Too often, investments in rewards programs are viewed as just another cost of doing business. Not enough attention is paid to the potential return on investment (ROI) and how that return can be improved.
To manage the “R” component, organizations must focus on the programs that drive employee engagement and behaviours consistent with the company’s business strategy. They must create rewards programs that are compelling in the marketplace and that maximize perceived value to employees. And they must communicate the value of the overall package, the value of each component and how all of the components fit together.
To manage the “I” component, organizations need to ensure that the overall value of the rewards is at the desired level, and limit any cost commitments that may be unsustainable in the future.
By taking a total rewards approach, organizations will increase the return on existing programs, as well as reduce or better control costs.
The Four Perspectives
Developing an effective total rewards strategy involves integrating four perspectives into a suite of programs that deliver value. For any new plan or plan change under consideration, plan sponsors must ask the following four questions.
Employer perspective – What is the impact on workforce development and business performance?
Employee perspective – What is the impact on employee engagement and motivation?
External perspective – What is the impact on external market positioning and competitiveness?
Cost perspective – What is the impact on costs and risk, and is this acceptable in light of anticipated workforce and business improvements?
There is also a very important fifth question— namely, Is this the best change the organization can make or are there other possible changes that would be more effective? To answer this question, the organization must look at the rewards as a whole, rather than each component in isolation.
Actions to Take
What should companies do to ensure that their total rewards strategies are achieving the desired objectives? Here are a few next steps.
- Compile an inventory of all rewards programs on a global basis, including core design elements, financing, administration and communication vehicles, and current costs.
- Review each program, document its purpose relative to the current strategy and assess the extent to which it is serving this purpose.
- Establish the future business vision—how the company will be successful, and the workforce capabilities and behaviours required for success.
- Establish future cost scenarios for a range of potential business outcomes.
- Identify what needs to change for the business to be successful in the future.
- Secure and document leadership agreement on the business case for any changes identified and prioritize the desired changes. Ensure that any changes to individual programs enhance the overall total rewards strategy.
- Develop and execute an implementation plan, including adopting performance metrics and formalizing ongoing decision-making and governance procedures.
Experience and research suggest that a carefully planned and executed total rewards program can be a major source of competitive advantage. To compete for scarce talent and to control costs in the future, organizations must ensure that their total rewards programs are aligned with business needs and remain responsive to the changes that will undoubtedly be needed over the coming years.
Alain Robillard is a principal with Mercer in Montreal. alain.robillard@mercer.com
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