Vanilla compensation strategies fall flat

Total rewards philosophy helps employers stand out and highlights what employees really care about — compensation and learning opportunities
By Gail Evans and Arden Dalik
|Canadian HR Reporter|Last Updated: 07/26/2011

Does anyone remember when “Help Wanted” signs were considered a recruiting strategy? The more sophisticated companies didn’t stop there — they added “competitive wages offered” to sweeten the deal.

Of course, HR practices have come a long way from putting a sign in a window. One of the most evolved tools has been the total compensation strategy or total rewards philosophy. This strategic tool has been invaluable in helping to focus and align all elements of total rewards with the direction of a company.

Now that the dark days of the global recession are mostly behind us, employers once again are concerned about a broader range of talent and rewards issues. Leadership development, retention, attraction and succession planning rank among the top human capital critical challenges, according to the Wynford Group’s Spring Flash Update, based on a survey of more than 200 employers.

With these talent issues so high on the radar, it brings the focus back to a trusty tool — the total rewards philosophy statement. But just as “Help Wanted” no longer cuts it, neither does a vanilla compensation strategy, no matter how strategically aligned.

To understand total rewards philosophy statements, we need to look at a more traditional compensation philosophy that focuses on the statement of compensation and benefits strategies, typically answering the following questions:

Market position: Is it competitive versus leading or lagging the market?

Pay mix: What’s the percentage of base pay versus variable pay?

Reward focus: Is the focus on the company, team or individual?

Structure: Are there traditional salary structures, broad-based structures or no structures?

Administration: Is decision-making centralized or decentralized? Are guidelines prescriptive or flexible?

Here’s a good example of this type of compensation philosophy statement. Company X will:

• attract and retain the best performers

• pay market rates competitive at least at the 50th percentile

• provide pay levels that are externally competitive with a select group of peers in the industry

• provide variable pay based on the attainment of specific organizational performance goals as well as the attainment of individual performance goals

• provide leadership among employers in the industry in implementing innovative compensation and benefits programs.

Why total rewards?

Many top employers do a much better job engaging and leveraging managers to reinforce with employees the total value of what the organization provides, encompassing both the tangible and the intangible nature of rewards. A total rewards philosophy is a valuable tool for managers to use in this process. The following model features four core areas important to employees:

Compensation: base pay, short- and long-term compensation.

Benefits: medical/dental, insurance, retirement, flex/health-spending accounts and wellness.

Learning opportunities: career development, training, performance feedback and succession planning.

Work environment: values, leadership, organizational climate, work relationships and work-life balance.

But, remember, the model is most effective when it is customized to specific business strategies and organizational culture.

Compensation and other total reward components are often viewed as necessary expenses but not as drivers of organizational and business effectiveness. The following are goals for developing a total rewards philosophy:

• Attract, motivate and retain people through total compensation.

• Align total reward strategy with business strategy.

• Build commitment for the principles of the total reward programs.

• Provide guidance for choices of programs to be offered.

To make a good compensation philosophy statement a better, more inclusive total rewards philosophy statement, a few additional lines take it to the next level:

• Encourage competency building by better linking career development, performance management and rewards.

• Support a performance-driven work culture that generates organizational growth.

• Pay for performance, skills and competencies, development and growth, and effective visible commitment to the organization.

The next step is ensuring the reward package seals the deal. Employees’ biggest concerns fall into the compensation and learning opportunities components of the total rewards model, according to the Spring Flash Update. This suggests employers should look at developing and communicating more than compensation philosophy statements.

Some organizations, such as WestJet, have done a good job aligning branding with a total rewards strategy. (See below.) To take this even further, organizations should incorporate this type of alignment to catch the attention of current and potential employees so they will understand and embrace the organization’s values and programs.

Gail Evans is president and Arden Dalik is vice-president of the Wynford Group in Calgary, which provides expertise in developing a broad range of total reward strategies and executive compensation. They can be reached at wynford@wynfordgroup.com.


Branded Strategy

Firms that link mission, total rewards

The following are some good examples of companies that have developed effective alignment of their corporate mission or strategies with total reward philosophies.

Organization

Corporate mission or brand

Total rewards philosophy or brand

WestJet

Because owners care.

All employees are owners.Many rewards are non-cash.

Nexen

Where smart risk-taking and operational expertise reap big rewards.

More than a job. Building rewarding and exciting careers with opportunity for growth.

Agrium

Company growth, plant growth, employee growth.

Nourish your lifestyle, grow your career

Mountain Equipment Co-op

We’re driven by passion (for nature), not profit.

Work-life balance — at MEC we live it.


6 Critical challenges

Top human capital challenges

Rank

HR issue

1

Leadership development

2

Retain key talent

3

Attract top talent

4

Keep workers productive, engaged

5

Succession planning

6

Develop, maintain competitive compensation

Source: Wynford Group’s
Spring Flash Update, May 2011

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