With more scarce resources, we need to find creative ways to attract and retain good people, whilst maintaining appropriate governance and risk management principles. We should turn our obsession away from the financial components of reward and step up our efforts to understand a range of other non-financial opportunities. This article looks at a number of opportunities.
Not everyone wants the same car. So why should everyone want the same benefits? Our employees should be treated as discerning consumers rather than as mere recipients of reward. The total remuneration package should not be something that just happens to us, but as something that we want.
Choice of the components that make up the total remuneration package is a value proposition on its own. But, even in cases where there is choice, it is often restricted to just once a year, and the range can be limited.
Until the late 1990s, the tax practitioners were the main proponents of choice in this regard. Our fringe benefits tax legislation offered a menu of tax favoured ‘non-cash components’ of the total cost to company package. These tax advantages have now been neutralised with a series of tax amendments. Consequently, choice has all but disappeared from the package offering.
Here are some specific suggestions for introducing choice:
• Offer a range of retirement fund contribution percentages to employees, instead of just one or two percentages. This will challenge the patronising view many employers and trustees hold towards their employees’ retirement savings obligations. Depending on the option chosen, the cash component of the package will either increase or decrease, in line with the employee’s needs.
• Offer ‘member investment choice’ on a defined contribution retirement fund. This is where members are offered a range of different investment risk profiles or asset classes in the fund. Employees are expecting to take more ownership and responsibility for their retirement and will be more demanding of this kind of choice.
• Allow choice of both location and hours of work. Why do we have to be in the office when we are able to work remotely? If we are so output driven, why concern ourselves with the inputs or working hours? Flexible working arrangements are a powerful way to attract the modern workforce. This is actually more about improving work-life balance, something on which the younger generation places a premium. However, many employers are still fixated with fixed and variable pay and consider this concept a passing fad.
• Flexing the number of days off each year, more aptly referred to as ‘paid time off’. Offer the choice to buy more leave by reducing the cash component of the total package or sell leave to increase the cash component.
Choice will be successful if the following implications are addressed:
• Reward practitioners will have to think and act like marketers as they strive to segment and understand their customer’s needs. More dialogue between the customer and the product designer must take place so that the right mix of choice is offered. Why pursue employees as a homogenous group when they could be segmented into similar needs or lifestyle groups. Needs change with age, life stage, career and family circumstances. Younger employees need to pay off study loans before they can consider their children’s education. Retirement savings and planning often only becomes a real consideration in the forties and fifties.
• The product designers will need to optimise the many tradeoffs, such as:
• responsiveness to employee needs versus responsibility as an employer, and
• flexibility versus administration.
• Choice easily leads to complexity. Complexity leads to confusion and an undervalued employee-value proposition. Communication will need to take centre stage in stripping away the complexity. Making the choice simple and accessible will be the way to go. This is also in line with the King III Draft Code where more emphasis is to be placed on transparency, and straightforward and transparent information, to allow for better decision making.
‘No or low’ cost reward options
Here are four considerations:
• The simple ‘power of thank you’. Public recognition is priceless, if skillfully done. To do this successfully is an act of leadership.
• Provide your ‘A’ performers opportunities to lead top priority projects.
• Go back to the old-fashioned tried and tested use of job titles. This can be a way to acknowledge achievement and does not have to mean a return to a deep hierarchical structure.
• The total cost to company package often includes the compulsory purchase of benefits that fall below the radar – the so-called ‘opaque’ benefits. This includes Group Personal Accident cover and Group Life cover purchased through the retirement scheme. By making these competitively priced benefits more visible and understandable, employees often realise they are over-insured with their own private cover.
The value creators should share disproportionately in the success of the organisation. But, research suggests that fixed pay increases below a certain minimum threshold can demotivate – so don’t spread increases too thinly.
Differentiating your top performers from your bottom performers is still necessary, and this will require skilled managers and a robust performance management system. Differentiating your performers could be easier in tough times, as the stronger employees tend to come to the fore.
Tying a healthy portion of executive pay to the fortunes of the organisation is the basic aim of any long-term incentive scheme. Decisions taken today by senior executives will often only impact the results of the organisation in the years to come.
Therefore, spreading cash performance bonuses over a number of financial years and making the future tranches contingent upon the continued success of the organisation makes sense.
If share options do indeed encourage an ownership mentality, in the quest to align executive and shareholder interest, then why let executives sell the shares when they vest? Participants should be required to retain a core element of their rolling entitlement invested in equity, possibly until even after termination, or retirement.
How can we strengthen the emotional commitment and connection between employers and their staff? People are increasingly searching for meaning in their lives and therefore in their jobs.
Being able to place people in the right job where they have ‘meaning’ could become a critical organisational capability, at the core of talent management efforts. If we can get this right, fusing ‘personal meaning with coporate purpose’, the benefits could be staggering.
This consideration hints at the changing nature of the ‘psychological contract’ between employer and employee. Instead of job security and loyalty, the value of employment will increasingly stem from personal growth and career advancement opportunities. Paradoxically, it is not cash that will have the desired ‘stickiness’ quality for retention but more these non-cash components of the total reward offering. But, employers will need to ensure they deliver on these different and much more challenging obligations.
Power is shifting from the employer to the employee, who will continue to demand a lot more. Employees will also be more high maintenance, which will force us to think more creatively in meeting their needs.
Who will have the courage to break from the pack?
Raymund Harraway CA(SA), MBA, is a Global Remuneration Professional.