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Total Rewards Strategy & Employee Engagement

Optimizing Business Outcomes through Rewards Customization

March 2011

David Bomzer, Management Consultant

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Doonesbury perspective on Valuing Compensation

Generational (Age) Differences

Veterans –Older than 65

Boomers – 47 to 65

Gen X –32 to 46

Gen Y -Younger than 31

Practical Optimistic Skeptical Hopeful

Patient, Loyal, Hard working

Teamwork, Cooperation

Self-reliant Meaningful work

Respectful of Authority

Ambitious Risk Taking Diversity & change valued

Rule followers Workaholic Work / Life Balance

Technology Savvy

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Total Rewards should be a part of an integrated set of solutions that should align with desired business objectives

Revenue Growth Cost Efficiency Risk Management

Business Objectives/Outcomes

Customer Value Operations / Process Deal / Transaction

Business Value Drivers

Attraction / Selection Engagement/Performance Retention

Human Capital Outcomes

Leadership Development

Performance Metrics

Recruitment & Staffing

Integrated Human Capital Solutions

Organization Structure & Governance Total Rewards

Selection & Assessment

Sol

utio

n S

hapi

ng

Research/Analytics Communication

HR Function Effectiveness

Change Management / Project Management

Technology/New Media

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Total Rewards: Balancing multiple inputs is necessary to determine the right rewards designs

Optimized Total Rewards Designs

Leadership input:•Business objectives/ value drivers•Rewards philosophy•Rewards objectives•Change readiness

Workforce input:•Employee preferences•Demographics•Engagement/Retention forecasts associated with rewards changes•Change readiness

Rewards Cost:•Current rewards spend•Cost trends•Cost/savings forecasts associated with rewards changes

External input:•Capital markets•Legislation / tax•Rewards trends•Rewards prevalence•Rewards competitiveness

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Planning: Articulate the total rewards philosophy that aligns with your business objectives

One size fits all design Customized reward packages

Linked to company performance Linked to individual performance

Low variability based on performance

High variability based on performance

Service/Level oriented Performance/Value oriented

Fixed costs Variable costs

Company bears the cost Employee bears the cost

Company bears the risk Employee bears the risk

Base compensation below market median

Base compensation above market median

Incentive compensation below market median

Incentive compensation above market median

Benefits below market median Benefits above market median

C RCurrent position Required position to align with business objectives

C

C

C

C

C

C

C

C

C

R

R

R

R

R

R

R

R

C

R

R

ILLUSTRATION

Generally Traditional Monetary Compensation

Variable pay including bonuses

Base pay

Sales compensation plans

Equity

Non-qualified deferred compensation plan*

Employee stock purchase plans

Defined Contribution savings – qualified plans

Defined Benefit pension – qualified plans

Defined Contribution savings – non-qualified plans

Defined Benefit pension – non-qualified plans*

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Traditional: Performance & Business Outcomes

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Effectively using your Rewards budget

Do your employees perceive that the company “significantly” (i.e. makes a difference in the eyes of the employees) differentiates the merit award?

Would alternative rewards be more effective in reinforcing employee engagement?

What alternative rewards do you use?

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Diagnostics: Understand forecasted gaps between current and future work force required to meet growth objectives

Strategic workforce planning linked to growth objectives

– Leadership

– Lines of business

– Functions

– Strategic job groups

– Core job groups

– Customer & Workforce demographics

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2010 2012 2014 2016 2018 2020

Year

Wo

rkfo

rce

New employees Current employees

ILLUSTRATION

Business Case: Engagement / Performance

Organizations scoring in the top quintile of talent management practices outperform their industry, as measured by return on shareholder value, by a remarkable 22%

The engagement of a firm’s talent has far reaching implications on its ability to outperform competitors and to maintain that edge going forward

– Increased productivity in operations roles (40%)

– Increased profit in general management roles (49%)

– Increased revenue in sales roles (67%)

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Source: McKinsey study (Axelrod, et al., 2010)

2010 Top Five Total Rewards Priorities

1. The cost of providing health care benefits

2. The ability of reward programs to attract, motivate, and retain talented employees

3. Clear alignment of Total Rewards strategy with business strategy and brand

4. The willingness of employees to pay for an increasing portion of benefit plan coverage and to manage their own “rewards budget”

5. The ability of reward programs to accommodate the varying needs and interests of different generations with distinctly different needs and priorities

14Source: Deloitte and the International Society of Certified Employee Benefit Specialists

Survey says…..

Base pay and benefits had a weaker relationship with the organization’s ability to foster high levels of employee engagement and motivation compared to nonfinancial incentives, intangible rewards and quality of leadership

– 2010 Global survey by WorldatWork, Loyola University Chicago and Hay Group, Impact of Rewards Programs on Employee Engagement.

Over the past 18 months, amid limited pay budgets, organizations increased their use of non-cash rewards as a means to enhance employee retention and engagement. Rewards offered more during this time period include communicating the value of total rewards to employees (27%), work-life programs (22%), formalized career paths (21%) and special project opportunities (20%).

Mercer’s 2010 Attraction and Retention Survey

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Engagement / Retention through the use of Nonmonetary Rewards & Recognition

Choosing personal items from a catalog

Thanked publicly at a departmental function

Having lunch / dinner with the head of the organization

Receiving an extra day off

Being put on a desirable taskforce

Choosing a taskforce to be on

Getting a new piece of furniture

advancement opportunities, flexible schedules, and the opportunity to learn new skills

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Rewards Recognizing / Driving Business Outcomes

Appreciation: Rewarding behavior / outcomes that have happened (past)

Motivation: Rewarding behaviors / outcomes that will happen (future)

Communication: Process which helps determine if reward is appreciation or motivation

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Communication & Timing

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Communication Investment Allocation

0%

5%

10%

15%

20%

25%

30%

35%

40%

Email

Company intra

net

Blogs/D

iscussi

on boards

Town Hall

s/All c

o. Meetings

Socia

l netw

orking

Electro

nic bulle

tin boards

Instant m

essagin

g

Podcasts

Printed newsle

tters

Printed bro

chure

s

Multimedia/

video

Focu

s gro

ups

Pulse su

rveys

Printed m

aterials s

ent home

Current Future

Implementation: Allocation of communication investment?

Source: Aon Consulting sponsored round table Conference Board EventNew York City 2009

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Approaching it the right way Customize Communications and Rewards

1. Think about Objectives

2. Think about Interests

3. Think about Touch points for each group

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Veteran(Born Before 1946)

Boomer(1946 - 1964)

Gen X’er(1965 - 1979)

Gen Y’er(1980 - 2000)

STYLE Formal Eye-catching; fun

CONTENT Chunk it down but give me everything

Get to the point – what do I need to know?

CONTEXT Relevance to the bottom line and my rewards

Relevance to what matters to me

ATTITUDE Accepting and trusting of authority and hierarchy

OK with authority that earns their respect

TACTICS Print; conventional mail; face-to-face dialogue; online tools and

resources

Online; some face-to-face meetings (if they’re really needed); games;

technological interaction

SPEED Available; handy Immediate; when I need it

FREQUENCY In digestible amounts Constant

Communication World, March/April 2008

Multi-Generational Communication Preferences

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Veteran(Born Before 1946)

Boomer(1946 - 1964)

Gen X’er(1965 - 1979)

Gen Y’er(1980 - 2000)

STYLE Formal Semiformal Not so serious; irreverent Eye-catching; fun

CONTENT Detail; prose-style writing Chunk it down but give me everything

Get to the point – what do I need to know?

If and when I need it, I’ll find it online

CONTEXT Relevance to my security; historical perspective

Relevance to the bottom line and my rewards

Relevance to what matters to me Relevance to now, today and my role

ATTITUDE Accepting and trusting of authority and hierarchy

Accept the “rules” as created by the Veterans

Openly question authority; often branded as cynics and skeptics

OK with authority that earns their respect

TACTICS Print; conventional mail; face-to-face dialogue or by phone: some online

information and interaction

Print; conventional mail; face-to-face dialogue; online tools and

resources

Online; some face-to-face meetings (if they’re really needed); games; technological interaction

Online; wired; seamlessly connected through

technology

SPEED Attainable within reasonable time frame

Available; handy Immediate; when I need it Five minutes ago

FREQUENCY In digestible amounts As needed Whenever Constant

Communication World, March/April 2008

Multi-Generational Communication Preferences

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Engagement Communication Customization Take Aways

1. The medium is not the message

2. You must have a plan

3. The employee is at the center

IF COMMUNICATIONS NEED TO BE CUSTOMIZED FOR DIFFERENT KEY DEMOGRAPHIC GROUPS…..SHOULD REWARDS BE CUSTOMIZED ALSO?

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27Source: Multi Generational Workforce - 9/2008, WorldatWork

Non-monetary Reward & Recognition programs @Teva

Programs Veteran(Born Before

1946)

Boomer(1946 - 1964)

Gen X’er(1965 - 1979)

Gen Y’er(1980 - 2000)

Special learning and development

Flexible work schedule

Mentoring programs

Handwritten thank you note

Introduce to key suppliers, customers or someone in senior management

Recognize effort (not just results) Applaud their efforts — literally

A few hours off pass

Assignment Swap

Elect them to the Wall of Fame

Recognize the family / significant others

Telecommuting28

Non-monetary Reward & Recognition programs @Teva

Programs Veteran(Born Before

1946)

Boomer(1946 - 1964)

Gen X’er(1965 - 1979)

Gen Y’er(1980 - 2000)

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Creating a High Impact Rewards Program

Managers, with HR support, must understand the dramatically different work styles, expectations, performance goals and personal-time needs of generational and other key demographic groupings that make up today’s workforce.

Managers, with HR support, must step carefully to get the best effort from all team members, while honoring and respecting key demographic group norms in work styles.

Strategic employee reward & recognition programs enable organizations to personalize the reward process and appeal to the multiple generations and cultures that characterize your workforce today and in the future.

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Conclusion

When measured appropriately, company leadership can begin to map patterns of recognition behavior and values adoption across the relevant demographic and geographic groups in the company.

Human Resource can provide greater insight into how employees from various key demographics, (gender, generations, cultures, etc) regard recognition and understand company values

– This is important because the values should be universally applied to build a global, consistent company culture.

– And it will enable the executives to begin to influence the company’s social (demographic) architecture to better achieve strategic business goals and the company mission.

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Thank you.

Questions?