managing reward managers are the link

7/24/2019 Managing Reward Managers Are the Link

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05 | 2008 Why organizations are failing to get a significant return

on their reward investments and how to maximize thevalue of programs >>

Managing reward

why line managersare the

vital link



Contents

Executive summary

Critical factors for reward program success

2

3

4

4

5

Part I: reward programs – a money pit?

Implementation not design

Line managers are critical to success

6 The blame game

7Part II: time for action

8 – 9 Total rewards toolkit

10Managing performance

11Conclusion – a partnership for success

12About the authors



Executive summary

While organizations often spend big on reward programs,

many of them don’t deliver value for money. A Hay Group book

and related research have identified a number of key areas

that are to blame for the poor implementation of

reward programs.

©2008 Hay Group. All rights reserved

2

Our research shows that the most successfulreward programs work because they havebeen well implemented, rather than neatlydesigned. But the job of putting reward

programs into action should not be left solelyto HR. Instead, organizations need to takeadvantage of the relationship that alreadyexists between line managers andtheir employees.

Tis whitepaper looks at why organizationsare failing to get a significant return on theirinvestment and what can be done to improve

the situation. It highlights the mistake thatorganizations often make when putting theirreward programs into action, including atendency to ignore the key role line managerscan play in successful programs, and suggests anumber of ways HR can change its approachto help increase the likelihood of rewardprograms being better understood and

valued by employees.

Only 24 to 41 per cent of organizationsbelieve that their managers are effective atcommunicating various aspects of the totalrewards program, including base pay, benefits

and non-monetary recognition programs.But organizations do realize they are failingto provide the proper support to managers.

We found that only 35 per cent of organizationssay they do an effective job of education andformal training in the area of reward programimplementation.

Managing reward – why line managers are the vital link 2



Critical factors for reward

program success

We have identified six key rules that

organizations should follow when puttingtheir reward programs into action:

If an organization can get its HR and linemanagers to work well together on thisissue then it will find it can have a positiveinfluence on how employees perceive and

value its total reward program. Tis in turn will help organizations yield a much higherreturn on investment from these programs.

The research

Hay Group’s landmark study assesses theimpact of line managers on the effectiveimplementation of an organization’sreward program, as well as the role humanresources plays in supporting line managersin these activities.

The 2007 research covers 1,186organizations in 78 countries. Insightswere collected from Hay Group clientsand registered website users as wellas WorldatWork association members.

Typical respondents were HR and rewardprofessionals, line managers and CEOs.

The book

The issues and content highlighted inthis article are the subject of a Hay Groupbook, The Manager’s Guide to Rewards

(AMACOM 2007), authored by Doug Jensen, Tom McMullen and Mel Stark. It is the firstbook to take a practical look at rewardissues from the manager’s perspective. Itcovers everything you and your companyneed to know to create a program thatsignificantly and consistently rewards greatemployees – without overly burdening thebottom line.

1 don’t leave the job of implement-ing reward programs solely to HR.

2 use line managers to communicatethe intent and rationale of the

reward program to employees.

3 ensure that HR makes the goals ofthe reward program clear and easyto understand.

4 communicate the total value ofthe organization’s reward programby using individualized total

reward statements.

5 encourage line managers to makebetter use of the entire palette ofan organization’s rewards includingintangible rewards (eg careeradvancement opportunities, agreat work climate and non-monetary recognition programs)

to motivate employees.

6 make sure that HR providesline managers with the necessarytools and back-up to help themeffectively communicate thebenefits of the programto employees.



Managing reward – why line managers are the vital link


4

Payroll is the largest line item expense thatmany organizations have, but despite this itoften receives less attention than it should.

A new Hay Group book and study havefound that many reward programs currentlyare not delivering value for money, leaving a

sizeable number of organizations puzzledas to what is going wrong and wonderingif more investment would simply be a caseof throwing good money after bad.


4

Part I: reward programs – a money pit?

Organizations and their HR departmentstend to invest a huge amount of timemolding and tweaking the design of theirreward programs. However, through ourresearch and consulting we’ve found thatreward programs generally work well not

because of impressive design, but ratherbecause of the way they’ve been put intoaction and sustained by the organization.

In a study conducted last year by Hay Group, WorldatWork and Loyola University Chicago,reward professionals told us that the thingsthat set their reward programs apart fromthe pack were largely based around how they

were implemented. Important issues includedhow effectively reward programs were com-municated to employees, how well they werealigned with business goals and how theyrelated pay to performance and created ‘line ofsight’ in the minds of employees.

Despite this, most organizations are strugglingto get their reward programs to produce thedesired results. Our study highlights the factthat most feel they are failing to effectivelyimplement their reward programs, with only30 per cent thinking they are effective at

putting their programs into action.So where are most of these organizations going

wrong? Our research shows that organizationsneed to look beyond the HR department ifthey want to make the most of their rewardprogram implementation and instead starttaking into account the impact line managerscan have on the success of these programs.

Of course, HR should still be heavily involvedin designing and managing these initiatives,but successful ones that lead to more productiveand engaged employees take advantageof the relationships and direct lines ofcommunication that already exist betweenline managers and their employees.

Implementation not design

The message is quite

simple: if implementation

is key to the success of

reward programs, then

line managers are

key to the success of

the implementation.



Line managers are critical to success

Why are line managers so important? Employees tend to trust the

information that they get from their line managers rather than from

senior managers or HR leaders. Line managers are generally seen

not only as parental style figures, but also as the ‘doers’ – the ones

who make things happen within the organization.

Tey take the lead in coaching, developingand setting goals for their employees andare responsible for deciding if or how their

employee’s performance should be rewarded.Because of this, line managers play a keyrole in spreading the understanding of howthe reward program works throughout theorganization. Te message is quite simple:if implementation is key to the success ofreward programs, then line managers are keyto the success of the implementation.

However, this is not as straightforwardas it may first seem. Te problem is thatmany managers don’t believe the way theirorganization deals with rewards is helpingthem achieve business goals. Tey often feelconstrained when it comes to giving financialrewards to their best people, even thoughthey are given autonomy to make importantbusiness decisions in other areas. Or theythink that employees don’t see any connectionbetween what they achieve throughout theyear and what bonus they are awarded.Tey also complain that HR can’t show themgood benchmarks on what their people are

worth and that the organization is moreconcerned with keeping a tight lid on thecompensation budget rather than actually

using it to achieve better business results.

Te upshot is that although linemanagers have a crucial role to play in anorganization’s reward program, they feel

disconnected from it and unprepared to takean active part in its introduction. o be fair,organizations seem to have partly picked upon this problem. In our study we found thatless than 40 per cent believe their managersare effective at communicating their rewardprograms to employees. Furthermore, only35 per cent think their line managers are ableto effectively communicate to employees therelationship between their work and businessresults, while a mere 28 per cent feel theirmanagers manage the ‘pay for performance’relationship in an effective way.

Employees tend to

trust the informationthat they get fromtheir line managersrather than fromsenior managers or

HR leaders.

“”



Te responsibility for these problems can’tsolely be laid at the feet of line managers.HR also has to share some of the blame.

We’ve found that HR is guilty of not properly

supporting their line managers by failing toprepare them sufficiently for the challengesthat arise when putting reward programs into action. Worse still, HR seems to be partiallyblind to the issue. Our study [Figure 1]clearly indicates that there is a significant gapbetween how effective HR believes it is atsupporting line managers and how

successful line managers think HR is atsupporting them in this role.

Perhaps the most important issue this raises

is that of trust, especially if the two are to work together more effectively in the future. When attempts are made by HR to closethe gap between perception and reality, willline managers actually be responsive to theirefforts? Will they be willing to partner withHR considering the dismal track recordof the relationship? It could prove trickyto manage.

The blame game

HR is guilty of not properly supporting theirline managers when putting reward programsin to action.

“ ”

Figure 1:

Te HR support providedto line managers in theorganization is effectivein helping in:

Implementing reward programs

Communicating total reward programs

Communicating rationale for salary increases

Communicating rationale for variable pay programs

Communicating about benefit programs

Coaching employees and providing feedback

Communicating about what it takes to advance

Managing overall pay for performance relationship

Utilizing non-financial recognition programs

59%

53%

67%

58%

69%

62%

54%

58%

45%

45%

42%

48%

46%

57%

39%

36%

44%

35%

0% 20% 40% 60% 80%20%40%60%80%

Respondent:

HR Line Manager

Per cent that responded effective orvery effective



6



Part II: time for action

Managers often home in on theissue of money, but employeesare motivated by muchmore than money.“

”

Te fact that our research shows that mostmanagers feel they are not sufficientlyprepared to put their organization’s rewardprogram into action should obviously act as

a wake-up call to HR. Clearly HR depart-ments need to change their current practicesso they have more impact in this area.

One way that HR can improve things is byhelping managers take a broader view of theorganization’s program. For example,

when managers criticize their organization’s

program, they often home in on the issue ofmoney. However, employees are motivatedby much more than money.

HR needs to help managers understand howto use the broader array of intangible rewardsas well as the monetary ones at their disposal.Intangible rewards include career growthopportunities, quality of work, recognitionand work climate. It is easy to view intangiblesas soft, ‘nice to have’ rewards, but they arecrucial in helping an organization stand outas a good employer. Not only can intangible

rewards help make it easier to recruit andretain staff, but they also have a big impacton how effective the overall reward programis at driving business goals.





8

Business results can vary by as much as30 per cent purely due to differences

in the work climate.

“ ”

Total reward toolkit

HR should work with line managers to cre-ate a total reward framework. Tis frame-

work should lay out the full range of toolsavailable to managers when it comes torewarding employees, help drive business goalsand deliver a positive RoI for thereward program.

Included in this framework should be a

range of intangible rewards including workclimate, recognition programs and employeedevelopment plans.

Te benefit of a positive work climate isoften underestimated, but research showsthat business results can vary by as much as30 per cent purely due to differences in the

work climate created by a manager. HR canhelp line managers create a positive workclimate by assisting them in assessing theircurrent work climate and managerial stylesand then providing coaching on areas thatneed improvement.

Figure 2:

otal reward modelQuality of work Work/life balanceInspiration/valuesEnabling environmentFuture/growth opportunity

Intangibles(typically intrinsicallyvalued)

Tangible

Rewards wherewe can assign

an objectivedollar value

CarsClubsPhysical exams

RetirementHealth/welfare Time off with payStatutory programsIncome replacement

Stock/equity

Performance shares

Annual incentiveBonus/spot awards

Base salaryHourly wage

Common examples Reward elements Definition

Perquisites

LTI

Benefits

Short termvariable

Base cash

Total

r ew a r d Total

r em un er a t i on

Total d i r e c t c om p en s a t i on

Total c a s h

IntangibleInternal value or

motivation



Similarly HR and line managers in mostorganizations do not take full advantage ofthe motivational power of non-monetaryreward and recognition schemes. Hay Groupemployee opinion data suggests that onlyabout half of employees feel their contributionsare praised when they perform well. We’vefound that the best recognition programsare those that closely reflect the organization’s

goals, vision and values. It is also veryimportant that they are an integrated partof the overall reward program, rather thana standalone or ad-hoc plan.

Another big motivator, especially amongprofessional and management employees,is the ready availability of opportunities forpersonal development and growth. In any

organization managers are the key influenceover an employee’s personal development.In order to keep more of their best people,HR in most organizations needs to focusits managers’ attention on the continualdevelopment of their employees. After all,organizations that are good at nurturing anddeveloping talent and that frequentlypromote from within, actually pay less fortheir talent than other organizations – ourresearch suggests five per cent less.

But as well as covering off these intangiblerewards, the total reward framework shouldalso tackle monetary reward head-on,including base cash programs and variablepay programs.

HR may typically design base cash programs,but managers have a huge impact on them.It is the manager that makes sure employeesunderstand the reasons for base salaryincreases. Managers also play a key role innot just in making sure there is a properdifferentiation in performance ratingsbetween employees, but also that

differences in pay reflect employeeperformance. HR needs to support thisrole by helping managers understand howto tackle it more effectively.

Variable pay programs are also a strong toolfor motivating employees, but they canthrow up a number of hurdles for managers.Many of these programs struggle to make an

impact because employees do not properlyunderstand what the programs are trying toachieve. HR can make a real difference hereby working with managers to ensure the

variable pay program messages are clear sothat employees know exactly where theyshould be spending their time in order tomake the greatest impact on the organization.

A practical tool that HR can use to support

managers in this area is to create a ‘personalimpact map’. Tis should show clearly howthe employee’s performance is linkeddirectly to the success of the organization.Figure 3 overleaf, is an example of apersonal impact map for a floor associate

working in a retail drug store.

Usually it’s also a good idea for HR to work

with line managers when developing theorganization structure. Line managers areoften fairly dynamic in the way they assignresponsibilities and roles to employees sothey in turn have a big influence on thestructure of the organization and its jobs.If the two work together it can help HRbecome more transparent and inclusive when

working on job levelling and marketpricing processes. It can also help linemanagers understand the effective processesand best practices in designing and valuing

work so they can more effectively manageemployees’ expectations.





10

Managing performance

Te final key area that the framework

should cover is that of performancemanagement. Managers are the focal point

when it comes to managing the performanceof employees within the organization asthey are the ones who take the organization’score business goals and translate them intodepartmental goals.

Te problem is that when it comes time

to assess and reward performance manymanagers tend to shy away from thedifficult conversations associated with poorperformance. Te same problem rears itshead when they come to assigning the finalperformance rating for the year. However,employees need to understand that it can bedifficult to achieve high performance ratings,but equally they must know what they needto do to excel. Tis helps to keep themchallenged, which in turn helps raise the

standard of performance across the

entire organization.

HR needs to work with managers to helpthem understand the broad range of optionsopen to them when it comes to rewardingemployee performance. Tese include, butare not limited to, base salary increases,promotions, career development,training and public recognition.

Organizations that are most successful atimplementing reward programs are the ones

where HR plays a direct role in influencingline managers in knowing when and how touse all of these tools. Tis is because beingable to employ these tools effectively givesline managers the confidence to have a morepositive effect on the reward program –

perhaps even a more positive effect than theythemselves may have realized was possible.

Managers tend to shyaway from the difficult

conversations associated

with poor performance.

Figure 3:

Personal impact map

Stock Aim checklist Supply on floor

Easy to locate{

Customerservice

Wait times

Employee accessibility

Customer acknowledgement{

Shopability Clean store

Clear aisles

Faced products{Merchandising

Sales item signage

“Hot Item” visibility

Individual product accountability

{Communityinvolvement

Employee visibility Company visibility{

Salesgrowth{



Conclusion – a partnership for success

Reward programs may be expensive, but when they work well

they contribute significantly to employee motivation and the

organization’s bottom line. It’s unfortunate then that many reward

programs are currently not delivering a decent return oninvestment because they have been poorly implemented.

For too long the job of putting rewardprograms into action has fallen largely atthe feet of HR. It’s now clear from ourresearch that if a reward program is to work

effectively it needs to take advantage of therelationships and lines of communicationthat already exist between line managersand their employees.

Effective communication really is thekey to making sure that a reward programdelivers what it was designed to do. Afterall, the reward program can only motivate

employees if it is understood andaccepted by them.

HR can help line managers communicatethe program’s goals by making sure that itskey parts are laid out in a clear, simple andeasy-to-understand way. It also needs to

ensure that line managers are provided with atotal reward framework that they can use tomore easily explain the benefits of the rewardprograms to employees.

When HR and line managers come togetherin this way they can have a massively positiveinfluence on how employees perceive and

value the rewards program and help make

sure it starts to deliver real value for moneyfor the organization.





12

About the authors

Doug Jensen is a vice president and national executive compensation practice leaderin the San Francisco office of Hay Group. He’s responsible for managing Hay Group’srelationship with strategic and global companies. Doug has more than three decadesof experience in all facets of human resources with special emphasis in total rewardsand executive compensation. Prior to joining Hay Group, Doug was the director ofcompensation and benefits with the Pillsbury Company, and before that he heldcompensation and benefits positions at Frito-Lay Inc. and First National HoldingCompany of Atlanta. He holds a master’s degree in human resources and a bachelor’sdegree from Stanford University.

Tom McMullen is a vice president and US reward practice leader based in the Chicagooffice of Hay Group. He has over 25 years of HR practitioner and consulting experience

working with clients on broad reward issues. His work focuses primarily on total rewards andperformance program design, including rewards strategy development, incentive plan design,employee pay and job evaluation. Prior to joining Hay Group, he held senior compensationanalyst roles with Kentucky Fried Chicken Corporation and Humana, Inc. om holds amaster’s degree in business administration and a bachelor’s degree in mathematics fromthe University of Louisville.

Mel Stark is vice president and regional reward practice leader in the New York Metrooffice of Hay Group. In his practice role and in his personal consulting, Mel is focusedon adding clarity to clients’ operations through cultural diagnostics, job analysis, workmeasurement, accountability mapping and organization design. Building commitment inclient’s employees is also stressed through the effective implementation of holistic rewardprograms. He holds a bachelor’s degree from Te American University in WashingtonDC and has earned a master’s degree in business administration from Bernard M. BaruchCollege and an Advanced Professional Certificate in Organizational Behavior andDevelopment from New York University’s Graduate School of Business Administration.

DisclaimerTe content in this report is provided solely for informational purposes. Tis report does not establish any

client, advisory, fiduciary or professional relationship between Hay Group and you. Neither Hay Group nor any

other person is, in connection with this report, engaged in rendering accounting, advisory, auditing, consulting,

legal, tax or other professional services or advice.



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