The past decade witnessed several conversations and some changes around rewards & benefits in organizations. Leading and progressive organizations have been working towards transforming ‘rewards’ to ‘total rewards’ - 76 percent responded to have reinvented their performance management program.
Yet the average enterprise is unhappy with their existing rewards program. So much so that only 21 percent would recommend their program to others and they rated it with a net promoter score of -15, according to a recent Bersin research.
What have organizations been doing wrong?
According to Bersin’s research on High Impact Rewards, there are three gaps between what employees want and what their organizations have on offer:
Agile/continuous vs. Annual compensation & rewards
Industry research has found that employees prefer to be rewarded and recognized in an agile manner. This implies that employees expect raises / bonuses / incentives / rewards at different stages in a performance year. This is against the conventional once-a-year compensation & reward strategy used by organizations (Currently only 9% companies adjust compensation more than once a year). The ask is for the system to be flexible that it doesn’t wait till the performance year concludes to recognize the impact made and value delivered to clients (either internal or external) on their respective projects.
Traditional benefits vs. Personalized rewards
Organizations continue to use the conventional combination of monetary compensation and standard benefits such as insurance, leave days, allowances for compensation and conveyance. This is a forward step towards becoming holistic with the rewards strategy - but an average organization is still far away from giving a personalized experience to its employees. The ask is for more flexibility, recognition, incentives for contract workers, and even the possibility of creating one’s own personalized benefits package from a consolidated list of available options.
According to Bersin’s research, unfortunately, organizations are still struggling in this personalization journey. Only 8 percent of organizations were said to have a “very effective” personalized, flexible rewards program.
Opacity in compensation vs. Fairness in compensation
The organizational trend of force ranking all the employees and putting them on a bell curve may have been going away - but questions still remain around the transparency of the performance management system and the fairness of compensation. A study done by Blind in 10 big technology companies has found that 55 percent highly paid employees feel that they are not fairly compensated.
The ask from the employees is more transparency and fairness in the process. 60 percent of employees are likely to leave their respective organization if they do not understand the compensation process, according to a study by Payscale. This statistic can be used to make a business case for introducing more transparency to the performance process and compensation strategy.
What can organizations do?
Going into 2020, there are steps that organizations can take to transform their rewards strategy and satisfy their employees. Here are a few approaches to compensation and benefits that can be incorporated into an organization’s rewards strategy, as suggested by Bersin by Deloitte:
Align rewards with preferences
The first step is to do a gap analysis - using a combination of qualitative and quantitative methods. Understand what the employees want and compare it with the organization’s total rewards approach.
Allow employees to choose from multiple remuneration options and create a total rewards package for self. Yes, organizations offer the option to split their special allowance into a benefits package - but there is a lot of scope to move away from this conventional approach. Bersin shares the example of a European company that gives employees the option to choose their own total rewards - could be salary or stock options; more vacation days and higher pay; higher performance variable pay and less increase in base pay.
Institutionalize and incentivize continuous total rewards
A key feature of organizations has been the introduction of continuous performance management. The next step in that evolution has to be a continuous rewards system. Not only evaluate the employees continuously and share feedback for getting the best out of them, but don’t wait till the end of the year to reward them basis their evaluation. If rewards do not happen after the periodic performance assessment, a case may be made that the assessments may not have the desired impact.
There are some progressive companies that have started the continuous rewards approach - considering multiple salary revisions and increments multiple times in a year, along with bonuses and variable pay.
Personalize total rewards
One of the most complex HR processes to personalize is total rewards - there is good reason to standardize compensation ensuring fairness, the benefits system has to be compliant, and there cannot be too differentiation in the variable pay. The personalization can come in the form of special rewards for projects based on individual preferences, or rewarding desirable behaviors. One of the ways organizations have started doing is engaging with HR technology focused on R&R to give an ensemble of reward options to the employees to pick from - could range from gift cards to make a donation options.
If 2010s was about transforming the performance management systems, starting 2020 organizations could embark on the journey of transforming the rewards system to complement their renewed performance processes. Let’s see what this decade has in store.