5 ways to increase the effectiveness of your compensation programs

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Frequently Asked Ques0ons

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The Professor of Pay

Quinlan School of Business

Institute of Human Resources and Employment Relations

Dow Scott, Ph.D.

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Five (5) Ways to Increase Reward Program Effectiveness ◆  Purpose: Examine five ways to increase the

effectiveness of your reward programs.

◆  Agenda: 1.  Align your business strategy and reward programs

2.  Understand employee pay preferences

3.  Communicate reward information effectively

4.  Utilize incentive pay strategically

5.  Evaluate reward programs to achieve continuous improvement

© Copyrighted material – do not share without my expressed permission

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Business strategy is the broad principles that guide day-to-day decisions for obtaining a competitive advantage

Ø  Operational excellence –a price or cost-based strategy

Ø  Product/service leadership – an innovation based strategy

Ø  Customer intimacy –a solutions-based strategy

Link Reward Philosophies, Policies and Programs

1. Align Bus. Strategy and Rewards

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1.  Identify competitive strategies and performance drivers for each major business units

2.  Clarify reward philosophies and goals

3.  Determine how employees groups or occupations contribute to the competitive advantage

4.  Construct reward programs to align with the business strategy and performance drivers

5.  Communicate reward philosophy, program design rationale and mechanics to employees

Alignment of Pay Programs

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◆  Effective pay program are not just about alignment; they must attract, retain & motivate

◆  Do pay preferences differ? –  Gender

–  Race

–  Age

–  Nationality

◆  Research says DEFINITELY yes, but demographics are poor predictors as to how preferences differ

2. Employee Pay Preferences

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◆  Review research and ask employees; but be careful how your frame your questions

◆  Employee survey should: –  Be confidential; possibly using an outsider to conduct

the survey or interviews –  Require reward choices (i.e., framed as conjoint study) –  Obtain a representative sample of current and potential

employees (attracting may be different then retaining) –  Analyze and interpret data correctly –  Communicate to employees that you are listening

◆  Applying the findings – different reward packages have different costs and different outcomes

Understanding Pay Preferences

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◆  Pay Communications is like weight loss; “we all know we need to lose a few pounds but . . .”

◆  More than reward appreciation, it communicates company values and how employees can contribute

◆  Three major elements of reward communication: –  The why

–  Program mechanics

–  How much do I get

3. Compensation Communications

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Communicate Effectively

Develop and

Package Content

Identify • Purpose • Audience • Information

Determine • Media • Messengers

Deliver

Monitor, Evaluate, Modify

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◆  Integrate communications in program design

◆  Determine what employees want to know

◆  Tailor communications to specific audiences

◆  Gain line manager support and involve them in communicating pay information

◆  Communicate through a variety of media

◆  Evaluate communication effectiveness regularly

Reward Communications Best Practices

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◆  Align program goals and metrics

◆  Involve managers and participants in program design

◆  Recognize the dark side; monitor, monitor and monitor

◆  Determine if it is “risk sharing” or “reward for excellence”

◆  Frequency and timeliness matters

◆  Use recognition to underscore the incentive message

4. Utilize incentive pay strategically

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◆  Major investments demand rigorous evaluation; benchmarking is just not enough

◆  Is pay a cost or an investment? –  If pay is a cost, the obvious goal is to minimize it –  If pay is an investment, the obvious goal is to optimize it

◆  Reward optimization requires multiple perspectives

5. Evaluate Reward Programs

Perception

Understanding

Behavior

Results

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1.  Setting goals and objectives

2.  Identifying evaluation criteria and performance targets

3.  Selecting an evaluation methodology (e.g., time-series)

4.  Collecting and analyzing data

5.  Interpreting findings

6.  Developing and implementing improvement strategies

Rigors Reward Evaluation

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Improve Reward Program Effectiveness by

1.  Align your business strategy and reward programs

2.  Understand employee pay preferences

3.  Communicate reward information effectively

4.  Utilize incentive pay strategically

5.  Evaluate reward programs to achieve continuous improvement

Articles providing additional information can be obtained upon request.

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PDI is dedicated to helping our clients create a competitive advantage through people. We are committed to providing quality and personalized service.

We support our clientele through: §  Customized evaluations and

assessments of specific HR strategies, policies and programs.

§  Development of “state of the art” customized HR programs and high performance organizations.

§  Employee involvement at all levels, thereby fostering commitment and accountability for results.

§  Linking HR programs to organizational performance.

Dow Scott, Ph.D. is a Professor of Human Resources in the Quinlan School of Business Administration at Loyola University Chicago and President of Performance Development International; a management consulting firm.

Dr. Scott’s consultation and research has focused upon: §  Compensation and incentive pay §  Attendance improvement §  Team and HR development §  Recruiting and staffing systems §  HR program and policy evaluation

About Dow Scott.

Performance Development International, LLC

Dow Scott, Ph.D., Loyola University Chicago

[email protected]; 312.915.6597

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5 ways to increase the effectiveness of your compensation programs

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