Reference no: EM13779154

Possible Pitfalls of Implementing, Communicating, and Measuring Total Rewards

As with any major initiative with many steps, various people and departments involved, and tasks that are designed and implemented over a long period of time, there are pitfalls that are possible. Some of the more common ones are presented in this section in order to bring awareness to them.

1 Jumping in without the required research: Organizations are action-oriented and tend to want to begin solutions before having done adequate research. However, without the proper supporting data, wrong decisions can be made. It is important to take the necessary time and have the money to gather the required data on which to base the important decisions.

2 Not having support in the organization: Not only time, but also funding, will be required for the staffing needed for the implementation of total rewards and for the rewards themselves. Without the key leadership's support within the organization, the proper communication will likely not occur and the rewards will risk being revised or even eliminated. The support of the organization needs to be confirmed at the beginning, during the entire design and implementation process, as well as ongoing as the rewards are being evaluated.

3 Not analyzing the costs: The cost of rewards for work performed is one of the largest segments of an organization's budget. Without properly analyzing the costs of the rewards, separately and combined, decisions made about them cannot be effective. The analysis of the costs will include not only the expense in today's dollars, but also the cost in the future.

4 Attempting to do too much too quickly: If too much is attempted at once, the process can suffer. Each step is important and must be done properly because the success of the implementation depends on the foundation of data gathered. The care taken in communicating, obtaining buy-in, and concurrence can be determining factors toward the success of the programs. Take the time needed for each step of the process, including the essential steps of measurement and evaluation.

5 Not establishing objectives and metrics that are linked to business objectives: The core of the total rewards model is that the rewards offered are aligned to the business objectives. Unless program objectives and metrics are aligned to the business objectives of the organization, success cannot be evaluated.

6 Having to take rewards away: If rewards are introduced and then taken away, it's worse than never having had them at all. Employees quickly develop a sense of entitlement to rewards. Taking rewards away creates a sense that the organization is not supporting them, is punishing them, or is not appreciating them. Take great care that any reward implemented can be sustained. But if something has to be taken away, also take great care in communicating why the decision was made to do so.

7 Unexpected change in requisite KSAs and/or business plan: Due to changes in the domestic or global economy, changes in the competition, expansion, mergers, or the introduction of expanded products or services, changes for the organization may occur that could result in the organization requiring a different set of KSAs in order to be successful. If this happens, the organization will need to assess if the current reward programs will still attract, retain, and motivate the needed employees.

8 Communication issues such as errors in the messages or not understanding the audience: The rewards programs are only as good as they are communicated and administered. If the communication has errors, is not targeted to the audiences inside and outside the organization, and not customized for those various audiences, the programs may not have credibility and may not be seen as positive. Cultural differences of countries must also be considered. One organization launched an expensive marketing program for a new product only to learn that the colors it used in its advertisements were viewed as vulgar in the country it was targeting. This can happen with the marketing of reward programs too. Too many words and too much clutter are not effective; keep it simple, especially on web sites.

9 Measuring the wrong things: Measuring the wrong things is worse than not measuring at all, because key decision makers may make a correlation between the results the wrong metrics are representing and the rewards programs. For example, if the level of satisfaction with rewards alone is reported rather than engagement of the employee, commitment to the organization, or level of satisfaction with various segments of the rewards programs, the level of satisfaction increasing or decreasing overall may encourage changes to the programs when they are actually effective.

10 Not measuring: Without a measurement, the effectiveness of the programs cannot be determined. Not only are the programs to be measured, but key metrics that gauge the relationship between the programs and the organizational goals are essential. When measurements are taken and reported, it highlights that the program and the objective it relates to are important. Without measurement, the necessary revisions cannot be determined. Without measurements, money may be wasted on ineffective programs.

11 Using available data (not relevant): Using information that is already available may be easy, but the data may not be relevant to the reward programs. The available data may be measuring efforts, tasks, or results that are unrelated to the success of the organization. For example, overall turnover of an organization may be measured, but without knowing if turnover has increased or decreased in certain positions that the rewards are attempting to affect, the data is not helpful. The turnover may, in fact, be a positive outcome.

12 Measuring everything: When an organization does not really know what to measure, it is likely to try to measure everything. This dilutes the communication of the right measures, leads to decisions being based on irrelevant data, and wastes the time of those collecting and reading the data.
Pitfalls Specific to Web Sites
Increasingly, organizations use a web site designed specifically for the communication of their rewards. In addition to general rewards communication, many organizations make their total rewards statements available online and update the site frequently for employees. Because the web sites are such a frequently used method of communication, following are a few suggestions to address any possible pitfalls specifically related to web sites:

1 Review the web site every time you update data: And conduct a complete review at least once annually. Messages can become outdated quickly, and information that is irrelevant or incorrect hurts communication.

2 Don't be afraid to include as much information as you want: The goal is to be inclusive of all the rewards while also keeping the site uncluttered and not overly crowded. This can be achieved through proper design of the site, with links to additional information.

3 Don't forget to obtain employee input and feedback: Do not assume that what is thought of by the authors or designers of the web site as being effective is necessarily so for employees. Ask for feedback about the content, layout, ease of operation, and style of communication.

4 Don't think you are done at implementation: Just because a web site has been launched does not necessarily mean it is complete. Daily and continuous monitoring must be done, as well as the various revisions that will need to be made to the programs.
The possible pitfalls and suggestions discussed in this segment are just a few examples of what organizations have found to be areas to plan against and the areas to plan toward. With the proper attention to the details mentioned, and proper execution and monitoring, most of the pitfalls can be avoided and the suggestions incorporated.
 Cultural, Legal, and Country-specific Practices
Most organizations cannot view their reward programs solely through the lens of the United States. Many organizations are global in nature or have at least some presence in other countries. They therefore need to offer rewards that are meaningful and valued across cultures. According to WorldatWork (2007, p. 38) the following should be kept in mind when developing cross-cultural rewards:

1 Be sensitive to cultural issues: Consider rewards in the context of the employee's social, cultural, and geographic background. What motivates individuals in one country may not motivate in another. The communication style or means in one country may not be as effective in another. Compensation of teams versus individual incentives differs, and the way recognition is given to employees will vary from one country to another.

2 Know the laws: Each country has its own specific set of regulations, policies, and customs that must be adhered to.

3 Balance external competitiveness (based on market standards for geographic locale, such as the same region or country) with internal equity, such as equal rewards for equal work regardless of geography.

4 Don't be too different: The total rewards should have broad commonality around the company's global strategy and values. Some of the areas that can be consistent, no matter the county, are competitiveness, employee understanding and appreciation, and providing good services or products to the customers (WorldatWork, 2007, p. 38).
Examples of Country Differences
To exemplify how different the rewards can be while also still holding true to the commonality of the rewards philosophy, a few differences among countries are shared. For example, in the Middle East benefits are primarily cash-based in the form of allowances to cover costs such as housing, schooling, and cars. In Germany and France, a number of perks are still under state control. Eastern European countries, such as Poland, are starting to become more sophisticated in what they offer, and additional perks are being added. Cars are now starting to be offered in some geographic areas, while basic health care benefits are also valued by staff (Employee Benefits London, 2007, p. 40).

The following are a few more examples of rewards of various countries. This information is summarized from a Mercer study entitled Engaging employees to drive global business success: Insights from Mercer's What's Working Research (Mercer, 2007, p. 14).
Canada:

what they want is (mostly) what they get. Three factors are truly important to Canadian workers: being treated with respect, having a good balance between work and personal life, and feeling that they can give good service to their organization's customers. In general, there is a good match between what Canadian employees consider important and how they feel their employers meet those criteria. About 75 percent report that they are treated with respect and that their organization has a good reputation for customer service. Almost two-thirds say that they are able to maintain a healthy balance between their work and personal lives (Mercer, 2007).
Local perk: medical services and prescriptions provided at low or no cost.
France: c'est la vie indeed. French workers prize work/life balance more than their peers in other countries, confirming continuing tensions surrounding the struggle to extend France's 35-hour workweek. Yet they also place a premium on providing good service to customers. However, employers need to pay more attention to issues of respect, which is a most important engagement factor for French workers. Less than half report that they are treated with dignity and respect, and fewer than four in 10 report that they are encouraged to innovate (Mercer, 2007).

Local perk: an average of 40 days off, and some French employers offer the use of company-owned ski chalets and beach houses to employees for a nominal fee (McGregor, 2008).

United States: respect goes a long way. American workers look for respect and place a premium on career advancement. For those who think they are treated with dignity, more than four- fifths are willing to go beyond the call of duty to help their organization succeed. Having confidence that career objectives can be met is a key determinant of engagement for workers in the United States. Nearly nine out of 10 employees are willing to go the extra mile when they see career growth opportunities in their midst (Mercer, 2007).

Local perk: chief executive officers (CEOs) commonly receive financial planning benefits, and group and prepaid legal services (McGregor, 2008).

China: more training, please. For Chinese employees, benefits rate highly as a driver of engagement. However, this is an area in which manyemployees are dissatisfied, which is a reflection, perhaps, of the lack of a developed social security infrastructure in the "new" market-oriented China. But few believe that they get enough opportunities for training and development. Nearly one in four reports that his or her organization does not provide good training opportunities to enhance career options. And only about half of all employees in China report that their managers actively encourage them to participate in training opportunities (Mercer, 2007).

Local perk: companies operating in China are required by the government to chip into a housing fund that's available to their Chinese employees, who also make contributions. When employees are ready to buy a home, they can draw from the funds to help with financing (McGregor, 2008).

Japan: nice incentive pay, but what about the base? Base pay and incentive compensation (a form of the variable pay mentioned in module 2) are very important to Japanese employees relative to other factors in Japan and when compared to what is rated highly by employees elsewhere. Relatively speaking, the Japanese are dissatisfied with their base pay, but they feel motivated by their incentive compensation plans. Organizations' base pay issues have to be addressed, but not at the expense of the incentive compensation pool (Mercer, 2007).

Local perk: family allowances on top of their pay, depending on the size of their family (McGregor, 2008).

India: engaged, for now. In India, employees cite the type of work and their promotion opportunities as the foremost motivators, and, for the most part, employers are meeting their needs. Workers send favorable signals of commitment: four-fifths say they would recommend their organizations as "a good place to work." But given the opportunities opening up in such a dynamic economy, Indian managers need to stay on top of what workers value, including helping workers understand the rewards package and programs being offered (Mercer, 2007).

Local perk: health care for aging parents (McGregor, 2008).

These examples exemplify the variety of rewards offered, by country, to attract, retain, and motivate employees. Most of the differences are cultural in nature, but differences can also be due to governmental regulations. Just as in the United States, the segmentation of workers is required in each location; what is offered to some segments of the population will attract and retain while for others a different set of rewards may be needed.
 Metrics and Evaluation

Why Measure?

Steven Covey (2004) states that we must begin with the end in mind. He expresses that "individuals, families, teams, and organizations shape their own future by first creating a mental vision for any project, large or small, personal or interpersonal" (p. 152). Without the end in sight, in some measurable way, we will not know when and if we have achieved our desired results. The end in mind for total rewards is the accomplishment of organizational objectives, thus the objectives of the organization provide the foundation for the key measurements of success of the total rewards programs.

It is often heard in business that "What gets measured gets managed." It is a way of calling attention to what is important. It's also common to hear that nothing implemented is complete until evaluated to see if what has been intended actually works. If there are no measurement devices in place, what was intended is unknown and evaluation of the success is only speculative. A total rewards program, like any other program of significant expense and potential, must demonstrate that it has made a difference toward the successful achievement of the organization's objectives. Unfortunately, with the rewards program, there may not always be a direct line of cause and effect that can be drawn between the success of the organization and its mix of rewards.

This is because there are many other variables in the environment that might affect the employees, their satisfaction, and productivity. Some of these intervening variables could be coworkers and supervisors, the job itself, the equipment being used, reorganization, downsizing, mergers, expansion, or outsourcing. Outside variables such as the economy, or health or family issues could also play a part. While affecting employees, the variables have an impact on the company itself and the accomplishment of its business strategy, as most are out of the control of the employee and they could intervene or affect an exact evaluation of the total rewards program (WorldatWork, 2007).

However, even with its limitations, "measures matter, both as a guide to management and as a basis of performance management. Therefore, HR professionals must be able to measure how success in total rewards relates to the strategy execution process" (Huselid, Becker & Beatty, 2005, p. 238).

Measurement of results keeps efforts aligned with the intended results. To make the process complete, metrics to report on the effectiveness of the programs need to be designed and agreed upon, and systems put into place to track data measured and reported.

A sound performance measurement system for total rewards does two things. First, it improves decision making about the current rewards by helping focus on those aspects of the organization that create value, and it provides feedback to evaluate current strategies and predict the impact of future decisions. Second, it provides a valid and systemic justification for resource allocation decisions. Organizations allocate significant percentages of their revenues to rewards for the work produced, so there is a need to show that the resources spent are contributing to the organization's success (Huselid, Becker & Beatty, 2005, p. 110).
Definition of a Metric
Metrics, also known as measures or key performance indicators, are simply a tool for assessing the impact of a particular project or activity. Although these are often quantitative or numeric in nature (improve sales by 20 percent, for example), they can also be qualitative (improve staff satisfaction levels).
Metrics can include quantitative and qualitative measures, such as reducing turnover, reducing time to hire, increased production or services, more satisfied employees, more satisfied customers, ability to expand or introduce new products, or a number of organization-specific key objectives of the business plan.

The measurements could be historical averages, recent experiences, projected future performance, internal reference points, or external reference points. In either case, qualitative or quantitative, metrics provide clear and tangible goals for a project, and criteria for project success. It is through the measurement and reporting of key metrics that programs can be assessed, evaluated, and changed, if necessary, to improve effectiveness.
Common Characteristics of Good Measurement Tools
Before deciding the right measures and setting up the systems to gather and report the data, it's important to verify the key objectives and the corresponding metrics with key leadership to ensure agreement.

It is also crucial to the process that the metrics link to the key objectives of the organization and that the tools used to evaluate the programs are supported prior to initiation of the programs.

There must be shared agreement on the credibility and usefulness of good measurement tools, which tend to have some common characteristics. Following are four that many agree are necessary for the measurements to be effective (WorldatWork, 2007):

• are explicitly reflective of the objectives attempting to be achieved; send the right messages to employees

• are tangible measures that are clear and unambiguous

• are credible; can be believed as being achievable and relevant to the success of the organization

• are verifiable and accurate

Types of Measurements

Because measurements can be either quantitative (numbers) or qualitative (opinions, behaviors, etc.), how can an organization decide which method would be more effective as a measurement tool? Most organizations do not rely solely on one method or the other, but rather use some combination of the two. Following is a description of each, and in all cases, "It's not what you think or feel, but what you have the facts to prove" (Huselid, Becker & Beatty, 2005, page 246). Regardless of whether the measurement is quantitative, qualitative, or a combination, the data must be valid and credible. Following are descriptions of the two measurement tools:

Quantitative: these are numerical representations of the outcomes (such as percentages, ratios) and can be grouped into three major

categories:

• direct impact such as reduced turnover, increased acceptance rates

• evaluative outcomes are conclusions that result from a total rewards design, such as the organization's competitive market position, its total

rewards cost per employee, and its rewards mix

• indirect performance outcomes may be partially attributable to a total rewards program, such as revenue per employee, profit per employee,

productivity, customer retention

Qualitative: these measures answer questions, and gather opinions, intentions, or impressions of individuals. While qualitative measurements

may be more subjective than quantitative measures, they are equally important in determining effectiveness. Examples of the questions that qualitative measures answer are: Do the employees feel engaged in their work and the organization's objectives? Are employees satisfied with their rewards and, if so, which ones are the most important to them? Have they thought about leaving the organization in a past certain period of time?

Following are a sampling of possible quantitative and qualitative metrics:

Quantitative:

• percentage of exceptional candidates attracted for high-value positions

• percentage of retention of high performers in key positions
• percentage of eligible employees for promotion to key positions

• percentage success rate of external hires

• percentage productivity per employee

• cost of rewards per employee

• percentage enrollment/use of benefits

Qualitative:

• survey results of intent to leave

• survey results of value of rewards

• climate surveys gauging level of satisfaction with rewards

• knowledge of rewards and value of them

• performance of new hires

• level of confidence that the organization values the employees

• sense of value of the rewards compared to those of the competition

Organizations will typically select more than one type of metric in order to evaluate the success of their total rewards programs toward the success of the organization.

For example, if retaining top key leaders in the organization is needed in order to be successful in an upcoming expansion of the company, the organization may select the percentage of high performers in key positions from the quantitative list, along with the qualitative measurement of survey results of the intent of this same segment of the population to leave. Organizations will not rely only on one measurement when a factor is so important to the success of the business, and it is more effective if the measurements are a combination of quantitative and qualitative.

Relationship of Metrics and Business Objectives

The key to an effective method of evaluating success is not necessarily if the metrics chosen are qualitative or quantitative, or even a combination of the two. The key is if the metrics chosen are indeed indicators that the rewards given are helping the organization achieve its business objectives. It is important to consider "what relationship does the metric have to the success of a business objective?" (Huselid, Becker & Beatty, 2005, p. 138). Relationships between total rewards results are measured through the metrics (some of the above) and specific business outcomes such as growth and exceptional customer service. In the next company spotlight (Sepracor), the relationship between the organization's business goals and the rewards and the rewards metrics is illustrated.

Company Spotlight: Sepracor

The following example from the company Sepracor demonstrates how they aligned their business strategy, rewards, and metrics.
Sepracor developed six strategic business goals:

1 Recruit the right talent

2 Measure the performance of talent

3 Reward and retain key talent

4 Develop talent

5 Optimize organizational and core leadership competencies for selection, performance, and promotion

6 Improve operations, service delivery, and communication to optimize and measure effectiveness of HR programs

The measurement scorecard and ROI framework was included in their business plan and stated:

• what is important to measure

• measurement methodology

• baseline data/findings

• improvement goals (over specific time period)

• positive and negative results

Five key measures were identified to populate the scorecard and gauge year-over-year improvements and plan for adjustments annually. They

were:
• recruitment savings

• reduction in first-year attrition and turnover

• reward and retention of key talent

• external brand recognition

• employee commitment, innovation, and enthusiasm, with executive participation

Link to strategic goals: the five metrics would support the company's growth, enable the shift in focus from the development of pharmaceuticals

to launching a new drug, would allow doubling the size of the sales force while retaining and motivating key research and development, commercial and functional talent.