How to align your rewards and business strategy
Reward programs work, if they are strongly linked to business objectives and the employees know what is expected of them in their jobs - employees need to see the connection between their own work and the overall goals of the company
Reward has a key role to play in demonstrating an organizations values, commitment to employees and the value it places on performance
So you’ve done a market study on compensation, and you are pegged pretty much at where you want to be against the market. You’ve designed a cutting edge Pay-for-Performance program and even have some exciting stock options for your top management. And of course, you know better than to ignore the millennials – you have a flexible salary structure, complete with gym memberships and other such benefits. All you need to do now is wait for the motivation to kick in and reap the benefits right? Then why is your business not growing every year as you had planned? Or perhaps your margins are shrinking with every passing year, while your employee costs keep rising due to the war for talent?
Why is your rewards strategy not delivering results?
One critical aspect that companies tend to overlook is alignment of rewards with business strategy. Reward programs work, if they are strongly linked to business objectives and the employees know what is expected of them in their jobs. Employees must see the connection between their own work and the overall goals of the company. But, how do you ensure that your rewards and business strategy are aligned?
Identifying measurable business goals: The first step towards bringing this alignment is by breaking down the company’s vision into clear measurable goals. Identify your goals for the next three years and think about how you will achieve those goals – identify the levers you must pull, to create value for your company. Let’s say that lever is new products, then you must have metrics related to new product development on your company’s scorecard and also distributed across the scorecards of your CXOs – it could mean adding a new production line over the next three quarters, augmenting the R&D unit or hiring new technical specialists. This implies that you must add metrics to the scorecards of your Head of Production, Head of R&D and CHRO.
Driving alignment through all levels in the organization: The next step would be to align the larger employee population to these company goals. Stop and consider what are you are currently rewarding for vs. what you should be rewarding for? If it is planned sustained growth that you are after, instead of small incremental year-on-year growth, make sure your employees understand how you plan to make that shift. Employees need to understand what they should be doing differently. It’s most likely that you won’t grow faster by just working harder and putting in more hours. You will have to innovate, and create more value from the same resources at your disposal. Hence, the KPIs should reflect this change in your thinking and approach.
Equity in target setting: Given the business strategy and goals, what is the acceptable level of performance now that your goals have defined? This definition must be the same for everyone in the organization. All too often, different departments rate their people differently, depending on their own perceptions of acceptable performance. Another reason for this is the perceived difference in the achievability of targets. Incorporating a structured, data-based system for setting targets starting from the top will go a long way to establish equity in target setting. Equity in targets is an important factor for maintaining the optimum degree of stretch across the organization and keeping everyone focused on the goals.
Don’t underestimate the intangibles: Goals and metrics is only one aspect of executing a business strategy. Another equally important aspect is ‘employee will’ to execute the strategy. Reward has a key role to play in demonstrating an organization’s values, commitment to employees and the value it places on performance. The intangible, emotional part of rewards is far heavier than the tangible, monetary part. This is why it’s important to view rewards as Total Rewards rather than just a monetary pay-out at the end of the year. Total Rewards includes tangible rewards like basic salary, allowances, benefits, bonuses, stock options, retirals etc. and also intangible rewards like career development, work-life balance, safety and security, quality of work and an enabling environment.
Make sure that your intangible rewards speak the same language of performance and success as your tangible rewards. For example, if monetary rewards in your company are linked to metrics that can be achieved through innovation and collaboration, you cannot cultivate an environment that promotes bureaucracy and competition. You may need to make changes to your structure, systems and processes in order to create an enabling environment. Perhaps reduce the number of layers in the organization to increase speed of decision making, or create cross functional teams to encourage creativity and collaboration?
Robustness of supporting environment and processes: Sometimes the factors that get in the way of alignment are the very processes that support and help deliver the reward strategy. Some factors to watch out for are:
- The Performance Management System – Is it fair, transparent and objective?
- Organization Structure – Is it geared to deliver business strategy and performance?
- Role definitions – Do people know what is expected of them in their job?
- Behaviours – Are we encouraging the right behaviours needed to achieve our business goals?
Top management Involvement: Creating alignment is hard work and demands a lot of time and attention from the top management. Some of the ways in which the top management can support the alignment process are:
- Communication: Reinforce the company’s business goals through on-going, public communication. This would ensure that all employees are aware of the future direction of the company. Be vocal about the reward strategy and how it links with business goals. Emphasize on the company’s commitment to high performance.
- Role modelling: Every leader in the organization must be a role model for behaviours desired for business success. They should demonstrate company values through their actions on a day to day basis.
- Drive the process: Aligning reward strategy with business strategy should not be seen as a purely ‘HR’ activity. It is critical for business success and should be positioned in the same manner. The top management should drive the process with support from HR.
- Gatekeepers to the process: Top management must ensure that the process is followed as intended. They must appropriately and visibly address any deviations or exceptions to the process.
It goes without saying that the top management’s inputs are crucial for articulating the business strategy, ensuring its buy-in and also serving as gatekeepers to the process. Moreover, the effort has to be a consistent one, till the time it becomes a part of the organization’s culture.
Lastly, I would not recommend trying to fix everything all at once. Take the time to study the data, listen to your employees and then address the aspects that matter the most. Know where to start to get maximum impact.