Tying benefits and compensation to organizational culture

Human Capital BulletinWhat is organizational culture? The values, beliefs, principles and behaviors that affect vision, norms, systems, assumptions and habits, and contribute to the unique social and psychological environment of an organization, represent the “organizational culture.” Organizational culture includes expectations, experiences, philosophy and the values that hold a company together. That culture is expressed in its stories, symbols, rituals and routines, power structures, organizational structures and control systems. Also called corporate culture, this phenomenon can be examined from a variety of different perspectives.

The organizational culture is reinforced through positive feedback and underpinned by a set of taken-for-granted core beliefs and assumptions held in common. These assumptions are likely to be very basic and represent the collective experience. They guide people in how to respond to different circumstances. They basically reflect “how things are done around here.”

The employee equation More and more companies are using cultural fit as a key factor in the employee selection and hiring process. One recent survey found that more than 80% of employers worldwide named cultural fit as a top hiring priority, in terms of having a group of employees who embrace the same business-related values and beliefs.

For example, Grant Thornton LLP prides itself on its work articulating and living its cultural values, which include:

  • Collaboration
  • Leadership
  • Excellence
  • Agility
  • Respect
  • Responsibility

These values create the foundation for the employee/organization relationship. Articulating these values by tying them to behaviors and outcomes, to incorporate them into the “language” of the organization, has contributed to an improved work environment, lower employee turnover and improved business performance. Organizations that do not embrace their culture and integrate it into their business practices may eventually experience a diluted or inconsistent message – both to employees and to their business partners, clients and customers.

The role of compensation and benefits Attract
The first step in this journey is to attract people who embrace the organization’s culture and values. Compensation and benefits programs should be aligned with the organization’s values from the outset. For example, the retirement benefits may reflect the organization’s culture. Traditional defined benefit retirement plans may be viewed as paternalistic. A defined contribution approach, in contrast, may be viewed as more empowering. Health plans and leave benefits that focus value on the family may express the organization’s view on work-life balance. Flexible time-off programs and flexible work arrangements (e.g., telecommuting or 4/40 schedules) can be used to express that an employee is responsible for his or her own career and advancement. The key is alignment.

An organization must retain employees who are high performing and also share the organization’s culture and values. High levels of performance alone are not enough. A high-performing employee who is divisive to the culture can lead to organizational problems. An example of this would be an employee who does not collaborate with other employees in a culture where collaboration is a cornerstone. The performance management process should be broad enough to capture both job performance and support of the organization’s culture. If career advancement and merit pay adjustments adequately reflect both those qualities, then, over time, the organization rewards and retains employees who best promote the culture.

Incentive plans at different levels in the organization can be a valuable tool to communicate to employees the importance of performance, accountability (individual, team, group, etc.), acceptable levels of risk taking, and the degree to which performance is differentiated and publicly recognized. Employees who have aligned themselves with the organization’s culture will view the reward system as a reinforcement of their behavior. This alignment or line-of-sight into what the organization expects from them is motivational, serving to improve the employee/organization relationship and ultimately leading to a higher-performing organization.

Compensation investments should be made to support the organization’s culture and business strategy. For example, if innovation is a key to the culture, then the pay and reward systems need to be aligned around that objective. If the organization is trying to build out its sales organization, then it should emphasize its commission programs. If quality or efficiency are a competitive advantage, then employee pay should be used to support those initiatives.

Full circle By tying benefits and compensation to the organization’s culture, employees are hired and promoted who best support the culture and values. These employees become an organization’s leaders and shape its future. 

Contact Ken Troy
Director, Human Capital Services
+1 213 596 6677