Periods of change and uncertainty require active management and a fresh look of total rewards program investments to ensure the arrangements meet the future needs and goals of the organization and its workforce. Base salaries, annual bonuses, health and retirement savings benefits, life, disability and leave programs, paid time off and other total rewards components may not align with emerging workforce strategies or the hyper-competitive talent landscape.
The rapidly shifting demands and operating environments of 2020 and 2021 pressed many employers to take a critical look at labor costs and the allocation of total rewards dollars across employee compensation, benefits and reward programs. It’s time for organizations to get creative to best differentiate their total rewards programs to remain competitive in today’s labor market. While there’s no singular best practice that will work for every company, leading organizations can redeploy existing total rewards investments to become more effective and gain the edge they need to attract employees who, according to our data, are fatigued and ready to make a move to their next job.
Failing to assemble a talent-driven rewards portfolio in the face of increased competition is a wasted opportunity. Provided below is a process you can pursue to “get creative” with your total rewards programs.
Identify links to talent strategy
Recalibrating an organization’s total rewards investments to more effectively align to talent strategies can be a complex and sensitive undertaking. As an example, though many organizations instituted temporary remote work solutions because of COVID-19, some are currently exploring ways to more strategically source talent from across the country, and even globally, as their businesses become more confident in their use of alternative locations, redundant facilities and virtual work.
Organizations invest in a variety of workforce programs to attract, retain, and motivate employees with the right skills and experiences, at the right cost, to deliver on its business strategies. Just like any investment portfolio, the investments required to fund these workforce programs require periodic rebalancing to ensure they are delivering the types of results expected during a period of significant change. Given the limited window of time that compensation, benefits and human resource leaders have to review, consider alternative designs and deploy changes to rewards programs, organizations should first review what elements are delivered in a manner that is no longer consistent with accelerating business performance and the emerging trends that enable the business to compete for talent.
Apply investment strategy to accelerate performance
Periodic total reward portfolio reviews enable more active management of these investments than a more passive approach that focuses on making small adjustments to individual components of the portfolio.
For example, many, if not all, Dec. 31 tax year-end companies will need to determine whether modifications are needed to annual and long-term incentive arrangements. Before an organization simply recalibrates performance metrics for compensation programs that were used under very different market conditions, business leaders should determine if their total cash compensation is properly leveraged, or whether the use of incentive compensation can be applied differently to accelerate performance.
Other elements of the total rewards portfolio can be reviewed from a similar perspective. Armed with this perspective, HR leaders can identify valuable elements of the total rewards package and determine whether each effectively contributes to the organization’s ability to attract and retain qualified people. Leaders can then make a key determination: Is the investment sustainable, or does the offering need to be eliminated, and the investment rebalanced, to get different results?
Incorporate new operating principles
The actions taken to manage productivity, trust and engagement during COVID-19 were critical to the sustainability of many organizations and have positioned new capabilities for the future. These actions created much more than a remote workforce. Leaders now have a blueprint for the workforce of the future and opportunities to apply the different operating principles that were deployed to manage an organization’s ongoing talent strategy. For example, companies may have uncovered opportunities to reskill and upskill the workforce to deliver new business models or adaptability and resilience.
In addition, the elevated conversations that have developed around stakeholder capitalism and value creation in organizations has disrupted legacy business priorities and established new strategic imperatives.
These shifts are expected to be increasingly discussed at the board or the compensation-committee level as organizations continue to plan for their new business realities. As a result, these new operating principles also need to be incorporated into the total rewards portfolio review. This will better ensure rewards investments are better positioned to reinforce strategic business drivers for both anticipated and unanticipated business priorities.
Redefine market benchmarks and internal metrics
As the new world of work shapes a new world of total rewards, employers should consider how their program redesign choices impacts how their total rewards program compares against trends in the marketplace. Benchmarking total reward programs can guide and validate decisions and identify ways to differentiate. In some instances, the standard metrics that have been adopted as part of a legacy measurement strategy may also need to be modified. For example, the way we interpret cost of turnover, compensation ratios, usage by benefit plan, and career growth are likely to be recalibrated during periods of change.
For compensation comparisons, prioritizing internal pay equity and fairness metrics may need additional focus, as it is expected that these areas will be a higher priority for boards and C-suite executives for their talent management discussions and required disclosures. Finally, the combination of rapidly changing organizations and associated business transformation initiatives has had a profound impact on the structure of jobs and the architecture that can be used to define market benchmarks.
Incorporate workforce segments and employee preferences
As organizations continue to emerge from the immediate actions required in response to COVID-19, many have explored how the near-term solutions that were adopted in response to it may continue to help promote positive employee experiences. As restrictions began to lift, some segments of the workforce returned to work, while other parts continued to work remotely. Employers were faced with establishing different solutions for different workers and making trade-offs between the impacts that segmentation had on the overall workforce, including attracting and retaining key talent, and the sustainability of the business operations.
Similarly, organizations can engage the workforce in these types of trade-off decisions when reviewing a total rewards portfolio. By applying consumer and market research methods such as surveys, focus groups and conjoint studies, an organization can incorporate many approaches and tools to help discover what aspects of the reward offerings are important to their employees. By including the voice of the workforce — an organization’s “internal customer” — employers can refine the total rewards review and better evaluate how certain reward elements are perceived as well as test the impact of making trade-offs to get more of one reward element in exchange for less of another, including changes to the allocation of rewards. Finally, careful communications planning for this type of employee research can further reinforce new operating principles and position the initiative for success.
It is crucial that organizations examine their total rewards portfolio on a recurring basis and from a variety of perspectives for the foreseeable future. Looking long-term, companies will need to continue to consider how its total rewards package can be used to differentiate its talent strategies and win in the labor markets, as well as manage performance expectations and the trade-offs that may be required to accomplish broader stakeholder interests.
Regardless of the step taken to complete the review, business leaders should regularly explore opportunities to align the organization’s total rewards investments to emerging talent strategies and ensure their rewards portfolio is responsive to periods of rapid change.
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