Something Else That Fortune's Most Admired Companies Do Better: Reward Communication

According to Hay Group's research and analysis, Fortune magazine's Most Admired Companies do a better job than the rest of us at communicating the value of their reward programs, and they do it via regularly reward statements for their employees.

From the research:

How important is this?  In recent research on reward communication conducted by WorldatWork and Dow Scott of Loyola University, repondents rated individualized compensation or total reward statements as the most effective pay communication method, for base pay (84% rated effective or very effective), short-term variable pay (83% rated effective or very effective) and benefits (88% rated effective or very effective). 

And yet only about half of Fortune's peer group takes this communication step, and less than 70% of those organizations surveyed in WorldatWork's research say that they provide compensation statements.

Tough to appreciate the value of your total compensation package if your employer isn't providing you with that information in a clear format, on a regular basis.   

Putting Employees in Charge of Reward Communication: An Intriguing Success Story

In a post from this week's WorldatWork conference in Philadelphia, blogger Ryan Johnson shares an interesting story about an HR department (at Minnesota company Best Buy) that decided to try a different approach to employee communication.

From Ryan's post:

At Best Buy, the HR department decided to try something a little different to increase employee participation in the 401(k) plan. They took a page out of the YouTube phenomenon and offered $1,000 cash to any employee or employee team that created the best short video encouraging employees to enroll. They were astounded to receive more than 30 entries, but they were even more astounded when the winning video was so effective at promoting 401(k) enrollment that their budget for match was reached.

Cool, eh?

Any readers from Best Buy who can weigh in with more info?

Pay Program Participation & Transparency: a Voice or a Vote?

I have had some great conversations with a few of my clients recently as part of ongoing efforts to "open up" their compensation programs - giving employees and managers opportunity for input to program development and working to better inform and educate them on program purpose, intent and mechanics.

A funny thing happens in the course of moving these compensation programs to (hopefully) a better place.  More involved and informed employees are more likely to voice concerns, question and even challenge elements of the program.  That's right.  Which, to the HR or reward professional who has invested so much time and energy (and sometimes even political capital) in making the programs better and more open, can feel like taking two steps back after taking three steps forward.  But it's not.  This is simply part of the new paradigm that the organization has entered.  Transparent and participative pay programs can be messier and more complicated to manage than secret, dictatorially designed programs.  But they are ultimately better for it.

However.

I also believe that, in these circumstances, there is an important message that must be sent and repeated about who is in charge at the end of the day.  About who has a voice and who has the vote.  And the message is this:  The organization and its governing bodies (management and/or the Board, typically) retain the right and the responsibility to set employee compensation.  Period. 

Now, they do everyone - including themselves - a tremendous favor if they choose to discharge this responsibility by providing well-considered opportunities for employee/manager input and if they seek to make and keep pay programs appropriately transparent.  But this doesn't change the fact that they hold the right to make the final decisions on the programs and policies by which people are paid.

We occasionally need to remind our most strident and outspoken employees of this fact, even while encouraging their (constructively expressed) ideas and feedback.

That's my stand.  I posted some time back about pay democracy, after reading a Wall Street Journal article featuring a company that had allegedly arrived at that place.  I have to confess that I just don't see it.  Others may have a different point of view.  What say you?

Do We Stink at Pay Communication?

Well, let's just say that there appears to be ample opportunity for improvement.

The results of a recent research study, Rewards Communication and Pay Secrecy, conducted by WorldatWork, Dow Scott, Ph.D. (Loyola University), and Hay Group, suggest that communication may indeed be the Achille's heel of our reward efforts. 

Select findings from the research indicate some troubling disconnects in the areas of base pay -

With respect to base salary practices, the majority of study respondents (WorldatWork members) indicated that "most" (60%-80%) to "all" (80%+) of their employees do not know or understand:

• The salary range for their own position, or
• The goals, rationale or intent of why base pay increases were distributed the way they were.

Further, 21% of study respondents reported that up to 40% of employees would not understand the amount of the increase they would receive.

The picture for variable pay practices is not much prettier -

While 70% of respondents do tell employees their variable pay targets, the remaining 30% either do not establish targets or don't make a practice of communicating them to employees.

And while a majority may communicate the variable pay targets few appear to communicate actual payout metrics, including:

• Payout based on performance targets (only 20%), or
• Payout for each level of performance (14%).

I find these results to be nothing short of stunning.  Recent research suggests that our number one priority for our reward programs is an increased emphasis on performance-based pay.  That being true, how on earth do we expect to drive employees' performance with pay when we are unable or unwilling to explain the basic mechanics of these pay programs to them? 

Clearly there is work to be done here, and the study does provide helpful information and insights on where to begin.  For example, respondents indicate that individualized compensation or total reward statements appear to be the most effective single method for communicating reward information - but that using multiple approaches (i.e., a combination of written, face-to-face and electronic) increases overall communication effectiveness.

The authors of the study will be examining results in more detail at the upcoming WorldatWork conference in Philadelphia (May 20-23), so if you're planning to attend, this might be a session worth checking out.  For more information on the study, contact WorldatWork.

Top Reward Strategy in Tough Times ... Communication!

I conduct an annual survey of compensation trends and practices in my market.  Having done this survey now for a number of years, I find it interesting to note the patterns in employee rewards over time - in good economic years and in difficult ones.  My favorite question, one I ask every year, is: "What compensation strategies and tactics did your organization find most helpful to keep employees motivated and productive over the past year?"

I had occasion recently to back through historic survey results, and took a look at what we learned in 2003.

This was a tough year reward-wise, at least in my area of the country.  Organizations were facing business and financial challenges, many had tightened or even frozen salary increase budgets as well as their salary range structures.  Under these circumstances, I think it was - and is - interesting to note that the top reward strategy mentioned by HR professionals for 2003 was frequent, open and honest communication.  This wasn't limited to communication about pay, though that was certainly part of it, but rather included covering a range of topics with employees - from business conditions to the company's goals and plans.  Frequently.  And honestly. 

It was this commitment to openness and dialogue, according to the HR leaders participating in that survey, that had the most positive impact on morale productivity during times that were challenging. 

Fairness versus Earning Maximization

At its essence, the employment relationship is an economic exchange, an exchange of work for wages.  Framed in this way, like any business transaction, we might see it as a situation where the overriding objective of both parties is to maximize their respective "takes" from the exchange. 

Most of us in HR and related fields realize, however, that the relationship is more complex, nuanced and multi-dimensional than this.  To support to this point of view, comes an interesting piece of research from the Wharton School at the University of Pennsylvania.

An intriguing Knowledge@Wharton article In the Game of Business, Playing Fair Can Actually Lead to Greater Profits  highlights the research of Wharton marketing professors John Zhang and Jagmohan Raju. Their experiments and consequent transactional model, which are rooted in the emerging field of behavioral economics, demonstrate that people can and will value the idea of fairness over sheer profit maximization. 

And the condition necessary for this to happen?  Transparency.

What takeaway can those of us in the HR and reward professionals draw from their work and conclusions?  I think it boils down to this:  Don't underestimate the value of transparency in reward design, implementation and communication.

While most of us may wish to earn as much as we can for the work that we do, we also realize that the exchange has many elements and is rarely as simple as that - for us or for our employers.  I do think, however, that most of us do share one overriding priority in the relationship, and that is the need to feel assured that we have been treated fairly. 

The Compensation Communication Challenge, In a Nutshell

Today Paul Hebert of Incentive Intelligence has a noteworthy post on the challenge of effectively communicating reward programs, featuring a quote by George Bernard Shaw that cuts to the very essence of the problem.  I can't resist sharing it here:

The problem with communication ... is the illusion that it has been accomplished.

Wise words!

Check out Paul's post for some helpful tips on how to meet the communication challenge, and help position your reward program for success.

Transparency in Reward Practices

Jeff Prouty, Chairman and Founder of the Prouty Project, a Minneapolis based consulting firm which serves clients in the areas of strategic planning and organizational performance, recently published a column in our local Business Journal about the importance of a transparent office culture to an organization's productivity and bottom line ("Boost Productivity, Bottom Line with Transparent Office Culture"). 

I've had opportunity to work with Jeff and his team, both as a client and as a member of the Prouty Partners, a group of independent consultants who contribute specialized expertise to Prouty client projects.  As a result, I have seen first hand the benefits of Jeff's absolute commitment to transparency.  His thoughts on this topic are worth noting.

The article discusses a number of suggested tactics for creating a more transparent culture; here are a few that relate more directly to rewards and performance:

Everyone sees complete financial statements.  No one within an organization should be kept in the dark in regards to how the business is performing.  Share the complete financial statements with all employees.  Allow everyone to read from the 'same hymnal' and weigh in with their individual perspectives.  While it doesn't make resource allocation discussions any easier, it helps make conversations more meaningful and productive.  <Note from Ann:  Many private organizations struggle with the decision to make financial information public.  Holding this information close, though, creates an environment where it is very difficult to engage people in improving the business.  Transparency is particularly key for the success of incentive compensation - or any kind of 'pay for performance' effort.>    

Everyone knows what everyone makes.  So much time is wasted with employees guessing or worrying about what someone else makes.  Cut through all that wasted time and speculation by publishing a document once a year that shows everyone's salary.  As Mikhail Gorbachev said, 'If the economics are right, the politics and peace will take care of themselves.'  <Note from Ann: This is a bit radical, but Jeff absolutely walks his talk in this regard.  It takes courage for business leaders to expose their compensation decisions to the harsh light of day in this fashion, but it does force honest and forthright discussion of why people are paid as they are.>

Everyone weighs in on everyone's performance.  Once a year have everyone evaluate each other's performance.  It's a simple 360-feedback tool that focuses on qualitative comments rather than quantitative data.  Compile everyone's comments and spend a day as a team or department reviewing the feedback.  This discussion is intended to be helpful and developmental, with an opportunity to clarify any questions and confusion.

I've seen teams take an entire day and the end result is that each individual creates three commitments from the feedback that they intend to live over the next year.  They frame these commitments and put them on their desk as a daily reminder. <Note from Ann:  This is a different multi-rater feedback approach than those highly quantitative and automated systems which many organizations use, but this more direct and personal approach ensures that the feedback is truly understood and absorbed in the context it was shared, and that there is a concrete commitment to put the feedback into action.>

Provide incentive compensation.  Make everyone on the team eligible for an annual bonus on top of base salary.  Fifty percent of that bonus is tied to team results and the other 50 percent is tied to individual results.  This helps foster teamwork and personal accountability.  Again, everyone sees everything: team goals, individual goals, and the bonus payouts.  No surprises.  <Note from Ann:  As Jeff points out, an incentive payment that comes as a surprise - in a good or bad way - is not an incentive payment that will have a positive impact on employee behavior and effort.  Transparency is critical to achieving ROI on an incentive/bonus program.>

 

Engagement = Sr. Management Commitment to Communication

Another key finding from the Watson Wyatt WorkUSA Survey featured in yesterday's post is the strong connection between employee engagement and a commitment to frequent communication by the organization's senior management (news release here).  The survey reports that more than half (56%) of highly engaged employees report receiving communication from senior managers at least once a month.  In contrast, nearly half (42%) of low engaged employees say they receive annual communication or no communication at all.

Juxtaposed with the finding on the importance of leader communication was this:  43% of all employees report that their organization's senior managers take an active, visible role in communicating to employees, down from 45% in 2004 (when the survey was last conducted).

While a number of the organizations I have encountered in my work are fortunate to have leaders who understand and excel at the critical task of communication, so many more are led by senior managers who are either uncomfortable with or don't see the value of regular information sharing with their staff.  Hopefully, research like this will begin to convince them otherwise.

Applying Advertising Principles to Compensation & Benefits Communication

Frank Giancola has a knack for finding underserved topics in total rewards management.  And when he does, lucky for the rest of us, he goes after them.  The result is a number of well-researched and well-written articles covering the "missing links" in compensation and benefits literature.  (See also my previous posting covering his article on employee sabbaticals.)

In an article in the current issue of Compensation & Benefits Review (sorry - the article is only available to paid subscribers) titled "Using Advertising Principles to Sell Total Rewards", Frank reveals and helps us apply the principles of consumer advertising to employee communications in compensation and benefits.  Among the helpful information included in the article are these guidelines on how to execute a total rewards marketing strategy:

Offer a benefit as well as a product attribute

Frank zeroes in on a mistake that many of us are prone to make when we communicate to employees about compensation and benefits:  we focus too much on the program attributes rather than the benefits that the employee will experience.  To illustrate this, the article states:

For example, an advertised feature of target date mutual funds in a 401(k) plan is automatic investment selection.  The underlying benefit is the peace of mind and leisure time that comes with turning over investment selection and management to professionals.

Appeal to the mind and heart

Research confirms the wisdom of appealing to employee emotions, as Frank illustrates with the following quote:

When applied to HR programs, messages should be personal.  For example, when encouraging savings plan participation, include the thought of providing for children's education; for accidental life insurance, lightening survivors' financial burden; and for skill development, realizing their full potential.

Make strategy clear and easy to use

The article makes the point -- and many of us already know this -- that everyone seems to have a different definition of what is entailed by "rewards", and this results in a confusing message to employees.  Frank advocates abandoning that term in favor of more specific program descriptions:

Strategists should avoid the direct use of the term rewards.  Instead, promote specific programs (tuition reimbursement), categories (career development) and themes (advancement).