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research
Reward
PaidNext
TimePractices
Off and
PTO Banks:
A Global Survey from
WorldatWork and Hay Group
June 2009
Media Contact:
Marcia Rhodes
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[email protected]
About Hay Group
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into reality. We develop talent, organize people to be more effective, and motivate
them to perform at their best. With 88 offices in 47 countries, we work with over
7,000 clients across the world. Our clients are from the private, public, and notfor-profit sectors, across every major industry and represent diverse business
challenges. Our focus is on making change happen and helping people and
organizations realize their potential
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Contents
About the Survey
1
Participant Demographics
2
Key Findings
3
Rewards Strategy
5
Rewards Design
8
Rewards Program Implementation
10
Impact on the Rewards Professional
12
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WorldatWork and Hay Group
Rewards Next Practices Survey 2009
About the Survey
In early 2009, WorldatWork and Hay Group jointly conducted a survey called Reward Next
Practices. The intent of the survey was to determine how rewards program strategy, design
and implementation would evolve over the next two to three years, particularly in light of
rapidly changing business conditions. Survey respondents were asked to rate the current
emphasis their organization places on different aspects of broad-based reward programs as
well as whether they would increase, decrease or maintain their focus on these aspects of
rewards in the future.
Respondents were asked to rate each question relative to current focus on a 1 to 5 scale
(“strongly disagree” to “strongly agree scale”) and rate each question relative to increased
future focus on a 1 to 5 scale (“much less focus” to “much greater focus”). The percentages
reported for current focus are the combined “strongly agree” and “agree” percentages. The
percentages reported for future focus are the combined “future focus” and “much greater
future focus” percentages. Note that a key finding of the survey is that very few respondents
reported a decreasing focus on any of the questions. Most combined scores of “much less
focus” and “less focus” were less than 6% in total for the vast majority of questions. This
suggests that rewards practitioners will be at least maintaining if not increasing their current
emphasis across the areas surveyed.
A total of 763 organizations from 66 countries participated in the research study. Responding
organizations were mid-to-high level rewards professionals who are WorldatWork members,
haygroup.com registered users, or Hay Group clients. Typical organizations participating in
the survey were multinational organizations of $1 billion or more in revenues across a wide
range of industries.
In addition to a Web-based survey, Hay Group and WorldatWork also conducted interviews
with 30 large, multinational organizations to gain deeper insights regarding where their
organizations plan to place their rewards program focus in the future. Data collected in the
research survey includes organizational changes to base salary, short-term and long-term
incentive programs as well as changes to other rewards-related programs (e.g. benefits
plans, staffing and work rules programs, and training and development programs).
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WorldatWork and Hay Group
Rewards Next Practices Survey 2009
Participant Demographics
Participants represent a broad cross section of industries, countries and company size.
Participants by region:
- 763 organizations, 66
countries, six
continents
- 59% of respondents
have more than 5,000
employees
- 81% are publicly traded
or privately owned
Participants by industry:
Financial services
14%
High technology
9%
Services
8%
Health-care
7%
Fast-moving consumer goods
7%
Retail
7%
Industrial goods
6%
Chemicals
5%
Pharmaceuticals
5%
Transportation
5%
Communications, media and technology
5%
Oil and gas
5%
Public sector
4%
Consumer durables
4%
Restaurant, leisure and hospitality
3%
Utilities
2%
Construction
2%
Basic resources (i.e., mining)
2%
Education
2%
- 37% operate in more
than 20 countries
- 15% of respondents are
Fortune Most Admired
Companies
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WorldatWork and Hay Group
Rewards Next Practices Survey 2009
Key Findings – Rewards Next Practices
While the focus of the research was on what rewards practices would look like in two to three
years, many corporate rewards leaders were very preoccupied with the challenges of the
current economic climate and how their organizations were responding. As the economic
downturn continues to deepen around the world, rewards leaders recognize that rewards
programs will likely experience an “evolution as opposed to a revolution” over the next two to
three years. Rewards leaders expect to see their organizations first getting themselves
healthier in terms of better aligning labor costs with new realities and then preparing for future
growth when the economy improves. With many organizations undergoing restructuring,
implementing layoffs and salary freezes right now, the focus for the short to mid-term will
likely be:
•
•
•
•
Aligning labor costs with economic realities
Aligning rewards with business strategy and performance
metrics
Engaging staff with limited financial rewards
Leveraging corporate scale, philosophies, processes and
technologies.
Survey respondents indicate that a key focus for the next year will be to manage employee
expectations and keep them motivated and engaged despite more constrained financial
rewards and the fear of layoffs.
“Our plan is to retain a very strong
pay for performance philosophy.
Should our business performance
weaken, we would fully expect our
bonuses to go down and potentially
zero awards if the performance
warrants this. In this way, we can
retain some of the important aspects
of our employment value proposition
that differentiate McDonald's, such
as a strong retirement savings and
health-care plan, sabbatical, and
training and development programs.”
– McDonald’s
“We are not going to cut pay to save jobs; we
can save money in other ways. We are
viewing this as an opportunity to make
changes. Now that we have a burning
platform, it could be a little easier”
- Large consumer goods organization
“We are looking for our reward
systems to transcend the cycles
that the economy may have. We
need and value a well-balanced
approach.” – Deere & Co.
“Even in the current market, there is still a
war for talent. This is also a huge
opportunity for human resources to step
forward. Volatility creates opportunity and
now is the time for leaders in our field to
define reality and provide hope”
– Large industrial organization
Balance and integration is crucial
Based on our research and discussions with organizations, many report moving from a
focused, external benchmark orientation of their rewards program design to a more holistic
view of rewards program management. Organizations also report seeking to increase the
focus on linking their rewards programs to business strategy, talent management strategy
and organizational performance.
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Rewards Next Practices Survey 2009
Rather than a laser-like focus on what the market is doing, organizations report placing more
rigor and rationale on strategic alignment of rewards programs and internally rationalizing
them. While external benchmarking
“We are striving to find the right balance
will still be important, organizations are
between employee motivation, cost control
seeking a better balance between external
and market competitiveness in our reward
competitiveness and internal equity.
programs.” – Amway International
As part of this balanced approach, organizations report increasing their focus on better
aligning the needs of employees with the needs of the organization. Employee needs and
wants are becoming more important as organizations seek to keep employees engaged and
motivated in the current economic climate and looking forward. Implementation and
communication will be a key factor in striking this balance, and organizations will be focusing
more on how they communicate rewards to employees, including a new focus on the total
value of the rewards package, rather than the individual elements.
Employee involvement in reward program design:
“We do employee surveys every two years and make action plans based upon the survey
results. One key finding is that we need to do a better job at communicating the total value of
reward to our employees.” – Heineken
“The real power is when you actually start talking with your employees. We design our reward
programs, invest in new programs, and beef up current programs based upon the feedback we
receive from our employees.” – McDonald’s
Performance obviously will be a critical component of the future focus of rewards programs
as organizations seek to better align pay and performance. Organizations are not only
looking at bonus target amounts, they are ensuring that the right performance metrics are in
place, that there is appropriate balance between short-term and long-term focus (see Figure
1), and that there is a balance in the types of measures such as financial, customer,
operational and human capital measures. (See Figure 2). Such action will ensure that
employee behaviors are appropriately aligned with long-term strategic goals as well as the
key throughput measures that drive financial performance.
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WorldatWork and Hay Group
Rewards Next Practices Survey 2009
Rewards Strategy
Increased focus on reward
program alignment
“While we are closer to the
median on a large portion of our
comp and benefits package, we
know some are in the upper
quartile, and we want that if it is a
differentiator for us.”
– McDonald’s
“We balance internal and
external considerations. We don’t
do what others in the market are
doing if it doesn’t make sense for
us. We try to maintain
consistency over time and don’t
chase fads. We strive for
consistency as well as
effectiveness.”
– Dow Chemical
“Internal equity is more of a driver
of our reward design than
external comparison. The current
recession emphasizes this, as we
have limited interest in
benchmarking our actions
against the market because
business needs are driving our
actions. In the future, we would
like to focus more on intangible
rewards.”
– GKN
“We need to take a total rewards
approach and move from
designing rewards on a siloed
basis within human resources
and focus on pulling the
programs together for
employees.”
– Key Corp.
As part of this increased emphasis on a more balanced and
integrated approach to total rewards program management,
organizations report developing more consistency in rewards
strategy and design across employee groups. More focus will
be placed on the motivational value of rewards, managing
total remuneration more holistically and viewing rewards as an
investment as opposed to a cost.
Increased emphasis on employee motivation
When compensation budgets are tight, maintaining an
engaged workforce is more challenging than ever. Financial
rewards are limited and companies are required to seek new,
creative ways to keep employees engaged and motivated. In
light of this, it is no surprise that organizations will be
increasing their future focus on the motivational value of
rewards programs relative to other core program objectives,
such as external competiveness and internal fairness. (See
Figure 1).
Figure 1: Core rewards strategy objectives
Financial performance is still king, but other measures
are gaining steam
Given the current economy, it is no surprise that organizations
currently have a strong focus on financial performance and will
continue to do so in the future. However, an increased number
of organizations will be focusing on more balanced and
integrated measures in the future, with a strong increase in
focus on employee engagement. Forty percent of
organizations indicate they currently focus on employee
engagement measures, while 57% report they will be placing
more focus on this in the future. Human-capital development
and innovation will also have an increased focus in the future.
(See Figure 2).
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Figure 2: Performance Measure Types
Financial performance
71%
-71%
Customer satisfaction
50%
41%
-41%
Human-capital development
44%
29%
-29%
A culture of innovation
48%
25%
-25%
Employee engagement
44%
57%
-40%
80%
60%
40%
20%
0%
20%
40%
60%
80%
% Greater Focus in Future
% Current Focus
There is also an extreme focus right now on short-term objectives — again given the
economy this is not surprising. However, in the future, there will be a substantial shift in focus
toward long-term objectives. The financial industry has received a lot of media coverage
lately related to its perceived ultra-focus on short-term objectives at the detriment of longterm viability. (See Figure 3). Organizations across all industries have taken note and are
viewing longer-term growth and gain as a better business strategy.
Figure 3: Performance Timeframes
Achieving short-term
objectives
78%
-78%
Achieving long-term
objectives
39%
31%
-31%
80%
60%
40%
The importance of consistency
20%
% Current Focus
50%
0%
20%
40%
60%
80%
% Greater Focus in Future
Consistency becoming more important
As more organizations review and redefine their
rewards strategy, consistency is becoming more
important. Organizations that have a broad range
of business units or a wide geographic footprint
are implementing strategies and programs that
can be consistently applied across all areas of the
company. However, this does not mean they are
utilizing a “one-size-fits-all” approach. Local
nuances and differing employee demographics
are not being ignored; where needed the strategy
is flexed and adapted to meet the needs of the
business and its employees.
“We have great consistency in reward
programs at the executive level. We'll be
placing more emphasis on consistency
of approach below the executive level so
as to better enable achievement of
corporate programs and the
development of talent to the executive
level. This will also better support the
achievement of more of a performance
culture” – AkzoNobel
“Some of our reward programs are
different around the world. We will try to
harmonize where it makes sense, while
respecting local/business differences in
strategy and implementation.” – Sara
Lee
“There will be a greater focus on
achieving global consistency on our
reward programs and greater focus on
governance.” – Scotiabank
Is pay a cost or an investment?
This research, as well as our previous research, shows that the majority of organizations do
not evaluate the return on investment (ROI) of their rewards programs. Of the 20% of
organizations currently focusing on ROI, many do not have rigorous processes in place
and/or don’t regularly measure ROI. (See Figure 4).
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Rewards Next Practices Survey 2009
Figure 4: Return on Rewards Investment
A big difference between the organizations that measure the ROI of rewards and those who
don’t is likely a function of how rewards programs are viewed — whether rewards are viewed
as a cost or as an investment. If organizations view pay as a cost, the goal is to keep it down.
If pay is viewed as an investment, the goal is to leverage its value. The organization, its
managers, and its HR function are likely to behave quite differently depending on their
viewpoint.
When pay is viewed as a cost, there is an ultra focus on managing pay levels and pay
designs against external benchmarks which creates a “follow the herd mentality.” External
benchmarking is the one of the primary determinants of the nature of the rewards program as
Figure 6 below illustrates. Reward is more of a reaction to outside influences, rather than an
internally derived, strategic way to improve organizational performance.
Figure 5: External Benchmarking Drives Compensation Budgeting
Determinants of base salary budget
Prevalence
Importance
What other firms do
High
High
Organization ability to pay
Medium
Medium
Desired competitive labor market position
Medium
Medium
Organization performance
Medium
Medium
Employee turnover
Low
Low
Employee morale/satisfaction
Low
Low
However, when pay is viewed as an investment, the view of rewards is much broader and
longer term. Organizations with this viewpoint are also more likely to effectively leverage the
power of the managers in communicating and implementing rewards programs as well as to
measure the ROI of their reward programs. Organizations with an ROI focus tend to spend
much more attention in aligning:
•
•
•
•
Rewards strategy and business strategy
Employees’ interests with the organization’s interests
Rewards programs with other human-capital-management processes
Pay and performance.
Organizations seem to realize that the value of adopting a stronger ROI focus as the future
focus for measuring reward ROI is significantly greater than current practice. (See Figure 4).
As such, organizations will be well served to take a more holistic and in measuring ROI —
measuring the perceptions and behaviors of their employees in addition to the operational
and financial results achieved.
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WorldatWork and Hay Group
Rewards Next Practices Survey 2009
Rewards Design
As organizations revamp their rewards strategy and pay-for-performance processes, there
will be a greater future focus on short-term and long-term variable pay programs, paying for
contributions and intangible rewards. Figure 6 illustrates the shifting future focus to shortterm and long-term variable pay programs, with increased emphasis in better aligning these
programs with the business strategy as well as performance metrics. In addition, many
organizations report increased focus on more effectively communicating these programs and
ensuring that pay-for-performance design mechanics are solid.
Figure 6: Stronger emphasis on variable pay
“We ensure that the objectives
in our short-term incentive
program are broad, simple,
quantifiable and measurable
and that they accurately
reflect the key fundamentals
of our business.” – Heineken
Fixing the foundation
There are several core foundational processes that support rewards programs. These
include market pricing, job leveling, managing performance and supporting line managers to
manage the overall pay-for-performance relationships for employees. There is substantial
current focus on market pricing and job leveling processes, though, admittedly, there is not
great focus where it is perhaps needed the most — helping line managers effectively
manage the pay-for-performance relationship. Future focus will increasingly be on helping
line managers effectively implement rewards and performance management programs. (See
Figure 7).
Figure 7: Substantial Increase in Managing Pay for Performance Programs
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Rewards Next Practices Survey 2009
Intangible rewards
The payback in investing time with line managers should be
substantial as managers often have the most influence over
the array of rewards the organization provides, particularly
the non-financial (or intangible) rewards. Often, it’s these
intangible rewards that drive the company’s “employer of
choice” platform, and they are the primary vehicles in
attracting and retaining talent. In this context, managers play
a significant role in creating the work climate of an
organization and in creating development and career growth
opportunities for employees. Moreover, the immediate
supervisor is often the lead influencer in the employee’s
satisfaction with the organization. Hay Group’s retention
studies over the years have found that when it comes to
voluntary employee turnover, people tend to leave bad
bosses rather than bad organizations.
Figure 8: Intangible Rewards
Education and training programs
54%
-54%
Career/development opportunities
48%
-48%
Flexible work arrangements
48%
-48%
Nonfinancial recognition
60%
80%
52%
40%
% Current Focus
20%
“We'll have much more focus on
a variety of non-financial
rewards.”
– Ericsson Network
Services, B.V.
53%
48%
-48%
60%
“We'll provide much more focus
on non-monetary forms of
rewards and recognition. In
tougher economic times, there
will be a focus to provide
recognition through nonmonetary vehicles.”
– Collective Brands
“Recognition is one of those
things that is free but worth a
fortune.”
– Large industrial
organization
40%
57%
-57%
Work-life balance
Intangibles: a key component
of the reward package
50%
40%
-40%
Work climate/culture
9
44%
0%
20%
40%
60%
80%
% Greater Focus in Future
Intangible rewards are key motivators and drivers of
employee engagement. Intangible rewards are often missed
by organizations as they don’t consider the impact of work
climate, career opportunities, non-financial recognition, the
quality of the work itself and other intangibles as key retention
vehicles. Often, the HR function may not “own” these
intangible rewards programs, and in many organizations no
one owns them. Research has shown that the majority of
employees do not cite pay as the primary reason for leaving a
job. Organizations are recognizing this, especially in light of
limited financial resources, and are increasing their focus on
intangible rewards to improve employee retention and
engagement. Career/development opportunities (60% future
focus) and non-financial recognition (52% future focus) are
the two areas where organizations report placing the most
incremental future focus. (See Figure 8).
“We continue to stress the
importance of intangible rewards
as well as tangible ones, and we
will strive to have quality training
and development processes to
promote individual growth and
team results.”
– Rock Bottom
Restaurants
“We are going to continue to look
for non-cash rewards that are
meaningful to our employees and
will drive the behaviors we are
looking for.”
– Dave & Buster’s
WorldatWork and Hay Group
Rewards Next Practices Survey 2009
Rewards Program Implementation
While relatively incremental future shifts are being taken in rewards program strategy and
design, there are significant changes in how organizations will be approaching rewards
program implementation in the future. The increased focus on employee engagement and
likely constrained financial resources make rewards implementation and communication
more important than ever. Organizations are recognizing the need to ensure that employees
more fully understand and value their entire rewards program, and are motivated to achieve
the performance the organization requires.
Figure 9: Shifts in Rewards Implementation Focus
From
To
Rewards program design
Rewards program implementation
Consistent treatment in pay
Performance-based differentiation
HR-led implementation
Ad-hoc rewards
communications
Line manager-led implementation
Sustained senior leader messaging
Differentiation
Differentiation in the rewards for top performers will become more important in the future as
organizations seek a stronger linkage between pay and performance. This is important as the
ROI in rewards can be improved via greater differentiation in pay. However, for this to
effectively happen, performance linkages must be clear and managers need to be better
trained and prepared to make tough calls on how rewards are to be distributed as well as to
increasingly see merit and incentive funds as investments rather than entitlements.
Figure 10: Greater focus on pay differentiation
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Increased focus on
communication:
“Implementation effectiveness
begins with senior leadership
compensation followed by
changes in field compensation.
Executives need to model the
behavior change before it is
accepted by others.”
– Medco Health Solutions
Communicate, communicate, communicate
The area of rewards communications sees the biggest shift in
current versus future focus. Sustained communications from
management and senior leadership will help establish and
reinforce the organization’s rewards strategy and help
employees more effectively understand the value and intent of
their rewards packages. They also enable organizations to
more effectively “put its mouth where its money is.”
Figure 11: Rewards Communications
“We work hard to communicate
total rewards. This is a big
emphasis for us. We tie total
rewards into all communications.”
– Dow Chemical
“We will be placing much greater
focus on communicating the
value of total rewards.”
– Scotiabank
“We will be generating more
analytics in assessing the value
of our programs, then coaching
business leadership on more
effective program design and
value communication to
employees.”
– Westinghouse
Electric Co.
Currently, the onus of communicating rewards is largely placed
on the HR function. Our research shows that many
organizations are expecting line managers and senior
leadership to take greater ownership in communication and
implementation of rewards. This is the single largest gap
between current and future focus in our study, and it represents
a fundamental shift for many organizations. Human resources
must be prepared to take the lead in assisting managers and
leadership in learning to effectively communicate rewards.
Additional training, tools and one-on-one assistance in this
process will help managers learn to better communicate
rewards and effectively manage performance.
Line manager role in communication
“There will be greater attention to
aligning plans with enterprise
strategies. More emphasis on
customer service balanced with
business profit/financials.”
– Nationwide
Insurance Co.
“One of our key priorities is to provide increased manager
training on understanding and communicating reward programs
and reward program results.”
– Sun Life Financial
"Our total reward communication will be improved by senior and
line management focusing on shaping and delivering consistent
messages." – Xerox Magyarország, Hungary
“We will be focusing on achieving higher levels of employee and
management communication in a more transparent manner.”
– Saudi Aramco
“We need better support for managers to be able to better
explain the reward programs and how they link to individual and
company performance.” – Microsoft
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Rewards Next Practices Survey 2009
Impact on the Rewards Professional
This research suggests that there will be clear implications and changes to the role of
rewards professionals in the next two to three years. The following are among these
changes:
• Doing more with less: As budgets get smaller, rewards professionals need to utilize
limited resources to accomplish even more.
• Communications: Sustained communication of the entire rewards package with
reinforcement of key performance messages will be critical.
• Educating and coaching line managers: Line managers play a critical role in
communicating rewards and performance. Human resources must coach and educate
line managers on how to best communicate this to their employees.
• Differentiating rewards: In coaching line managers, rewards professionals need to
make sure top performers are being rewarded appropriately and poor performers are
getting the “tough love” they need.
• Intangible rewards: Intangible rewards will play a bigger role in attracting and retaining
talent. Rewards professionals must be creative in the intangible space and how this is
communicated.
Shifts in required competencies
As the role and accountabilities of the rewards professional changes, so to does the set of
behaviors and competencies required to do the job. In recent Hay Group research with 40
U.S. rewards professionals, the following five competencies were identified as being integral
to the future evolution of the function:
•
Conceptual thinking: Ability to identify patterns or connections between situations that are
not obviously related, and to identify underlying issues in complex situations. It includes
using creative or inductive reasoning.
•
Impact and influence: Intention to persuade, convince or influence in order to have a
specific impact. It includes the ability to anticipate and respond to the needs and
concerns of others.
•
Change management: Helping the organization understand what the change means to it
and providing the ongoing guidance and support that will maintain enthusiasm and
commitment to the change process.
•
Listening and understanding: Ability to accurately listen and understand and then
respond appropriately when interacting with individuals and groups.
•
Integrity: Acting in a way that is consistent with what one says is important — one’s
behaviors are consistent with one’s values (i.e., values from business, society or personal
moral codes.)
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