Global study identifies the key drivers in reward

Hay Group recently released the findings of a study into the Changing Face of Reward, conducted in the last three months with over 230 companies employing around 4.7 million people taking part.

Three clear messages emerge from the findings:

• Companies are looking for ways to balance the need to reward executives and employees responsibly, with an increasing interference from regulators and governments in the process
• The recruitment and retention of key talent continues to be an important strategy; with the market for these individuals remaining strong despite the downturn, the focus is on motivating, engaging, and rewarding critical high performers
• The use of bonuses is increasing; incentives are a critical lever for motivating performance and employee engagement, and provide flexibility of the reward cost base

"The trauma of the global downturn for multinational businesses means many are struggling to re-build profitability," said Trevor Warden, head of strategic reward services at Hay Group Pacific

"With revenue growth hard to come by, Boards are focusing on cost containment and performance improvement as the paths to profit growth. Reward strategy is now driven in the Boardroom as executives recognise that the war for talent knows no boundaries, so strategies for retention, motivation, engagement and performance improvement are integral to competitiveness."

Compliance, regulation and taxation are cited as a major issue for Boards and compensation committees as they seek to balance responsible reward programs with, in some geographies, de facto regulation by taxation of specific types of reward such as bonuses, or arbitrary caps on pay. This is most prevalent in the financial services sector, and noticeably in jurisdictions like the US and UK here specific taxes have been introduced to curb bonus payments. The study finds that this is an unwelcome major distraction for senior management, and also is stifling innovation as Boards become wary of attracting attention with non-conformist reward structures.

"Regulation and taxation are blunt tools, and their effectiveness in terms of reducing risk is limited," said Warden. "We believe that the most effective solution for governments and regulators is to take a holistic view of reward to enable organisation's reward programs to drive long-term, sustainable, performance that is not defined solely by shareholder returns. It is also about trust and social responsibility and is what we term 'responsible reward' which builds engagement, drives sustainable performance, and reduces risk."

The war for talent has narrowed to three fronts, the study finds: around high performers; high potentials; and 'mission-critical' roles. Companies are now channelling what limited rewards there are to these key groups, often drawn from Generation Y, for whom money in itself is not the only motivating factor.

As a result, these differentiated reward programs are now geared toward offering clear career paths, global mobility and targeted development in addition to higher monetary awards.

But companies should be cautious about focusing exclusively on high performers to deliver their business results, said Warden. "There is a danger that 'average' performers - who make up the bulk of the population - can find themselves ignored in the rush to reward top talent, and weed out poorer performers. But for most companies, shifting performance in this middle category is what will really make a difference to surviving the present recession and performing in the upturn. Organisations should not take their eye off the ball on efforts to keep this critical set of staff motivated, engaged and adequately rewarded for the positive contribution they make."

Finally, the study confirms that in certain circumstances bonuses are back. In the post-recession world there has been a growing long term trend for companies to offer a higher proportion of pay as a bonus, and to increase the numbers receiving them. Variable pay is a key lever to motivate and engage employees in the organisation's goals. The top performing companies are using variable pay strategically, increasing the opportunity for more to benefit from incentive schemes, and providing incentive opportunities further down and through the company to show that individual performance affects the success or otherwise of the business.

Employers have also learned from the downturn: having a higher proportion of compensation linked to performance builds an important component of flexibility into the overall management of costs - and can preserve jobs and talent.

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