Putting Reward Implementation in The Best Hands

Reward Strategy and Practice
Putting Reward
Implementation in
the Best Hands
Tom McMullen and Victoria Power, Hay Group
Unless you are fabulously nization that connects it directly use line managers effectively in
wealthy, a central part of our to the impact that employees have the process. New Hay Group re-
decision in accepting an offer of on organization results? In many search1 finds that only 3 of 10 of
employment will always be about organizations, the closest this gets organizations rate their line man-
what we get in return. The “deal” is an email communication or a agers as effective in implementing
that most of us tend to make is to short chat with the manager that their rewards programs (see Fig-
forego a considerable amount of communicates the base salary ure 1). Worse, a mere 28% of or-
our own personal time and inter- increase, incentive payment or ganizations believe their managers
ests in return for a set of meaning- changes in benefits programs. are effective at managing the pay
ful rewards. So why does this matter? In for performance relationship for
So, why is it that most organiza- most organizations, the cost of their employees. Note that in our
tions seem to forget this basic fact?! labor is one of the largest invest- study, we defined rewards as the
Think about it: how often does ments made by a company, but sum total of what the employee
a meaningful discussion happen many organizations tend to be- receives from the employer. This
about the rewards in your orga- have as if managing its human broad definition of total rewards
capital is a more of a transactional encompasses a broad range of
TOM McMULLEN (tom_mcmullen@ function—something administered
haygroup.com) is the U.S. reward practice compensation, benefits and intan-
leader for Hay Group, based in Chicago. by HR, or the Compensation &
gible rewards such as recognition,
He has more than 20 years of combined HR Benefits department.
inspiration, work/life balance,
practitioner and compensation consulting But if we look at compensation
experience. His work focuses primarily on career development and positive
as an investment in the human cap-
total rewards and performance-program work climate.
ital of a firm, then not only should
design and implementation, including Ask yourself how many compa-
reward strategy development design. we be seeking a better return, but nies would build products for their
it becomes obvious that the man- market without conducting market
Victoria Power (victoria_power@
haygroup.com) is a Managing Consultant agement of that investment is one research with their customers? Yet,
in the U.K. reward practice for Hay Group. of the main responsibilities of any generally, most organizations don’t
She began her career as a line manager in line manager. involve managers in consultation
the recruitment consulting sector and has And yet, when it comes to de-
worked as a reward and compensation
about the “reward tools” (compen-
consultant in the public and private sectors veloping and implementing re- sation, benefits and intangibles) that
for 10 years, focusing on reward strategy ward programs, we find that the they should be using to facilitate
and implementation. majority of organizations don’t employee motivation. So, manag-
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FIGURE 1
Line Managers Effectiveness In Reward Program Implementation
ers don’t stand a chance! Is it any tion, line managers are often the in coaching and development.
wonder then that most organiza- standard bearers of the organiza- Employees were found to be very
tions believe that their managers are tion’s values, and more often than much motivated by having lead-
ineffective at communicating and not, are seen as primary shapers ers who would help strengthen
implementing various aspects of the of the unit’s work climate and in- their career prospects, skills and
total rewards program (including tangible rewards programs. When competencies.”
base pay, variable pay, benefits and asked about good organizations … And, of course, the line
financial and non-financial recogni-
and managers, employees regular- manager is best placed to be the
tion programs). See Figure 1.
ly describe things we might term key influencer on how these in-
So, if managers are poorly posi-
intangible rewards. Career growth tangible rewards operate in re-
tioned to influence their impact on
opportunities, quality of work, lation to members of the team.
rewards programs, why is the HR
flexibility, recognition and work According to Elisa Poe, VP of
function not getting the message
environment are very important Human Resources Operations,
across? Of, course, our experience
and are the largest part of what at American Modern Insurance
with clients tells us that many HR
makes employees feel rewarded Group, “the organization wants
professional are excellent program
by their work experience. It’s of- the line manager doing as much of
designers and strong communica-
ten these intangible rewards that the implementation and commu-
tors. But, let’s be clear about the
are the drivers in the company’s nication of the rewards program
distinction we are making: it is not
‘employer of choice’ programs as possible, because, as she puts it,
that managers as individuals are fail-
and the primary vehicles in at- “they are the most trusted people from
ing the organization and its employ-
tracting and retaining talent. the employee’s perspective.” The role
ees: rather it is the roles and lack of The rewards that motivate peo- of HR, she says, is to provide the
support that the organization has ple vary greatly in different envi- tools and assistance. “But the most
provided that are the issues. ronments. In emerging markets effective communications in this regard
Unfortunately, most organiza- such as Southeast Asia and Chi- comes from the manager.”
tions do not leverage the respec- na, Unilever found that a critical But it is not just as influencers
tive strengths of line managers and part of the employment contract of employee opinion that man-
the human resources function in was who the employee’s manager agers play a vital role in reward
implementing and communicat- would be. It was not about status programs. Managers provide a
ing their total rewards programs. and prestige … it was not about clear picture of what employees
So what should line managers the bigger the job title of your want and how they will react to
be doing? boss, the more important the role change. The flip side to this is
More than being the department’s would be … it was much more that managers can “go native”
“parental figure” for the organiza- about the skills that that boss had and become too closely aligned
with employee, rather than orga-

FIGURE 2
nizational needs and preferences;
HR Effectiveness In Reward Program Implementation
but nevertheless this understand-
ing is invaluable in understanding
the needs of any implementation
exercise and in understanding the
morale costs of difficult changes.
The role of HR
In asserting the value of manage-
rial involvement in implementing
reward programs, one must not
lose sight of the vital role played
by HR. While line managers are
best positioned to garner intelli-
gence and to influence employ-
ee opinion and satisfaction; that For many organizations this ees, creating room for autonomy,
closeness of involvement is the means equipping managers with recognizing success and improv-
very thing that disadvantages them better tools to support their inter- ing the work climate, etc. are far
in development and management action with employees. “We pro- more successful in retaining their
of the overall aims of the program. vide managers with talking points talent. Yet many need better un-
Managers have other concerns and standard presentations to give derstanding of this.
than to be the source of reward to employees,” adds Carl Smith, When we ask managers how
knowledge for the organization, Caterpillar’s Corporate Compen- they feel about taking more of a
so clearly HR has a significant role sation Manager. “We also provide leadership role in reward program
as provider of expertise on reward, suggestions on what to advise implementation, the response is
legislation and market matters. their employees based on their often as varied as it is negative.
In years of working with orga- type of situation. Some manag- Lack of bandwidth, understand-
nizations where HR and managers supplement what we give ing and concerns about their ca-
ers are involved in developing re- them and we have others don’t pability and confidence to explain
wards, we’ve seen that many man- make it a priority. This shows up and defend changes to their em-
agers can view rewards through in employee opinion surveys,” ployees are very real worries.
the restricted window of their he notes. “Managers who make Hay Group’s research shows
departmental concerns. Managers reward communications a prior- that many managers may be jus-
of professional service teams tend ity usually get better results from tified in feeling insufficiently
to focus on expertise and the pro- employee opinion surveys.” prepared to take on these ac-
motion aspects of rewards; where So why aren’t more countabilities. Our study found
those responsible for staff in lower managers involved in reward that many HR functions are in-
level skilled work will often focus implementation?
adequately supporting their line
on how rewards motivate long On one level, managers can fail managers in reward program im-
serving staff who stay in one role, to understand the impact that plementation (see Figure 2).
or on retention measures for core they have on the employee’s per-
roles executing the fundamental ception of rewards. If asked why ❚ Only 35% of organizations
work that may have higher re- their employees leave, manag- say they do an effective job
gretted turnover rates. ers will very often cite better pay of education and formal
In balancing the very different elsewhere as the main reason. Yet training in the area of reward
needs of line managers, HR must evidence suggests that inspira- program implementation.
take the perspective and strategic tional managers who better lever- ❚ Only 36% of companies re-
position that many managers are age the intangible elements of re- port that HR is effective
ill placed to see. ward, such as developing employ- at leveraging best practices
business strategy to end results by

FIGURE 3
doing a better job clarifying their
Focus on Strategy Implementation
strategy, communicating their
strategy and effectively engaging
managers and employees to carry
out their roles in execution of the
strategy. See Figure 3.
Unilever links its employees’
variable pay programs through a
cascade from corporate to divi-
sional and to country level strat-
egy interaction goals. Accord-
ing to Unilever’s Alan Jope, “to
me, a good strategy is one that is
winning and that is simple.” The
strategy-linked reward system has
been in effect for five years, which
has successfully been received by
employees who understand how
it works and have absorbed it as
part of our culture and the way we
across the organization relat- This becomes even more dif- do things. With the emphasis off
ed to reward program imple- ficult where the changes im- of immediate activities, managers
mentation. pact unfavorably on the manag- faced a challenge helping employ-
ers themselves, or clash with the ees stay focused. Over the past
❚ HR support to line managers three years, Unilever has taken
in utilizing non-financial and “psychological deal” they felt the
company was promising. With all intricate steps to ensure, through
financial recognition pro-
of this against them, it is perhaps the cascading process, that “ev-
grams is considerably lower
ery manager in the company as
(at 42%-43%) than support not surprising that companies
a work plan with five goals that
in other reward areas (e.g., don’t ask managers to lead imple-
can be traced directly up to their
base pay, variable pay, ben- mentation in this area. But, can
country level plan, their division
efits, career advancement). they afford not to?
plan and their global plan.”
While providing training and What Can we Learn from Most
This focused approach among
Admired Companies?
tools to help managers understand the MACs is also reflected in the
rewards and to assist in commu- For the past decade, Hay Group implementation of their reward
nication is a relatively straightfor- has conducted Fortune magazine’s programs. Most Admired Com-
ward undertaking, discomfort in Most Admired Company (MAC) panies are far more effective than
delivering news about rewards is analysis. According to our find- other organizations in their reward
a more complex issue for many ings, typically there are few ap- program communications as the
managers. Most reward implemen- preciable differences in the nature intent and strategy of the reward
tations often focus on how to deal of the business strategies of the program is better understood and
with the “winners and losers,” or MACs when compared with peer communicated by MACs.
at least the losses and gains to in- organizations. However, when The emphasis on reward pro-
dividuals. For many managers, jus- we look at the ability of MACs to gram communications results in a
tifying the less popular aspects of actually implement their strategies substantial difference in the level
change has the potential to damage and achieve business results, the of employee understanding of
the carefully crafted relationships differences are striking. We have the value of their reward package
of trust that they have built with found pronounced differences in in MACs (see Figure 4). This is
their team members over time. MAC’s ability to translate their critical in organizations because
effective reward communications

FIGURE 4
is the key to ensuring that the re-
Most Admired Companies Focus on Reward Communications
ward program is actually deliver-
ing what it was designed to do.
Logically, if an organization is to
invest in any aspect of its rewards,
then the impact that such an in-
vestment can have will be diluted
if employees do not know about
any changes or new measures: the
reward program can serve as a moti-
vator only if it is understood and ac-
cepted by employees.
This point takes us back to the
role of the HR professional in the
spending hundreds of millions on rewards’ approach—beyond tradi-
implementation of any rewards
providing benefits that employees tional compensation programs—
program. One of the most vital
didn’t value, understand or even when dealing with employees.
activities is to provide relevant and
know existed. Regularly commu- Often it’s the intangible rewards
accurate information and tools to
nicating the ‘total value’ … sig- that are primary retention drivers:
support the line manager. It is not
nificantly improved the effective- managers need to understand this
enough in modern organizations
ness of our rewards programs.” in the way they behave.
to send an email, short memo,
And while these total remu- As for the HR function, orga-
or for managers to a have a quick
neration statements aren’t the nizations need to better recognize
chat! What matters is that today’s
only ingredient, typically organi- the strategic role that the func-
employees will ask searching ques-
zations who use such tools com- tion can play in facilitating coher-
tions and their managers must be
monly deploy a range of support-
fully prepared in order to respond. ent design and implementation of
ing initiatives.
This is borne out in our sur- reward programs. HR therefore
vey of the Fortune Most Admired Investing in Successful
must consider investing more of its
Implementation.
Companies. MACs generally discretionary effort in developing
think about using different tools Since we have repeatedly found
stronger and more creative pay-
to build different relationships that the most effective reward
for-business performance linkages,
with employees. One of the key programs are differentiated by
building effective reward commu-
ways in which they so this is to effective implementation rather
than design and line managers are nications programs and in identify-
develop different tools to assist ing and leveraging the best way to
managers in communicating their the key to effective implementa-
tion, it is ironic that our experi- utilize line managers in the reward
rewards messages. The Most Ad-
ence shows that companies spend implementation process.
mired Companies are much more This is underscored by Vickie
likely than their peers, to use to- far less time and money on the
implementation and communica- Tillman, an Executive Vice Presi-
tal remuneration statements than dent at Standard and Poors. “Edu-
other organizations (see Figure tion of programs than on the de-
sign of these programs. cation and understanding the busi-
4). Bruce Lasko implemented ness is probably one of the prime
total remuneration statements at Organizations would be bet-
things that we need to have our
Avaya, (global communications ter served to focus on supporting
HR people do. A Total Reward
hardware/software manufactur- the development of management Program for instance, in Japan,
er). Commenting on the impact capability in this area and under- may be very different than it is for
of this tool, he says, “surprisingly standing that there is a vital role those who are sitting here in New
it’s not the value of rewards that for HR in making this happen. York versus those that are sitting
the differentiator. It’s the com- HR needs to help the organiza- in San Paulo. Our HR [team] have
munication. We’ve spent years tion’s managers in taking a ‘total to become much more global in
their perspective. HR in the past

EXHIBIT 1
has been reactive about such issues.
Like many companies, Standard &
Poor’s prefers to have a singular
program that covers everybody,
but because of a variety of differ-
ences amongst our markets, HR
must become much more creative
in designing a program.”
Make no mistake, managing
reward implementation is hard
work, but it’s the kind of work
that rewards organizations that do
it well. Done well, the partnership
between the HR function and
line management can collectively
and positively influence how em-
ployees perceive and value their
total rewards programs and how
they impact on business success.
Notes
1 The study is comprehensive -- including
1,186 organizations in 78 countries and
included HR, line management and CEO
respondents.

Putting Reward Implementation in The Best Hands

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Reward Strategy and Practice

Line Managers Effectiveness In Reward Program Implementation

with employee, rather than orga-

business strategy to end results by

effective reward communications

their perspective. HR in the past

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