The economy has forced just about every organisation to examine compensation practices that previously went unquestioned and to make some difficult decisions. As thoughts turn to economic recovery and planning for 2010, organisations face another crucial decision: whether to restore cuts and changes to their compensation programs—essentially reverting to “business as usual”—or to carve a new path going forward.
Mercer has compiled “10 for 2010,” a list of 10 actions companies can take this year to enhance the prospects of a successful compensation strategy in 2010. By “success,” we mean designing and implementing a broad-based compensation program that aligns with current business strategy, is affordable and sustainable, drives productivity, engages key talent and minimizes the chance for pay inequity.
1. Re-examine your total rewards strategy to ensure alignment with business strategy. Ensure your compensation program is considered holistically to include career development, training and other intrinsic work factors, for example, work-life balance. Focus your practices and plans to retain mission-critical talent and reward the talent most responsible for creating value for your organisation. Use analytics to support human capital decision making; combine multiple sources of financial and HR data from systems, surveys and external benchmarks into a single view to help track, measure and monitor internal and external workforce trends and reward program effectiveness.
2. Use market compensation data responsibly. Balance internal affordability with being market competitive during this time of financial unrest. Use aggregate base-pay increases, including those for participants that froze salaries, if you are concerned about the overall labor market; if you are concerned about a specific peer group, and then use the actual average increase for that group. Consider multiple peer groups, particularly those for whom you complete for talent and for business. Be aware of how survey samples may differ from prior years.
3. Reinvest your compensation budgets with purpose—allocate to key workforce segments. Determine the distinct employee groups or workforce segments, for example, business units, job functions, geographies, that are most critical in creating value for your organisation. Differentiate the reward types and opportunities for these “performance drivers.” Help your line managers to understand how segmentation helps them deliver better business results.
4. Make pay for performance meaningful. If your business has fundamentally changed, change or introduce new performance measures to align them with your new business strategy. Select targets that are meaningful, an outcome that results in corporate value and relevant, a set of results that appropriately reflects short- and long-term performance, and individual or team contributions. Use absolute and relative performance measures. Create a performance mindset by:
- Securing line managers’ understanding and buy-in early
- Investing in educating key employee groups
- Developing and delivering an ongoing communication strategy
5. Rethink the mix of compensation vehicles. Demonstrate a clear line of sight between employee contributions and long-term results; if this is not possible, reduce broad participation in your long-term inceptive plan. Ensure balance between pay vehicles, performance time horizons and risk. Address excessive risk taking for certain employee groups by deferring a portion of the annual bonus award to see if the short-term wins really translate into creating enduring business value.
6. Consider which actions made as a result of the economic downturn should stay in effect for 2010. Don’t jump back into business as usual once you are prepared to reinvest in your human capital. Consider which strategies or tactics may remain in place, such as:
- Assessing the current degree of pay at risk and embracing more of a pay-for-performance culture
- Reassessing desired market positioning
- Making base pay increases only every two to three years as responsibilities change
- Segmenting your workforce to best allocate limited resources
- Getting serious about improving your performance management programme
- Balancing permanent with temporary or contingent workers to flex labour costs
7. Engage talent in other ways besides cash compensation. Create career paths to provide development opportunities. Provide opportunities that elevate an employee’s corporate visibility and develop new skills that enhance employment security. Implement an employee communication plan to quell fears, minimize distractions and increase productivity.
8. Clarify and communicate your employee value proposition. Reexamine if your employee value proposition has changed—perhaps your organisation is keeping more pay at risk or using more temporary or contingent employees. Articulate the new value proposition, moving from tactical employee communications to more strategic total rewards discussions with employees. Equip managers for such discussions.
9. Ensure against pay discrimination practices. Uncover existing pay inequities and assess, identify and correct compensation, promotion and performance management practices that may cause risk. Improve manager education and training regarding pay administration and diversity. Continue to differentiate workforce segments as long as pay differences are nondiscriminatory.
10. Develop an effective global compensation strategy. If your organisation is focused on facilitating talent mobility and common organisational cultures and values define an enterprise-wide global compensation strategy. Establish strong governance at a global level and locate management as close to line management as possible. Consider the HR resources to make this all happen.
Paul Arkwright
Publisher
