This page contains a Flash digital edition of a book.
BENEFITS

Reward Systems | FEATURE

REWARDS

+++++++++++++

MARY O’HARA of

PricewaterhouseCoopers explains why companies should introduce reward systems when preparing for the future and an ever-changing business environment.

+++++++++++++

What’s the risk in reward?

IN TODAY’S TURBULENT ECONOMIC

ENVIRONMENT, many organisations are examining their business strategy and making significant changes to the way in which they operate. It has become common practice to see wage cuts and redundancies as ‘necessary’ steps in an organisation’s business survival strategy. Yet at the same time, there remains a need to prepare for the future and organisations need to be well placed to prosper. Throughout history, employers have been challenged with attracting, motivating and retaining the best employees. Yet the premise has been consistent: provide productivity and results to our enterprise and we will provide you with something of value. Given the heightened focus on remuneration systems, is it imperative that organisations give due care and attention to their reward philosophy. This means developing and implementing remuneration strategies based on a number of core tenets, which should include creating a clear link between performance and reward, adjusting for risk and communicating a model based on simplicity and transparency. But how do organisations reflect these principles in the design of their reward programmes? All organisations should be aware of their

total annual remuneration cost and how this cost is changing year-on-year. This should not be limited to basic salary, but should take into account incentive payouts, as well as fringe benefits like pensions, healthcare and training. Examining the value of the total remuneration costs as a percentage of total costs will then

indicate how important it is to manage it effectively. PricewaterhouseCoopers’ ‘European Human

Capital Effectiveness Report 2009’ states that companies will typically have remuneration costs ranging from 10-55 per cent of total costs. Obviously in any downturn, organisations look at a variety of cost saving initiatives, and given the potential size of the remuneration costs, it is inevitable that such costs come under the spotlight.

However, there is a trade off to be achieved in ‘right-sizing’ versus the impact of reducing employee costs has on the organisation. The challenge is to contain costs and to improve business results. With business confidence still fragile and more job cuts coming down the line, it might appear premature to begin looking above the parapet towards the recovery. Smart companies, however, recognise that now is the time to examine how their business model needs to adjust and are looking at what capabilities are required to compete in what will be a less familiar business environment.

UNDERSTANDING REWARD

In the earliest years, reward was based largely on formulas that served the entire employee population in an organisation. Salary structures were just that – rigid and highly controlled – and benefits programs were designed as a one-size- fits-all answer to a homogenous work force. Fast forward to today where the current reward model is often seen as complex, poorly aligned,

even more formulaic and importantly, often not motivating. A reward package will typically include the following elements: basic salary and fringe benefits (fixed pay), short-term incentives and long-term incentives. Each element will vary in line with the seniority of the position involved and the industry or company size. Fixed pay is in place for attending to basic duties, short- term (annual) incentives for meeting short-term targets, and long-term incentives for achieving strategic targets in line with sustainable business growth.

Long-term incentives will typically deliver

equity over a 3-5 year period, while the short- term incentives will reward in cash on an annual basis. For employees to qualify for incentive payouts, they must achieve pre-set targets or objectives. However, formulation and calibration of these targets can be a complex process.

ATTRACTION, RETENTION AND MOTIVATION

Over the past decade, successful organisations have spent a great amount of time and effort on identifying and managing key talent. Such organisations are strategic and deliberate in how they source, attract, select, train, develop, retain, promote, and move employees through the business. Research undertaken on the value of such systems consistently uncovers benefits in a number of critical economic areas including revenue, customer satisfaction, quality, productivity, cost and market capitalisation.

InBusiness May 10 43

PENSIONS Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82
Produced with Yudu - www.yudu.com