KEY POINTS:
There was once a belief that employees would respond to cash rewards like Pavlov's dog to the sound of his bell. But the key to retaining and motivating workers is now less formulaic than that, says Tom McMullen, co-author of The Manager's Guide to Rewards.
"A lot of times the key retention drivers in an organisation are the intangible rewards rather than the tangible rewards. Managers have the most direct impact on that, much more so than the HR function," McMullen says.
Employees have become more interested in rewards other than cash. Today's workers are wanting:
- A positive work climate
- Development and career growth opportunities
- The opportunity for interesting work and interesting projects
-Satisfaction with their work
McMullen is a vice president of Hay Group and is based in Chicago. He visited Auckland in July to launch his new book and told the crowd that this shift in mindset towards a philosophy of recognition is particularly prevalent in generation Y workers.
"This new generation of worker, the 20-somethings out there, recognition is a very important part of what they're all about," McMullen says.
But this move toward a more active recognition of workers is not just something conjured up to pacify younger workers.
"There are actually chief recognition officers at some of the big US organisations now," McMullen says.
Imagine a handwritten note from upper management being as valuable to a worker as a bonus. McMullen says not to underestimate the power of executive non-financial recognition.
A handwritten note can have a real impact. Many workers even frame them and put them up in their offices, McMullen says.
"I think sometimes senior leaders can forget the impact that recognising someone can have on the recipient."
The total rewards that an organisation gives include the tangible and intangible rewards, McMullen says. And it's the upper management team which sets this tone for the line managers.
- What does it feel like to work in this organisation?
- What is the work climate and culture of the organisation?
- What is my work/life balance?
- What are my long-term career goals and career advancement opportunities?
- Is the organisation enabling me with technology and supporting processes like mentoring and coaching?
McMullen says these intangibles rewards are key when it comes to an organisation's employment branding.
"The best companies do things that other companies find more difficult to implement."
One of the things a lot of companies struggle to implement is an effective reward strategy. McMullen says companies should be paying for performance. And no, that doesn't mean paying more.
"Most top performing companies tend not to have bigger merit budgets than the average bear. They would still have the same four per cent."
McMullen says it's all in the way the reward system is implemented and executed.
"I'd rather have an average reward program design and excellent execution versus a great design and average execution."
For a reward scheme to work, McMullen says senior leadership and management need to be on board. And the most important element is the way the reward programme is communicated within the organisation.
"A lot of organisations do a nice job on management development programmes for leadership and talent management, but there is still kind of an empty space out there in terms of how to affect and impact a rewards programme," McMullen says.
The reward strategy should be transparent so that employees will have a good idea of what their pay increase or bonus will be. But unfortunately, surveys have show that many employees don't even know what it is they've done to earn their incentive bonus, McMullen says.
"Thank you very much for the money but what does it really represent here?"
The difference between what someone's base salary increase represents versus what their incentive pay represents should be clear. But often it's not. McMullen says of the relatively few companies which have implemented a written rewards programme, most of the employees don't understand it. Also, incentive programmes cannot survive in a vacuum. The short-term incentives or reward strategy should be aligned and connected to the overall business strategy. Line managers should be able to communicate this and stay on top of it when things change.
"Where we see a lot of issues with clients where the business strategy and the business priorities have changed fairly dramatically over the last couple of years, but none of the reward programmes have," McMullen says.
This disconnect between the business plan and the objectives of the front line can throw an organisation off track. Many of these front line managers now find themselves responsible for functions usually done by HR departments. They are designing the jobs and the work, designing the organisation structures, implementing performance management systems and communicating about rewards and pay.
They are also the employees' primary trusted advisor within the company. McMullen says that with all the responsibilities the line managers now have, they should focus on three key things above everything else.
- Align the rewards programme to the business strategy.
- Align people's roles and expectations with business results.
- Communicate with workers about the reward scheme.
"You can't go wrong if you spend more time on those three areas," McMullen says.
McMullen says organisations are rarely any good at measuring their return on investment (ROI) of their human capital investment.
"Organisations will do an elaborate ROI for a $50,000 colour copier but don't bother to do it on their multi-million dollar investment in human capital."
The way an organisation views remuneration influences this. Is remuneration an investment or a cost?
"If the organisation's view of pay is a cost then the obvious view is to minimise it. But if the pay is viewed as an investment, I don't necessarily want to minimise it. I'm actually willing to pay more if there is a belief that I'll get more out of this investment," McMullen says.
If the view of pay is that of investment then line managers are usually able to articulate the reward strategy. They balance the benefits of rewards to the organisation with the benefits of rewards to the employee. But if unions are involved, you might as well forget it, McMullen says.
"When you put unions and 'pay for performance' in the same sentence, you're not going to get very far."
A good reward strategy involves a cooperative and integrated goal-setting process between the employees and the employer.
"There are no silver bullets. There are no magic pills when it comes to performance management. It takes time and leadership."
Another thing organisations might need to change their view of is the work climate. McMullen says the work climate is actually part of the rewards programme and management lays the groundwork for it. The work climate of some organisations is that magic ingredient which gives them a competitive advantage and an unrivalled employment brand. It's a far cry from the mentality of: "The beatings will continue until morale improves".
A climate that enhances the work environment creates an aspect of total rewards that money just can't buy, McMullen says. Recruitment does not end when someone signs on the dotted line.
"We need to re-recruit our existing population on a daily basis otherwise they may go somewhere else."
