If you have employees in different countries, the programs are probably very different, so it may be easier to have separate inventory lists for each country.
TIP: This is a great tool to have on hand in the event of a merger/acquisition. I’ve been through a lot of these, and I can tell you that it makes the due diligence process easier by having a prepared inventory list of programs. Also, it helps to facilitate the integration of employee programs across companies because it provides a basis for comparison.
I’ve provided a worksheet on my website (paschakelley.com) that will assist you with creating your inventory list and assessment of each program.
Assess Internal Environment
The Total Rewards strategy should drive accomplishment of business goals and help create a Magnetic Culture. In order to do this, the inventory list should be assessed to determine if the programs are aligned with the company’s vision, mission, goals, and culture.
In order to determine if your current programs are providing engagement, you should ask your employees directly. Get feedback from your employees on what is important to them and how they see your current programs. This is frequently done via a survey. There are several online survey providers that are inexpensive.
Exit interviews are another way to find out how effective your employee programs are. Ask if there is something in the employee programs or work experience that you could have changed that would have made them want to stay. Hint: If you’re having a lot of exit interviews, you might need to change some things.
Creating an Employee Advisory Group (EAG) is another great way to get employees’ points of view on an ongoing basis. At Scandipharm, we had a group called the Total Rewards Network, comprised of a mix of people from different levels and departments. They met once a quarter and provided HR with insight on the pulse of the workforce.
Examples of topics to discuss with an EAG follow.
Are a lot of employees considering leaving? If so, why? Can we do anything about it?
How are we doing on communicating our programs? Do employees understand what they have? If no, how can we improve communications?
What do employees value about our company? What keeps them here? How can we expand on that?
We are considering adding/changing an employee program. How do you think that will be received by the employees?
The members of the EAG can also serve as ambassadors for new or changing programs. If you give them information before other employees, it makes them feel important (an insider), and they are more likely to champion the changes with other employees.
When selecting EAG members, you should choose people who are able to maintain confidences, are not gossips, would not try to use it for political or personal gain, and have a level head on their shoulders.
Assess External Influences
Your Total Rewards strategy needs to take into account the ever-changing external environment, which includes government regulations, attitudes of the work force, labor supply, etc. You need to understand the unique influences in the marketplace and build a strategy that will attract, retain, and engage employees in that environment.
You can get information on the external marketplace from professional associations, business journals, and consultants. However you get your information, don’t stop at this one assessment. The workforce is changing at lightning speed, so this assessment should be constant. Some current examples of trends in the external marketplace include:
Baby Boomers retiring
Shortage of skilled workers
More woman in the work place
Flexibility is now expected instead of requested
Millennials are the largest group in the workplace
Millennials place a high value on non-financial rewards such as flexibility, work environment, time for community service, etc. This is actually good news for business leaders who get it. By this I mean they are willing to ditch old-school ways of doing things and are open to new ways of working. I’ve seen leaders who won’t budge on working in new ways, no matter how much research data is put before them.
For business leaders who are willing to advance in the way they do business, this is a great way to get ahead of the competition. Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”
STEP 2: DEVELOP THE TOTAL REWARDS STRATEGY
Taking into account all of the research that you did in Step 1, you can now develop your Total Rewards strategy. First, consider the following:
Strengths – What is working? Determine what makes your company unique. How can you use this to differentiate your company from others?
Risks – Are your employees about to abandon ship? What can you do to entice them to stay?
Zombies – At Ziglar, we call employees who are not engaged “Zombies.” Our goal is to help companies turn their Zombies into productive people. Do you have a Zombie problem in your company? How can you bring them to life?
Now, go back to your Total Rewards inventory list and make notes about the individual programs, what is working, and what is not. Make suggestions for changes where needed. This could include modifying existing programs to respond to employee and potential employee needs. This could include eliminating or phasing out programs that are not providing value or are not cost effective.
Next, make a list of any programs you want to add. You probably will not be able to make changes to programs all at once. Therefore, I suggest that you prioritize changes based on critical need and budget.
Finally, sell your new Total Rewards strategy and the changes that you are requesting to the powers that be. Gain approval and implement!
Consider setting up measurements to track the impact of your Total Rewards strategy. Some examples include turnover metrics and employee engagement surveys.
STEP 3: CREATE A COMMUNICATION PLAN
To be effective, your Total Rewards program must have a communication strategy. A Total Rewards program without a communication strategy is like a car without wheels. You can sit in it, but it won’t get you anywhere! The Total Rewards package and individual components should be communicated frequently with employees. The communication strategy should provide a picture of the rich program the company offers, and ensure that every employee knows how to take full advantage of all that is offered.
When we built our Total Rewards program, I found that there were benefits I didn’t even know about! For example, I found out that our healthcare provider offered a wellness website for free, and very few people knew about it. By communicating this wellness program to employees as part of our Total Rewards program, we increased the perceived value of our benefits program without spending a dime!
Total Rewards communication is so important that it has its own chapter, so I won’t get into the details here.
STEP 4: EVALUATE AND REVISE
External and internal environments are constantly changing. Therefore, to be effective, you should consistently assess your Total Rewards program and make changes as necessary. Try to stay ahead of the curve, not behind it.
I find that it is helpful to schedule this assessment to occur right before the annual budget process. This way, if you need to ask for additional funding for programs, you are prepared to fight the battle for money. Also, if you tie your annual assessment to another business process, it helps ensure that it gets done.
To create and maintain competitive advantage, your Total Rewards strategy cannot be stagnant. It should be a constant process of assessment and improvement.
In the next sections, I provide an overview of each component of the Total Rewards toolkit.
CHAPTER 17
Compensation
COMPENSATION IS THE BEST-KNOWN COMPONENT of the Total Rewards family. It is also the most c
omplex and expensive component. Since I’m a numbers gal, I love working in compensation. There is a lot that I would like to share about compensation strategy, but I’m going to refrain from geeking out and just give you some basics and tips.
Compensation is divided into two categories: fixed compensation and variable compensation
1.Fixed compensation is also known as “base pay.” This is an annual amount or rate that is fixed and is not based on performance. Base pay includes:
Salary – compensation paid on a weekly, biweekly, or monthly basis
Hourly Rate – compensation paid by the hours worked
Piece Work – payment is based on the rate of production
2.Variable compensation is based on the results achieved by the individual and/or the company. It is also called “pay at risk” or “incentive compensation.” Variable compensation can be paid on a short-term (one year or less) basis or long-term (greater than one year) basis. The time of payout depends on the performance goals that it is tied to.
Short-term incentive (STI) – The payments are generally made on a quarterly or annual basis. They include bonus, commissions, and profit-sharing plans.
Long-term incentives (LTI) – This pays out sometime in the future based on achievement by the company and/or individual (trigger event). It is designed to retain employees long-term because they do not receive full payment if they leave before the trigger event occurs. LTI is generally stock-based and includes stock options, stock appreciation rights (SARs), restricted stock/restricted stock units (RSUs), and other long-term performance awards.
The combination of fixed and variable pay is called the Total Compensation package. When you benchmark your compensation to other companies, you should look at the Total Compensation package instead of just base pay. Companies at different stages of development (e.g., start-up, growth, mature) have different mixes of these pay elements. For example, start-up companies usually have a greater percentage of variable compensation, so if the company wins, the employees win, and vice versa.
ADMINISTRATION
Pay practices should be communicated effectively to employees, and managers should be well-trained on their role in administering compensation. The level of detail shared with employees on compensation programs varies widely across companies. Even if you don’t provide detailed numbers (e.g., salary ranges, hourly rate scale) to employees, at least communicate the how, why, and when of your pay practices. Employees will feel uncertain if it appears that compensation is a deep, dark secret that leaders do not talk about. I can guarantee you that employees talk and will make up their own theories if none is provided by the company.
PAY INCREASES
I recommend that compensation decisions be aligned with performance. Even though base pay does not vary in amount paid based on performance, you can tie increases to performance. Let’s face it, you only have a certain amount of money that you can give to employees. Don’t you want to give your high performers the bulk of it? To align base pay decisions with performance, you should plan to make pay raise decisions following your performance review cycle.
HANDLING COMPLAINERS
It will save you a lot of time and headaches if you have only one time a year that pay raises are considered, and employees know that the decisions are tied to their performance. There are always those employees who have a friend working at another company in the same job making more than they do. Or, they have done their own market research (usually on Salary.com) and think that they should be paid more – right now!
When you have one of these people show up in your office, you can simply explain that pay raises are given one time a year. At this time, total compensation is compared to the market, and internal equity is also reviewed. You can further explain that paying employees fairly is a business priority, and it takes time to make good pay decisions. Also, raises are contingent on performance scores.
At this point, the employee should walk out reasonably satisfied. If the employee does not, you probably have an issue on your hands. If you did give this employee a raise, he would most likely come back and demand another raise soon. These kinds of people usually do not fit in a Magnetic Culture, and you will probably have to show them the door eventually.
PROMOTIONS
I recommend that promotions be made at a certain time of year as well. It works best if you do this at the same time you are reviewing salary increases. Handling complainers works the same way it does with salary increases. Simply explain the process.
Now, there are some exceptions to this rule, such as a higher-level position becoming available and an employee filling that position. Also, in an extreme case where an employee leaves or a job is eliminated, and another employee absorbs the work responsibility in addition to doing his or her own job. This could be a person that you consider promoting sooner. However, I do not recommend that you give the promotion immediately. Give the person time to see if he or she can manage both jobs successfully. Many times the burden is too great, and the employee can’t manage it. You don’t want to give a promotion prematurely as you can’t or shouldn’t take it back. However, I recommend that you use rewards and recognition in the short-term to show the employee appreciation for their extra work.
Giving promotions to well-deserving employees was the most joyful part of my job. It was also one of the most difficult because I didn’t give promotions to everyone who requested one. I always strived to be very fair. I assessed each promotion request carefully, and looked across the organization for employees who did not request a promotion but deserved one. I had to be firm with those who tried to sway me in the wrong direction. I was not always liked for my decisions, and I have the battle scars to prove it!
The bottom line is that the promotion process has to be fair across the entire company. When you give a promotion to someone, you are making a statement about their work and their behavior to the rest of the company.
If you give a promotion to someone who does not deserve it from a work-level stand point, performance or a behavior stand point, you will be stirring up more problems for yourself. Fixing one problem can cause many more problems to rise. Other employees take note of who is promoted. If they feel that they are doing the same level of work as the person promoted, they will probably request a promotion as well. Also, if a person of poor character is promoted, employees will think that this is acceptable behavior and many will follow suit or be disenfranchised.
I encourage you to give promotions to those who deserve them based on work, performance and behavior. Keep in mind that promotions are one of the greatest forms of reward and recognition, and you will get more of what you reward.
COMPENSATION STATEMENTS
Making your compensation decisions on an annual cycle aligned with performance also makes communications more efficient and effective. I recommend sending out a comprehensive annual Compensation Statement to employees following the annual compensation decision process.
An annual compensation statement should begin with a brief letter from the president or other leader on company results for the year and a summary of major accomplishments. This is particularly important if compensation decisions are based on company achievements. The letter should also thank the employees for their contributions.
What the Compensation Statement covers depends on the types of decisions made annually. The statement could include:
Individual performance rating score
Pay increases
Short-term incentive payouts
Long-term incentive awards and payouts
Promotions and impact on pay and benefits
Effective dates for pay increases and promotions, and when payments will be made
It is helpful to provide as much detail as possible. Provided below is an example of a compensation statement.
Comprehensive statements help increase t
he perceived value of compensation. Communicating the whole, instead of individual pieces at various times, helps employees appreciate their total package. This is particularly important if an employee is unhappy with one part of his or her compensation. Understanding the total compensation package could retain this employee.
Compensation is an emotional area for employees. Having their compensation explained clearly helps dial down the anxiety. Knowing that they will receive this information at the same time each year gives employees a degree of security.
A compensation statement that communicates clearly and has an appealing look is like wrapping paper. You are giving employees a good compensation package. By wrapping it in nice paper with a bow on top (Compensation Statement), you improve the perceived value of the gift.
CHAPTER 18
Benefits
BENEFITS INCLUDE A WIDE VARIETY of health, income protection (short-term and long-term disability), and savings and retirement programs. In general, benefits are designed to provide security for employees and their families. Below is a list of the most common benefits programs:
Health and Wellness Programs
Medical healthcare plan
Dental healthcare plan
Prescription drug plan
Vision plan
Telemedicine services
Life insurance/ Accidental Death & Dismemberment (AD&D)
Short-term disability (STD) insurance
Long-term disability (LTD) insurance
Health savings accounts (HSA)
Flexible spending accounts (FSA)
Health reimbursement accounts (HRAs)
Employee assistance programs (EAP)
Immunization clinics or promotions
Wellness programs and wellness incentives (e.g., cash and non-cash prizes, recognition, awards)
The Magnetic Advantage Page 7