Can’t afford to reward?

Can’t afford to reward? 

The reality is that – especially in a tough economic climate – you should continue to reward, especially if you want to keep employees motivated and retain talent. Yet according to a Hay Group survey earlier this year, around 30 to 40 per cent of companies have considered freezing base pay as part of their response to the current economic downturn. 
 
So how else can you reward staff? Tom McMullen, a Hay Group vice president and co-author of The Manager’s Guide to Rewards (AMACOM 2007), offers some telling insights – particularly about the vital role line managers must play in communicating the full range of rewards available.
 
Tom McMullen: Once you announce a freeze on base pay, the message your employees often take is that no matter what they do, they won’t get rewarded. In most businesses, that clearly isn’t the case: they have carefully designed reward strategies that offer a range of rewards, from incentives to stock shares to career development opportunities and various forms of recognition. 
 
So if these rewards already exist, what’s the problem?
TM: To be brutally honest, ignorance – brought about by not knowing that the programs even exist to how they are to be used for employees. In all too many businesses, reward models that look great on paper fail to deliver the intended results. That’s down to ineffective implementation. Employees don’t know what rewards are available, or what performance and behavior is required to earn them. 
 
How can businesses deal with this?
TM: The first, crucial step is to make sure that line managers across the business are aware of the organization’s total reward framework. Earlier this year, we conducted a major survey of over 1000 organizations in 78 countries, looking at the roles played by both HR and line managers in supporting and implementing reward programs. Only between 24 to 41 per cent of organizations believe that their managers are effective at communicating their reward programs. The most common complaint is that line managers focus on a limited range of reward vehicles and only look at the numbers: ‘if my team has performed well, they should get a pay rise.’ If that pay rise isn’t possible, then the manager feels both hamstrung – they can’t reward performance – and often disenfranchised – the organization doesn’t care about the work that they and their team have done. 
 
So are line managers to blame?
TM: Not necessarily. The other significant factor here is that line managers themselves don’t have an understanding of the reward program and how it works. They need to know the goals of the program, where they have an impact and how to use the full range of reward options they offer. Ideally, they should be involved in designing and communicating the reward model, but if there’s already a structure in place, it’s vital that they communicate the intent of these programs. Many companies are aware of this: we found that only a third of those questioned thought they did a good job of training their line managers to understand their reward strategy.
 
Why are line managers so important?
TM: There are two main reasons. Firstly, employees tend to trust the information they get from line managers in a way they don’t trust the ‘corporate’ voice of HR leaders. 
 
Secondly, they are the main day-to-day deliverers of the reward program. Take variable pay as an example. Line managers are the ones who normally assess the performance of their staff as part of the pay award. They need to understand fully what really constitutes exceptional performance to gain the highest rating and how to deal with poor performance through this variable pay scheme. And that needs to be communicated before performance ratings are given. 
 
Equally, they need to understand the range of other rewards that are available and particularly the importance of simple recognition of good performance. No money need be attached to this: it’s just a question of acknowledge work done well.
 
What can HR to do support line managers better?
TM: Plenty! First of all, educate them about the reward programs and in particular its intent and rationale and the role that they, the managers can and should be playing in implementation. Make it clear what merits reward as well as the types of different rewards available. One practical tool HR can introduce is a ‘personal impact map’ that shows exactly how each employee can help achieve overall business goals. The staff member values it, but it also shows the manager how rewards are designed to help achieve business goals.
 
Alongside that, individual total reward statements show how all the different elements stack up, giving staff a sense of achievement and recognition that they may not otherwise have. Finally, use line managers to communicate changes in policy, so that they become the owners of the reward program. Then they can become its advocates too.
 
To find out how to get a copy of The Manager's Guide to Rewards, a book co-authored by Hay Group’s Doug Jensen, Tom McMullen, and Mel Stark, visit www.haygroup.com for further details.

For Hay Group’s latest report on why organizations are failing to get a significant return on their reward investments and how they can maximize the value of their programs, read our recent whitepaper, ‘Managing reward: why line managers are the vital link.’