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Global Employer Rewards

Global Employer Rewards

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Published by: api-26141047 on Oct 01, 2009
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Global Employer Rewards
Few business expenditures are more significant than total rewards. The cost of totalrewards can often exceed 40% of a company's revenue. In addition to wages and salaries,indirect rewards such as health and retirement benefits, training and development programs,and paid leave can account for about 30% of the total cost.
Relatively small changes in acompany's total rewards budget can have a disproportionate impact on earnings. The impactcan be seen through simple arithmetic, but we believe that small changes in total rewardscan have a major impact upon employee motivation and productivity, which also can havea major effect on earnings.Despite the relationship between rewards, employee motivation, and corporate earnings,our experience shows that few companies believe they have the tools to determine thereturn on their investment in total rewards programs (see Exhibit 1).
Without effective toolsto understand how total rewards fuel "upside" business results, both direct and indirectrewards expenditures are typically perceived by management as essentially a cost of doingbusiness, rather than as an engine of future earnings potential.1
Turning total rewards from acost into an investment
Spanning the realmofbusiness issuesand solutions
Very effective – we are able to immediately gauge the impact of changes to our reward programsSomewhat effective – we can assess the impact, but there are noticeable gapsMinimally effective – there are significant gaps in our ability to measure our programs’ impactIneffective – our programs are more reactive than proactive with regard to the needs of ourcompany and employees
 Total rewards ROI still an enigma
Exhibit 1. How effective are your current tools and methodologies in helping youdetermine the return on investment for your total rewards programs? (N=123)
Source: "2006 Employee Rewards Survey: The Next Generation," Deloitte Development LLC 2006.As used in this document, the term "Deloitte" includesDeloitte & Touche LLP, Deloitte Consulting LLP, DeloitteTax LLP, and Deloitte Financial Advisory Services LLP.
2How can employers gain confidence thattheir total rewards programs are reallycontributing to business value? In very broadterms, we believe this can be accomplishedby viewing one critical driver of rewards asan employer-employee "total rewards market-place"
one in which employees "trade"their time and talent for the total rewards theemployer offers, and in which the employerdesigns total rewards "products" that willelicit the desired results from their employee"consumers." By understanding the dynamicsof its own total rewards marketplace, anemployer can better assess the impact of totalrewards on business value and focus its totalrewards investment on those programs thathave a higher likelihood of driving the desiredreturn.
 Why transform rewards?
Many employers' reward structures were established in an economy very different from today's. Deloitte has found that old approachesto rewards are leaving new challenges unaddressed and potential new opportunities on the table. For instance:
In 2008, the first members of the Baby Boom generation will turn 62 (the average retirement age in North America, Europe, andAsia), marking the start of a potentially severe, demographically driven drain of essential skills from the workforce.
The global economy applies new competitive stresses on employers. Especially in the U.S., employers take on social responsibilitiesthat are handled in other countries by governments or family structures
or, in the case of some global competitors, simply nothandled at all. In this global context, how can employers make total rewards something other than a competitive burden?
As the growing cost of benefits changes the proportion of total compensation allocated to benefits, employees' interests in howtheir rewards are structured
that is, how much of their compensation they receive in the form of cash versus health, retirement,and other benefits
start to diverge along economic, social, and demographic lines. The increasing divergence in employee interestsmakes it more difficult for employers to address the needs of its total workforce with one-size-fits-all rewards designs.
Security for employees now comes not from a sustained employer-employee relationship, but in the form of portable value: transfer-able skills, retirement accounts, health spending accounts, and so on. How can employers make this work for them?
Modern HR administrative models and systems are increasingly able to handle complex benefits arrangements (e.g., retirement choiceprograms), opening new possibilities for managing complex total rewards programs in a cost-effective manner. How can employerstake advantage of these technologies to improve, not just HR efficiency, but the effectiveness of their total rewards programs?
 The total rewards marketplace
Placing the emphasis on a company's owntotal rewards marketplace rather than on peerbenchmarks and other external reference datacan be a major change to many companies'current approaches to rewards design. In arecent survey by Deloitte's Global EmployerRewards practice, more than half of the HRprofessionals surveyed said that their primaryapproach for setting pay levels was to providerewards at a certain percentile of definedindustry benchmarks, and 89 percent consid-ered benchmarking one of the three mostimportant approaches used in setting pay levels.
But no matter how valuable benchmarks canbe for understanding the types of rewards
Traditional Rewards
focused onwhat others do
Narrowly defined
compensationand benefits
Employer paternalism
Viewed as a cost with uncertain ROIother organizations are offering, they saynothing about how to align one's own totalrewards programs with corporate strategy.A benchmarking study can identify industrypay ranges, but it can't tell an employerwhere in that range it should seek to fall toeffectively support the company's businessgoals. Benchmarking studies may suggestthat offering certain programs is a "leadingpractice," but they can't tell an employerhow much value its own people place onsuch a plan.What
give an employer this vital informa-tion, we believe, is an integrated approachto understanding the company's strategicgoals, the talent needed to achieve them,and the total rewards elements most likelyto be effective in attracting, retaining, andengaging that talent. Based on that under-standing, an employer can tailor its totalrewards programs to the specific needs ofits unique corporate strategy and employeepopulation, thereby making a tighter connec-tion between its total rewards programs andthe company's business goals.This approach, it should be pointed out,does not ignore the external marketplace.Rather, it reflects that marketplace throughthe perceptions of the employees themselves.These perceptions, more than the externalmarketplace in itself, are what influenceemployees' actions, and tapping intoemployees' perceptions can give employersthe primary data needed to inform effectivetotal rewards designs. As the only justificationfor benchmarking is to adjust total rewardsrelative to the level that employees believethey would earn elsewhere, benchmark datais actually a relatively inefficient proxy forthe real thing.
 Traditional vs.transformed rewards
Transformed Rewards
Internally driven
focused on whatyou need
Broadly defined
“total rewards” includeeverything about the work experiencethat affect an employee’s commitmentand contribution to business value
Employer-employee partnership
Treated as an investment withmeasurable results
As used in this document, the term "Deloitte" includesDeloitte & Touche LLP, Deloitte Consulting LLP, DeloitteTax LLP, and Deloitte Financial Advisory Services LLP.
Exhibit 8.
Which procedures do you use to gather information from your employeeson their views and preferences about their rewards? Check all that apply. (N=117)
Survey, once a year or less oftenSurvey, every six months(approximately)Survey, monthlyExit interviews0%10%20%30%40%50%60%On-boarding interviewsFocus groupsOtherNot applicable – we do not gatherinformation from our employeeson their views and preferencesabout their rewards21%10%22%13%49%1%2%56%
3Of course, it's important to make surethat total rewards decisions are based onactual perceptions rather than "wish lists."The effectiveness of the approach willdepend upon sound analysis facilitated bysome of today's leading interactive technolo-gy. Such results can be validated by bench-mark data, but not restricted by it, especiallyif the employer has reason to believe thatdeviating from so-called leading practiceswould yield a better ROI.
Understanding the totalrewards consumer
To understand its employees’ views on totalrewards, employers can use the same tech-niques that a retail business may use tounderstand its targeted customers’ buyinghabits. Before introducing a new product,
 Think business,not benchmarks
Changes in the business environment can make last year's benchmarks irrelevant tothis year's rewards concerns. At one company that had just completed its first yearof compliance activities under the Sarbanes-Oxley Act, the executive team wanted toestablish behavior-based incentives for the internal audit staff to encourage them tosupport the company's Sarbanes-Oxley compliance efforts in future years. The headof HR, however, was reluctant to implement these incentives because a benchmarkingstudy had shown that very few companies used behavior-based incentives for theirinternal audit employees. It was only after the head of HR realized that the benchmarkresults reflected pre-Sarbanes-Oxley reward practices that the internal audit incentivestructure was adopted.
Source: "2006 Employee Rewards Survey: The Next Generation," Deloitte Development LLC 2006.
Exhibit 2. Which procedures do you use to gather information from your employees ontheir views and preferences about their rewards? Check all that apply. (N=117)
a retailer is likely to conduct extensivemarket research to study its prospectivecustomers' preferences. Through repeatedsurveys and focus groups, the companycan learn how popular the product mightbe among both existing and potentialnew customers, what changes mightmake it more appealing, and how to priceit appropriately.Now consider the potential advantagesan employer could gain by making acomparable effort to understand itsemployees' "buying habits" with respectto total rewards. Our experience suggeststhat different total rewards elements
basepay, bonuses, health and welfare benefits,and "intangibles" such as training programsand career opportunities
all influenceemployees' choices of where to work andhow much discretionary effort to expend.The more fully an employer can understandhow its employees are likely to react tovarious aspects of total rewards, the moreeffectively it can design programs that helpmotivate the right performance. And thesame tools that companies use to measuretheir external consumers
surveys, focusgroups, etc.
can help an employer makebetter total rewards decisions.Many companies do, of course, collectsome of this information from theiremployees, as illustrated in Exhibit 2.
Yet recent evidence suggests that manyemployers do not necessarily come tothe same conclusions as their employees.For example, according to the
2005 JobSatisfaction Survey 
by the Society forHuman Resource Management (SHRM),HR professionals and employees disagreedabout the relative importance of all of thetop five factors important to job satisfaction(Exhibit 3).
RankAccording to EmployeesAccording to HR Professionals
1BenefitsRelationship with supervisor2CompensationRecognition of performance3Work/life balance Communication4Job securityCompensation5Feeling safe in the work environmentBenefits
Source: "2005 Job Satisfaction Survey," Society for Human Resource Management (SHRM), cited in Margaret M. Clark,"Employees, HR Differ on Satisfaction Factors,"
HR Magazine
, August 2005.
Exhibit 3. Top Five Job-Satisfaction Factors
As used in this document, the term "Deloitte" includesDeloitte & Touche LLP, Deloitte Consulting LLP, DeloitteTax LLP, and Deloitte Financial Advisory Services LLP.

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