Employers & Employees Disconnected on Business Impact of Recession

There are some fascinating differences in the perceptions of employers versus employees regarding the impact of the recession and the consequent changes (restructuring, etc.) made to the "employee value proposition", as reported in the 2009/2010 Strategic Rewards Report conducted jointly by WorldatWork and Watson Wyatt (and covering the practices of 235 U.S. organizations).

While employers appear to recognize the impact that these changes have had on employee workload, stress, work-life balance, etc., they appear to be vastly underestimating the business impact when you compare their responses to the opinions of employees.  Specifically:

41% of employees indicate that the changes have had an adverse impact on quality and customer service, while only 17% of employers believe that this is the case.

The following table, which features data from the report, highlights the different perceptions of employers and employees regarding the impact of changes on the business and the employee experience. 

 
The authors of the survey report attribute much of the negative business impact to a decrease in employee engagement.  That may indeed be part of the picture, but I have to wonder if the leaders of some of these organizations are so caught up in recessionary fire-fighting that they are failing to see the very real business repurcussions of their cutbacks - at the ground level - that are obvious to customer-facing employees. 

It's one thing to ask employees to make some sacrifices - in frozen pay, decreased benefits, etc.  It's another thing to ask them to absorb those sacrifices while simultaneously witnessing a downscaling in service and quality.  What highly motivated, high performing employees are going to stick with that kind of a scenario as the economy turns around?

Who is minding the store here, really? 

Top Three Reward Strategies for 2009

Each fall for a number of years, I have conducted an annual compensation planning survey among organizations in my market.  My favorite part of the survey is the final open-ended question where I ask each participant "what reward strategies and tactics did your organization find most successful in attracting, retaining and motivating employees in 2009? (or whatever the most recent year has been)"  The responses are always revealing and it is particularly interesting to see how they trend over time, through good economic years and bad ones.

This year's survey includes over 100 employers.  Their top named reward strategies for 2009 - through what has for many been a year of unprecedented challenge and difficulty - are as follows:

Number 1: Paying for Performance.  Participating employers cite their efforts to reward employee performance (37%) as the most successful strategy - the one that has paid off best in terms of employee attraction, retention and motivation - in 2009.  Out of the performance pay efforts noted by participants, incentive compensation is mentioned the most often, by 23% of respondents.

Number 2: Maintaining Competitiveness.  The reward strategy mentioned second most often (22%) is an effort to keep programs competitive during a difficult year.  Specifically, maintaining salary (16%) and benefit (12%) competitiveness are the most common efforts noted in this regard.

Number 3:  Communication.  Communication is mentioned third most often (18%) as the strategy that paid off most in 2009 - specifically frequent, open and honest information sharing (17%).

Your thoughts?  How does this match up with your reward experience in 2009?

Time for Rewards to Get (Truly) Strategic: Scenario Planning & Reward Design

Compensation planning - like life in general - just got a lot tougher.  And as we move into what has traditionally been the pay budgeting and planning months, many of us are wrestling with where (the heck) to take our reward plans amidst today's economic uncertainty.

Perhaps we should borrow a technique from the business planner's toolkit?

Click over the my post today at the Compensation Cafe, where I look at scenario planning and its potential application to reward planning and design, supported by a great article on the topic from Knowledge@Wharton.

Image: Creative Commons Photo "It's about rules and strategy" by pshutterbug

WorldatWork Conference Takeaway: A Time of Opportunity

I'm back from the WorldatWork Total Rewards conference in Seattle (early, as obligations here demanded it).  A great experience; I enjoyed the chance to meet a lot of people and to hear and discuss a lot of interesting ideas regarding the state and future direction of rewards.  Lots of blogging fodder, which I hope to translate into posts over the coming days.

One of my big takeaways from the event is a theme I heard repeated through a number of sessions: that today's tough economic environment presents us with many challenges, but also a tremendous positive opportunity.

Because crisis is truly a game changer on so many levels, it also provides us with the chance to hit the reset button on ineffective, suboptimal and failed reward practices.  It gives us the chance to make new deals and to push forward reward principles and ideas that will better position our organizations (and the people who depend on them) for success and prosperity in the future.

We have a window for change, but it won't stay open forever.  So the question I would put to all of us is this:  How are we using this opportunity to make our reward programs better?

Upcoming Webinar: Recognition, Rewards & Human Capital Management in a Recession

I am pleased to announce that on Thursday, May 14, I will join Globoforce's Derek Irvine and Jon Ingham of Strategic HCM in a webinar featuring roundtable discussion and a Q&A session on the importance of human resources during this recession.

Derek will host the session and spend time on Recognition.  Jon will bring his expertise in Human Capital and Talent Management and I will weigh in with insights on Compensation/Rewards.  The second half of the presentation will be left open to questions from the audience.

Click here to register.

Webinar duration: 1 hour

Webinar time:

4:30 pm GMT Daylight Time (GMT +01:00, London)

10:30 am Central Daylight Time (GMT -05:00, Chicago)  

8:30 am Pacific Daylight Time (GMT -07:00, San Francisco) 

Hope you'll join us!

In a Down Economy, Centralization May Be Where It's At

I finished the newest edition of workspan (the monthly publication of WorldatWork) this weekend.  In reading through a number of the articles on various reward topics, I was struck by a repeated theme of centralization - partly because it was there and partly because it's been on my mind lately as well.

For example ...

In their article "10 New Rules for Managing Compensation in a Recession", Brad Hill and Christine Tande of Tandehill Human Capital identify Centralize compensation management as Rule #1 and it's difficult to argue with their logic.

Immediately take a more macro perspective on performance and pay to ensure that the right dollars get allocated to the right areas of the organization in the timeliest manner.  To that end, human resources needs to flex its cost control muscle to ensure that local managers are making pay decisions that best serve the entire organization and not just doing what's best for them.

Addressing sales compensation in their article "Business as Usual: Making Global Compensation Work for You", authors John Bremen, Marcus Minton and Jon Randall of Watson Wyatt Worldwide advise readers to embrace the opportunity for central assessment and re-alignment offered by the economic crisis.

During times of robust economic growth and aggressive entry into new markets, companies often employ a more decentralized management approach in order to provide flexibility and nimbleness to respond to local market and/or business unit opportunities. ...Today's business environment provides the ideal opportunity to take inventory of current plans, assess them against best principles and identify legitimate opportunities for streamlining, realigning and common sizing.

I made this point myself several months ago, as the economic picture grew progressively ugly, with Tough Times May Demand a Centralized Pay Inventory.  In that post, I advocated a centralized assessment of all reward programs to ensure that our increasingly rare and precious pay dollars were being used well.

Decentralization is fine in good times when not only salaries and incentive payouts but also jobs themselves are not in jeopardy.  Today, those making tough decisions need to have access to all information on where dollars are being spent.

The time has arrived for all cards to be laid on the table, and that requires centrally coordinated effort.

Image: Creative Commons Photo "Monitoring Room" by Matti Mattila.

Rules, Tools or Somewhere Between: Where Should Your Pay Program Fit?

I see many organizations (particularly those whose compensation programs are in a bit of disarray) struggle with the question of whether - and how much - to enforce order and control.  Still others have structures and policies so closely defined that managers feel handcuffed and unable to use any judgment in making pay decisions?

What's the right approach?

I find that the following simple model helps my clients reflect and decide on the degree of structure and control that best fits their situation.  I think of the control as a continuum.  At the one extreme, we have Rules.  In a Rules scenario, we build a program with tight constraints and relatively narrow parameters around managers' pay decisions - basically locking them into a set of prescribed choices.  At the other extreme, we have Tools.  In a Tools scenario, we have some basic guidelines in place to support and influence managers' pay decisions, but we allow them a tremendous amount of flexibility and discretion.

Where on this continuum should your organization be?  I think it depends on your managers and the degree to which you have invested or are willing to invest in their decision making capability.

Cue the visual...

 

Do you have inexperienced managers?  Not willing or able to invest in the training and information necessary to bring them up to speed in pay decision making?  Not in a position to hold them accountable for making pay decisions well?  Then you'd better find yourself a seat close to the Rules end.

A more seasoned group of managers in place? Willing and able to invest in the education they need to make informed and effective pay decisions? Is your leadership committed to holding managers accountable for sound pay decisions, including consequences for those who cave in and take the easy way out?  Then feel free to move closer to the Tools end.

Don't view it as a permanent decision; it doesn't have to be.  Many organizations initially implement a program closer to the Rules end, with the objective of moving incrementally toward Tools as the organization gains experience and expertise in good reward management.

Where does your pay program fit?

Merit Pay Failure & Our Inability to Understand Group Performance

Recent years have seen a heightened emphasis on (and, in some cases, breathtaking levels of rewards for) the superstar performer.  From McKinsey's War on Talent research to the popularity of the Topgrading book and phenomenon, organizations have been urged to single out and aggressively tend to their "A" performers. 

A similar emphasis on individual performance lies at the foundation of merit pay, arguably the oldest form of pay for performance and - in many organizations - the only type of performance based compensation in place for the bulk of employees.   In fact, one of the biggest complaints aired about merit pay is the difficulty of disproportionately rewarding top performing individuals with small salary increase budgets.   And now pressure is pushing a number of businesses to (wisely, in most cases) implement broad-based variable pay plans, many of which (not so wisely) are tying awards heavily or entirely to individual performance.

To be clear, I am not against rewarding high performers nor am I advocating getting rid of merit pay.  But as I think about our collective struggles with merit increases and our fascination with superstar performers, I continue to be haunted by the story of Shane Battier, which I posted about here.  Battier is the N.B.A. player whose own conventional performance statistics are utterly unremarkable, but whose presence on the court consistently makes his team perform better and his opponents consistently worse.  I am reminded of how far most of us have yet to go in measuring the contributions of employees whose presence "in the game" inexplicably makes the whole team perform better.  I do realize that most performance management programs include an element titled "teamwork", but I have to wonder how many managers truly understand and appreciate the nature of how their teams work and the subtle, often unnoticed ways that people help their coworkers shine ... or cause them to struggle.

Here's my point.  When merit pay and individual rewards are the only games going - or where they clearly dominate the reward package - I wonder how much of the struggle to accurately measure and reward performance is due to a gnawing sense that our conventional tools and metrics are missing something important, something we can't articulate but realize is there.  While some of the issue can certainly be traced to a "tragic" lack of management courage and honesty, could it also be that our current programs too often force managers to "rate" the Shane Battiers in their domains as "B" players when they know in their hearts that this isn't right or true?

To me, this is one more reason why balance in our reward programs is so important, and why measuring and rewarding group as well as individual performance is critical.  Group level rewards, team or organization-wide incentives as one example, may not single out and appropriately reinforce the Shane Battiers of the corporate world, but they do accomplish something key.  They send, and put money behind, the message that contributions to the team matter, whether or not you are in a position to notice and acknowledge all the nuanced ways that they happen. 

And that is huge.

On Rewards and the (Coming?) Era of the CFO

Our attention has been drawn to several articles recently (here, for example, hat tip to John Sumser) pitting CFOs against HR.  The Economist boarded this particular train early, with its late 2008 article The Year of the CFO by Financial Timescolumnist Lucy Kellaway. 

Full disclosure: I have nothing against CFOs.  Many of my most respected client relationships are with CFOs.  I also happen to be married to one.  But I will say this, as it pertains to my little corner of the world: For right or wrong, I have found that the typical CFO approaches employee rewards in a fundamentally different way than those of us trained in the "human" professions. 

If there is a shift underway, though, let's be clear that it isn't just about us and our profession(s).  It is one, as Kellaway herself asserts, that "will affect how companies are managed, what it feels like to work in them, the culture of business and even its language."

But it does have pretty profound implications for people practices, as Kellaway notes under the subheader "Goodbye 'talent', hello 'staff'":

An old truth will be whispered by the brave: most workers are not terribly talented and most of them don’t need to be, as most jobs don’t require it. In 2009 a more elitist shift will occur: companies will worry about the performance of those at the top of the pyramid, while everyone else will be managed like a commodity. “Talent” will be a word we wave goodbye to. In 2009 the word “staff” will make a comeback, as will “headcount”.

I have had a lot of opportunities to review and audit the effectiveness of reward systems - particularly incentives - in organizations like this.  For the most part, reward plans are designed to fairly distribute excess profits.  And they do this.  But that doesn't focus attention or drive any change in behavior.  And so it doesn't produce much in the way of bottom line results.  Because if you treat people like a commodity - or sheep, for instance, or mere cogs in some giant wheel - they tend to act accordingly.

Jerry McAdams, author of numerous reward books including The Reward Plan Advantageand someone I had the privilege of working with at Watson Wyatt, was fond of saying that it took about eighty years after the onset of the industrial revolution for management to discover the customer, and about ninety years after that to discover the employee.  Could it be that this is a cycle of sorts, and we are about to loop back to our earlier disregard for the value of "the talent"?

Do we, in fact, need a reality check, a shot of responsibility, a new level of discipline and accountability in how we manage our organizations?  It is difficult to argue "no" here, given some of the excesses and examples of irresponsibility we've witnessed as the walls around us have come tumbling down.  But this is the age of knowledge and the knowledge worker.  Whether or not we want to pretend otherwise and treat them like interchangeable expenses, they are the chief - sometimes the only - asset underlying the worth of most businesses today.  In reality, how far can our organizations allow the pendulum to swing backwards and still have a shot at success and prosperity (never mind digging out of this hole)?

At any rate, let's be clear on what's really at stake here.

Study Provides the Latest Update on HR Plans & Changes in Response to Economy

In yesterday's post, I shared an update on salary increase budgets from a newly released Watson Wyatt study The Effect of the Economic Crisis on HR Programs.  Today, additional key findings and data from that study in areas beyond salary increases.

Key Findings:

• More than half of companies (52 percent) have already made layoffs, up from 39 percent two months ago. However, the number of companies planning layoffs has fallen ten percentage points from 23 percent to 13 percent.

• Forty-two percent of companies have already put salary freezes into place, an increase from only 13 percent two months ago.

• Short-term incentive funding has not changed substantially since October – from an average of 86 percent funded last year, projected STI funding for this year stands at 71 percent.

• Twelve percent of respondents (up from 3 percent in December) have lowered their company 401(k) or 403(b) match. 

• Since the economic crisis hit, 79 percent of respondents have noticed 401(k) or 403(b) participants changing their investment mix to move out of equities (up 20 percentage points from 59 percent in December).

Other data, compared across the October-December-February timeline on which this research has been repeated, is shown in the following table.  It is worth noting again (as I did yesterday) that this comes from a sample of 245 large U.S. companies - so frame your conclusions accordingly.