recognizes results attained and how they were achieved. Individual and team contributions are valued and appropriately rewarded.

We spend quite a bit of time discussing the rewards and recognition area, but it's important to realize that rewards and recognition cannot be considered as separate and distinct from the other six people levers. A work unit's performance is optimized and human capital ROI is increased when the supporting people systems in these seven areas are aligned and reinforcing each other as opposed to working in isolation.

A lack of integration and alignment can lead to poor results for the manager and the organization. For example, if an organization has spent a fair amount of time, energy, and resources upgrading its performance management, rewards, and employee development systems, but hasn't aligned its senior leaders to these programs, these initiatives may be viewed as merely HR moves that don't connect to an important organizational goal.


The Structure of This Book

Chapters 2 through 5 of this book focus on macro, overarching rewards program matters. For instance, Chapter 2 addresses the question of how to think about and measure the ROI of rewards programs. Chapter 3 discusses the architecture of rewards programs and their links to business strategy and organization culture. Chapter 4 reviews how to connect performance measures to the rewards program, and Chapter 5 covers the concept of a total rewards program—both the tangible and the intangible elements.

Chapters 6 through 9 cover the core dimensions of compensation and benefits programs. Chapters 6 and 7 focus on determining the market value of work and base salary programs. Chapter 8 covers variable pay, and Chapter 9 discusses the hidden value of benefits.

Chapters 10 through 13 cover key programs that are linked to the compensation program and constitute many of the related levers of the reward program. Chapter 10 discusses performance management and how individuals can be managed and coached to achieve success—and then rewarded for it. Chapter 11 provides a discussion of career paths and the effective alignment of work to employee capabilities, as well as its importance in the total rewards package. Chapter 12 reviews practical ideas on what works (and what doesn't work) in communicating reward programs to employees. We wrap up with Chapter 13, on the significant impact that recognition plays in the manager's rewards portfolio.

We want to reinforce the idea that this is not a book about sophisticated compensation program design. Rather, it is a manager's guide to using rewards programs to achieve competitive advantage and organizational success, in both the short and long term. We believe that the ideas presented in this book, if incorporated into your management practice, will lead you to greater personal success. If practiced broadly, they will also bring you a healthier, more successful organization where reward programs are part of the solution, not the problem.

© 2007 Hay Group, Inc.
All rights reserved.
Published by AMACOM Books
http://www.amacombooks.org
A Division of the American Management Association
1601 Broadway, New York, NY 10019
To order call: 800-250-5308
Email: pubs_cust_serv@amanet.org

Search the full text of this book