Rewards today and tomorrow: Changes in a dynamic environment
Clearer definitions of performance and clarifying the same to the employees will assume greater emphasis
Despite having a combination of both tangible and intangible rewards organisations fail big time in communicating these effectively
Usually debates and discussions on compensation and its related aspects are very common among HR professionals – to the point of even saying that there is too much ‘unnecessary’ focus on it. In fact, during discussions on various HR subjects, I have observed HR professionals demanding discussions on subjects beyond compensation, considering rewards/compensation as very ‘déjà vu’.
In the wake of the downturn, however, I have a different opinion. The face of rewards has undergone a marked change in thought. Today, where companies are focusing on cost containment and trying to optimize unnecessary rewards and compensation, their concern over retaining their brightest talent still remains. But what specifically has undergone a change?
a. Rewards or compensation benchmarking is fine but there is more to it
We all have believed in benchmarking and following the market. Indeed, this is one of the ways in which we get to know where our compensation & rewards philosophy lies and how good or bad we are. But in today’s times, the decisions on these aspects have become beyond just the market. No one size fits all and hence ‘to each his own’ is the new approach. Therefore, whatever the market might suggest, companies today are striving to maintain a balance between the market and internal equity/changes. They are trying hard not to go overboard or repeat what happened to salaries when the economy was on a high wave ride. Internal parity has assumed significance far higher than what was seen in the last few years. A good trend to come by!
b. High performance actually means much higher performance
The bar on performance has reached a new high. Patience towards average performance seems to be going down. Not that companies are not willing to invest in developing their employees, but then the focus of development is largely on employees who are doing very well or have potential to do so. Rewards and performance are finally drawing towards a direct straight line of correlation! There is little room for poor performers in an organizational system today.
c. Potential today is important , very important
The focus on potential and succession planning wasn’t higher. With constraints and limited resources, great potential upkeep has further become tough. However, from an employee perspective, unlike earlier years, potential based rewards are not merely seen in compensation or benefits alone but in meatier roles, lateral movements, special projects, mentorship and the likes. Again a great trend to see! It’s about improving one’s skill set than just the compensation part of one’s career looking at long term survival in the employment scene.
d. Cost is important and hence every increase has to be justified, even if the increase is high enough
Needless to say, focus on bottom-line has assumed larger significance across sectors. In some cases it’s been a proactive approach to manage costs even if things haven’t been affected, while in others, it’s been a reactive one based on the downturn aftermath. Rewards and compensation assume significant importance today in board rooms (probably the first time ever!), balance sheets and profit and loss statements that throw EBIT or EBITA numbers.
e. Outstanding talent is still very much to be retained
No matter what, he focuses on outstanding talent still remains. Compensation or reward changes or higher benefits still very much follow great talent. All organizations today focus much higher on retaining great talent and so exceptions for them are a possibility. At the same time, the overall budgeted percentage of high performers has gone down, given the higher bar on performance. So the goodies are for the few ones who have done exceedingly well in line with the new (higher) expectations. But the future may be slightly different, as viewed from the organizational point of view.!
Given all the above imperatives, what holds the future then?
a. Defining even more clearly what higher performance means & retention of exceptional talent, however with a rider
Clearer definitions of performance and clarifying the same to the employees would assume greater emphasis. Retention of exceptional talent would be the key. However, succession planning would also be very important given that no company today would like to give into a few exceptional employees, lest it should resort to out of bound shell out on compensation and benefits to those selected few. Everything would have to be within reasonable bounds from now on.
b. Higher proportion of variable pay
The winds seem to be going toward this, however again ‘to each his own’ in this area. Variable pay is dependent upon the kind of roles and the kind of deliverables the role has. As a result, its impact as a proportion of total pay within the overall context of reward and compensation may be limited, even if growing, unless we are talking of fairly senior roles.
c. Letting people know that we do a lot for them in the rewards area
Organizations do a lot if both tangible and non-tangible rewards are considered together. They however fail big time in communicating these effectively. The buy-in of the line managers is very important in communication. In India, it’s also a cultural mind-set that has to be kept in view given that the traditional emphasis on numbers has been much higher than the non-tangible bit. However communication on rewards would have to be much higher in the future and in the right way.
d. As per the recent global study by The Hay Group on Changing Face of Reward, applying the Return on Investment approach to Rewards and Compensation is the way forward
Everything would be measured in the ROI mode. And as Hay puts it, the approach to Rewards would also have to align with this philosophy. It would be important today for companies to know what they would be getting back for what they are paying.
e. Increased emphasis on being what we are and believing in it strongly
At the cost of repetition, at the end of all the above what would work would be the ‘me, myself’ approach. While market belief and trends would always be important, it would be my survival or growth that would be at stake as the company and henceforth, companies would do what is best for them, while trying to keep a balance, and aligning compensation and rewards in a much tighter way, not seen in the previous years.
Rewards have become more holistic today. It encompasses aspects such as succession planning and rigorous linkage to performance management like it never happened in years before. Rewards today and in the coming future are slowly becoming an all encompassing HR subject that is beyond just numbers or analytics, but more of a tool to manage costs, retain employees, build a performance driven culture and justify any investments towards it in a very business-like approach.
Rajesh Rai is HR Head at Benetton India