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FEATURE | Reward Systems

While high performers are essential to a company and warrant attention, an emerging focus is also being placed on another group – pivotal employees. Pivotal employees are members of the workforce that are expected to create value and determine the success of the organisation; they vary by industry and are not necessarily managers or high performers. For example, pharmaceutical companies depend on the research and development of new drugs, and so research chemists are likely to be pivotal employees. The motivation and engagement of

employees can have a significant impact on influencing behaviour and therefore, on the long-term sustainability of business. Good reward programmes are intended to positively influence the behaviour of employees; if they are not doing so, questions must be asked as to why this is the case. The most successful companies have realised that they must take a much broader look at the factors involved in attraction, motivation and retention. In doing so, they must deploy all of the factors, which include compensation, benefits, work- life balance, performance and recognition development, and career opportunities – to their strategic advantage. It is important not to lose sight of the non- financial reward elements and organisations should monitor and manage any demographic changes that will affect their ability to compete effectively, and reward in line with employee (and generational) requirements. PricewaterhouseCoopers’ global report ‘Millennials at Work: Perspectives from a new generation’ shows that younger employees place more focus on flexible working hours, leave allowances and mobility than they do on cash-based reward.

One of the key methods to successfully motivating and engaging employees remains through incentive schemes, with objectives aligned to overall business strategy, while managing the inherent risk associated with these incentives. In order to successfully attract and retain key talent and pivotal employees, the remuneration offered should be in line with market rates, subject to where the overall reward philosophy has been pitched.

SIMPLIFICATION AND RISK ADJUSTMENT

In designing a reward package, simplification is critical, with a trend towards fewer complex incentives and a greater focus on long-term arrangements and higher degrees of deferral.

44 InBusiness May 10

“There is a need for

The fundamenTals

of reWard To be

revieWed and re-

applied in many

organisaTions.”

Mary O’Hara, Partner, HR & Reward Services, PricewaterhouseCoopers.

The more complex a reward scheme, the more difficult it is to manage and, just as importantly, to communicate to employees. What compounds this further is the fact that a long-term incentive scheme, which will not pay out for three years, is sometimes ignored by the employee until due, and increases the pressure to ‘fill the gap’ and ensure the employee is rewarded by way of short-term incentive. Studies have shown that employees who clearly understand the potential value of their total reward package are more engaged, and therefore more likely to go that extra yard. Incentives should be driven not by an annual measure of performance, but rather by performance measured over a period that is closer to the life of the activity in question. For example, if an over-riding objective is to grow company profits by 5 per cent over the coming year, this also needs to be aligned with future growth (there is little merit in achieving the objective in year one, only to see this eroded with a loss in year two of a five year plan). Deferred incentive plans can play a very important part in cost and risk management as they can reduce remuneration costs in the short term, reduce risk, and maintain an appropriate return on investment on remuneration costs, while employees can achieve returns aligned with long-term business growth.

COMMUNICATION AND TRANSPARENCY

In order for the total reward programme to be effective, it needs to be successfully communicated to all employees. It is now crucially important that reward systems are more transparent to employees, particularly those employees that have been impacted by a reduction in total reward over the past 18 months. There needs to be a clear understanding of the challenges facing the organisation and why this has led to changes

in reward, including the basis for determining bonus targets and objectives, the total reward mix between fixed pay, short- and long- term incentives, and the peer group used for remuneration benchmarking. Furthermore, there is a need for direct

consultation between human resource professionals and the executive management of the organisation, in order to ensure that such transparency and understanding is on the agenda at the highest level. Changes to reward structures will only succeed if HR professionals understand what their management are trying to achieve in the long-term, and in turn, use their expertise to help achieve this. An increase in clarity around reward philosophy ought to have a positive effect on employees and further influence their behaviour in line with overall business strategy. There is a need for the fundamentals of reward to be reviewed and re-applied in many organisations. The three core principles of reward management – attraction, retention and motivation – must now be combined with the simplification, communication and transparency of reward. This will allow for the retention and further engagement of key talent and pivotal employees.

Clearly, any restructuring of rewards represents a significant challenge and cannot be achieved overnight. Key steps include developing relevant and transparent performance indicators as well as explaining to staff what is required of them and how they will be assessed. Organisations need to convince staff that the new approach can enhance long-term rewards for them and the business, at the same time ensuring that there is a clear line of sight between performance, reward and career progression. For companies to succeed in an unfamiliar world, where economic challenges continue to dominate, adapting to a more balanced remuneration model, which links long-term performance and reward, will be key to a sustainable future. 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
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