Traditional Reward System Lags Behind Global Incentive Model

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Worldwide demographic differences and the scarcity of high-valued talent, coupled with a shift in approach from paying for the job to paying for the person, are challenging employers as they seek to retain the services of top performers, a human resources expert said May 23 at the 2012 WorldatWork Total Rewards Conference in Kissimmee, Fla.

A change in approach is needed to attract younger and more mobile workers while dealing in many parts of the world with employees who have a higher median age, said John Rubino, of Rubino Consulting Services in Pound Ridge, N.Y. In the United States, the median age of a worker is 37; in France it is 42. Countries in Asia also show significantly aging work forces. In the Middle East, however, the median age is 22.

These issues need to be taken into account for global operations, as age and culture affect how people do work, Rubino said. Another consideration is that employees increasingly seek to align personal values with corporate values, he said.

Emphasis on Employee, Not the Job

Compensation systems that reward workers for performance within a job title are archaic and “bear no resemblance to the competitive global employment environment we operate in today,” where talented workers are looking for “true pay for performance,” Rubino said.

The system of paying base salaries with merit increases that include promotions, a reward tool “that actually contributes to ineffective management,” is fast becoming unworkable, Rubino said. Employers should consider eliminating service award programs because they do not recognize any accomplishment other than keeping a job for a certain amount of time.

Motivating top performers should not be a zero-sum game of apportioning a limited merit increase budget, Rubino said. For an employer to reward high-performing workers, 20 percent of the staff should not have to go without a raise or receive a small raise, especially if many workers met or exceeded performance goals, he said.


 

Compensation systems that reward workers for performance within a job title are out of step with the global environment.  

This reward scenario results in highly valued performers receiving only a marginal few percentage points of recognition, and that fails to meaningfully separate them from average performers. Rubino asked: What does highly valued mean and should there be a percentage pegged to the efforts and results of those who have made the most positive impact?

Critical Skills Shortfall

In seeking talent within a workforce that is searching for more, employers have found a lack of critical skills, said Rubino, who cited recent surveys by Hay Group and Mercer.

Employers need to identify employee success factors that include the skills, attributes, and behaviors that are “equated to success in the organization,” Rubino said. In this way, employers can determine the employees who best fit the needed role and then begin measuring performance.

Soft rewards, which occur outside the pay structure, are important in the global context and need greater development, Rubino said, noting examples from North America and other parts of the world.

In North America, wellness initiatives, family-oriented events, and the extensive use of teleworking are used as incentives for employees. In the Middle East, workers value programs that provide mentors.

South Africa, according to Rubino, is a leader in total rewards and other progressive human resource approaches. Corporate investment in career development and significant flexible work arrangements contribute to the success of some South African organizations, he said.

New Paradigm

Global incentive plans need to include qualitative global goals as well as quantitative measures of performance, Rubino said. Organizations in the United States are obsessed with numbers and metrics, and this focus is not helping companies transition from paying for the job to paying for the employee, he said. Rewards need to be personalized and customized to fit the person and not the job, he said.

To promote this process, however, human resources needs to get a conversation going with leaders within the organization, stressing that “success is situational,” and that there is a need to develop a set of personalized rewards, Rubino said. The plan needs to be aligned with global business philosophies and goals.

Employers should take the performance rewards out of base pay completely, awarding that in a lump sum or in other ways, rather than through merit increases, Rubino said. Base-salary increases only need to be across-the-board market adjustments.

Employers should develop and communicate a business case to all employees that there will be a certain amount of “internal inequity” that results in higher rewards to star performers, Rubino said. Employees need to become comfortable with the changes.

The value for a human resources compensation and benefits professional is in “how well we are able to advise, cajole, enlighten” employers and employees to make changes necessary to be competitive globally in the future, Rubino said.