Line managers critical to compensation success

by 28 Nov 2006

YEARS OF research has focused on designing successful reward programs that keep employees productive and engaged, yet one critical audience –the line manager – has often been overlooked.

“The current reward system is broken in many organisations – companies need to focus more on the ‘how’ than the ‘what’,” according to Hay Group vice-president Tom McMullen, who recently co-authored a book on the topic with Hay Group consultants Doug Jensen and Mel Stark.

“The most well-designed employee rewards programs fall flat without proper execution. Line managers, who ultimately serve as the face of an organisation to its many employees, are typically the ones who can make or break their success.”

While many organisations focus heavily on monetary rewards for motivating employees, the significant impact of intangible incentives such as job design, career development and the work climate of the organisation are also important.

The book identifies the most successful managers as those who recognise and use a variety of tools to reward employees – from linking specific performance measures with larger goals for the organisation, to recognising and rewarding valuable employee contributions, to clearly defining job roles.

Hay Group research has shown up to 30 per cent of variance in business results can be explained by differences in the work climate created by the manager.

“Managers who are able to create an all-around engaging work climate can have an invaluable effect on an employee’s commitment to a company and the productivity a group of employees can generate,” according to Stark.

“Human resource executives and line managers must work hand-in-hand to create these positive environments. HR executives can help managers understand the role they play in the rewards system, as well as all of the tools and resources at their disposal,” he said.

“In turn, managers can provide insightful feedback on the possible benefits and risks of different rewards programs.”

Despite the fact that compensation is one of the largest controllable expenditures an employer makes – up to 70 per cent of total costs – less than 20 per cent of organisations report using a formal Return on Investment (ROI) analysis for making decisions, according to the book.

While there may be evaluations on specific pieces of the reward system, such as benefits or training costs, there is often no one accountable for assessing the total investment in its human capital.

“Most companies view compensation as a cost to minimise on their balance sheet instead of a long-term ‘investment’that needs to be optimised,” said Jensen. “As the competition for talent intensifies, it will become increasingly important for companies to accept the ‘investment’viewpoint and look beyond traditional compensation vehicles to attract and retain employees.”

Organisations also need to more formally and consistently examine performance metrics in assessing the return on its compensation investment. A balance of quantitative and qualitative bottom line performance measures, productivity measures, behavioural and perception measures are among the metrics that can help companies evaluate the effectiveness of its compensation ROI.

The book, The Managers Guide to Rewards, also stresses the concept of “total rewards” when it comes to developing a motivated and engaged workforce. Intangible rewards like flexible work hours, career growth, recognition, leadership and job enablement have become more important as the workforce has diversified and companies have renewed their focus on retention and engagement.

“Competitive pay and benefits gets you in the game but it’s no guarantee you’ll win the race. It’s the intangibles that are the hardest things for competitors to imitate,” said McMullen.


Most Read