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The missing link in total rewards

By By Jean Christofferson
| www.cos-mag.com

Watson Wyatt Worldwide cites survey findings that successfully executing a total rewards strategy can increase a company’s market premium by nearly 55 per cent. With increasing evidence such as this, there is no doubt total rewards is an important driver of business performance for companies around the globe.

{mosimage}But in most countries, including Canada, the aging workforce, business globalization, and a shortage of workers with critical skills, along with other challenges, have sent HR professionals scrambling for new information and effective solutions to attract, motivate, and retain.

But are total rewards professionals missing a critical step that may be inhibiting success?

According to Peter Cappelli, Ph.D., author of The New Deal at Work, “Back in the 1950s and 1960s, 96 per cent of companies did very detailed workforce planning. As of 2004, 63 per cent have absolutely no planning whatsoever. Why? The environment has changed.”

But in this case, such change may not be for the better. While companies are, in many cases, continually increasing their total rewards choices in order to attract new talent, they may be working harder rather than working smarter. This article examines how HR professionals get from understanding the business strategy to developing valuable and successful total rewards programs.

It’s all in the planning

So what’s the missing link? How do HR professionals get from understanding their business strategy to successfully developing a total rewards strategy to help them achieve desired business results? According to Don Lindner, executive compensation practice leader of WorldatWork, an association for total rewards professionals, it’s understanding what talent a company has, and what talent it needs.

“A company has to know what its strategy for success is, whether it’s to be a low-cost provider of goods and services, or to be the innovator in your industry, or to be performance oriented, etc.,” Lindner says. “But beyond understanding the business strategy, you have to figure out what kind of talent you already have and then what kind of talent you need in order to accomplish your business goals.

For example, do you need to burn and churn through young engineers for innovation, or do you need to focus on retaining the knowledge you have tied up in the aging workforce?”

In most companies, the workforce accounts for the single largest expense. In order to get the most from the company’s compensation dollars, HR professionals need to analyze the demographics and understand the makeup of current talent in order to understand whether “to build or buy.”

The view from the C-Suite

Perhaps one of the more difficult challenges in understanding and developing the workforce to support the business comes from the corner office.

But getting attention from a CEO may be easier said than done, as many HR professionals undoubtedly know. “It takes a lot of courage for an HR professional to step up and say, ‘That’s not the right approach,’ at a board meeting, or a meeting with the CEO,” says Rose Stanley, benefits practice leader of WorldatWork. “And even then, he or she may not listen. So it’s imperative that HR professionals think like business professionals.”

Stanley and Lindner also recommend gaining the support of the chief financial officer first. Finance executives tend to have a lot of influence on CEOs, and if an HR professional can make the case to the CFO,  the CEO will gradually become more aware of the connection of total rewards and the business strategy.

And it seems some CEOs are starting to get on board. In a July 2007 workspan article, Time Warner (a leading global media and entertainment corporation) CEO Richard D. Parsons said, “We want to ensure that we’re competitive with respect to compensation, benefits, and other employee programs, while also aligning these rewards with strong company and employee performance.

The labour market has become more competitive and more diverse over the past few years. Time Warner focuses on increasing the representation of women and people of colour in the workforce, specifically in management roles.”

Another example of effectively building the bridge between the business strategy and the total rewards strategy is the global phenomenon Starbucks.

In his book The Starbucks Experience, author Joseph A. Michelli, Ph.D., describes how Starbucks links its business goal of profitability to its total rewards strategy:

“Profits increase not only the breadth of Starbucks’ market, but also the scope of its positive social influence and its capacity to provide quality benefits for its partners (employees). These benefits include health insurance for 20-hours-per-week employees, something that Starbucks partners received long before such a thing was even considered, let alone adopted, by other corporations.”

Once HR professionals understand the business strategy and gain executive buy in, what talent-management challenges do they face in today’s business environment?

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