That rewarding balance
How do typical Total Rewards strategies need to be adjusted during times of uncertainty?
They need to be adjusted in many ways, but it obviously depends on the company and whether the uncertainty is viewed as a risk or as an opportunity.
Either way, it is generally important to ensure that reward decisions do not leave the company with a permanent fixed cost increase that is hard to remove should the market not follow suit. Temporary allowances and one-off awards are preferable to premature, across-the-board fixed pay increases or changes to benefits that may be hard to reverse.
In some cases, if the company is well positioned, then uncertain times can be an opportunity to assist the company to grow and take market share and talent from competitors, and this may require a more aggressive strategy. In most other instances, uncertainty is a time for a company to become defensive and may require interventions such as retention awards or discretionary reward decisions on bonus pools and payouts that have been adversely affected by external events.
What opportunities become available with the new existence of big data and workforce analytics?
The ability to predict outcomes and therefore make better-informed decisions is greatly enhanced through big data and workforce analytics. One of the challenges and goals of working in Total Rewards is ensuring that the money the company is spending on its workforce is generating an adequate – and where possible, above-average – return on investment. Data available now can make these calculations much more informative. For example, we may now have data to show that:
Top graduates hired from campuses in Country A stay with the company for a long time, perform well, and rise to senior roles locally and globally with the company
Top graduates hired from campuses in Country B tend to like to move on and try other companies or industries after contributing a couple of years.
Therefore we may decide to offer above market compensation in Country A, as the data indicates there is a very positive long-term return for us. But we may only offer market compensation in Country B, protect our costs, and accept graduates who may not necessarily be at the top level.
Has the mix between short and long-term incentives changed for organisations today?
This is likely very dependent on the country and industry, and the maturity of the company. In financial services at senior levels there has clearly been a big shift to long-term incentives driven by regulatory changes in the past 10 years. Start-ups and new companies will also offer more on the long-term incentive side to help preserve and reinvest cash in to the business, but that is not a new phenomenon.
You often hear that the new generations coming through are focused on cash and short term rewards only, and this may mean that HR places more attention on these when talking with employees and candidates. However I have not yet seen any clear evidence that the global market is changing the approach and the mix of short and long-term incentives for their employees.
At a regional level, Asia has grown in importance for many companies in the past 20 years which means more senior roles are based here and there are perhaps more long-term incentives as a result. However, I have not seen any data showing trends over a long period.
What are the basic goals of short-term incentives, that are in addition to structured pay and bonuses?
In think the key is in the word “incentive”. The money you are spending on a short-term incentive (STI) should incentivise something specific that is aligned to the short-term business strategy and creates value for the company. If spending money on a STI does not positively affect business results or not by enough to justify the investment, then it is not achieving its primary goal and should be changed.
In order to achieve this primary goal, the STI should also be simple, transparent, well-communicated and understood by employees. The business case for a new STI should show how it effectively funds itself through the positive impact it has for the company.
Is it difficult to align these strategies with the longer-term direction of the organisation?
Yes, it can be. Longer-term the organisation will have more complex strategic goals and it is very hard to design a STI that is aligned in the right balance to all the strategic priorities, and is also simple for employees to understand.
Sometimes STIs and goals can conflict with the longer-term strategy of the company. For example, a simple, sales-driven STI may successfully boost sales on conventional products, but negatively impact the growth in new that are complicated or slow for sales employees to sell – but which might ultimately be where the company believes its long-term future lies. Conversely, a STI to drive the strategic shift to new sectors or products may negatively impact sales in conventional products if the plan is not well designed and balanced.
What will you be focusing on in your presentation to the Reinventing Total Rewards Congress at the end of October?
I’ll be looking specifically at short term incentives, and ensuring maximum return on investment from these.
A new look at Total Rewards
Rob Gosney, Head of Rewards – Growth Markets at Philips Lighting, will be one of more than 15 speakers and panellists at the Reinventing Total Rewards Congress, taking place in Singapore on October 31 and November 1.
Delegates will receive first-hand, best practice case studies on how organisations- including Philips Lighting- have adjusted their compensation and benefits programmes in light of the volatile business environment in Asia-Pacific and globally.
Along with Gosney, delegates will hear from representatives of Bank of America Merrill Lynch, DHL Global Forwarding, Shell, Intel, and Deutsche Bank.
For more information, visit Reinventing Total Rewards Congress