Reward Management The term 'reward management' covers both the strategy and the practice of pay systems. ... Reward linked to performance. The link may be daily, weekly, ... www.hrmguide.co.uk › ... › Performance and Compensation - Cached - Similar

Performance Management: You Get What You Request and Reward
Performance Management Resources
By Susan M. Heathfield, About.com Guide

Performance management encompasses the most important people issues in your organization. Performance management includes the entire relationship you have with the people you employ. Performance management is the process of creating a work environment or setting in which people are enabled to perform to the best of their abilities. Performance management is a whole work system that begins when a job is defined as needed and expectations are clearly communicated to the employee. It ends when an employee leaves your organization. A performance management system includes the following components. • • Develop clear job descriptions. Select appropriate people with an appropriate selection process.

• Negotiate requirements and accomplishment-based performance standards, outcomes, and measures. • • • Provide effective orientation, education, and training. Provide on-going coaching and feedback. Conduct quarterly performance development discussions.

• Design effective compensation and recognition systems that reward people for their contributions. • Provide promotional/career development opportunities for staff.

• Assist with exit interviews to understand WHY valued employees leave the organization

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1. peter vince | performance and reward management The effectiveness of an organisation's performance and reward management can have a major impact not only on morale and productivity but also its ability to ... www.petervince.co.uk/performance.htm - Cached - Similar

Capabilities | Performance and Reward Management
Performance management is concerned with measuring individuals' effectiveness in their roles, understanding their aspirations and determining which development actions would be most appropriate. Reward management is about understanding individuals' motivating factors, and determining the level of pay, bonus and other rewards they receive. In some organisations the links between the two are strong and explicit, while in others they are kept deliberately separate. Work in these areas can be prompted by evidence of employee dissatisfaction, such as high turnover or poor morale, or by the desire to drive a change in some aspect of employees' behaviour. Work in this area usually includes
• • • • •

Understanding the overall objectives and structure of the organisation, and the factors that have prompted the review of performance and reward Understanding how the current performance and reward management systems work, how they are perceived, and what effect they are having Agreeing what behaviours and capabilities should be rewarded, and what reward elements and approaches should be used, for which employees Defining and agreeing new systems, any effect on roles and responsibilities, and the implementation timing and approach Implementation, including communication and training, and any necessary changes to business processes and information systems

The effectiveness of an organisation's performance and reward management can have a major impact not only on morale and productivity but also its ability to attract and retain staff. Many companies have found that far from complementing the stated aims of the business, their performance and reward systems were actually driving counter-productive behaviour.
Two case studies deal specifically with this area: 'Establishing a new performance management system' and 'A review of an existing rewards and motivation system'.

Reward and performance management programmes failing to keep pace with demands facing businesses
Mike Berry07 September 2007 14:53

Reward and performance management programmes are not keeping pace with the demands facing businesses today, according to a study by professional services firm Towers Perrin. Despite enormous shifts in the business landscape over the last decade, most companies have made minimal changes in the design and delivery of their base pay, incentive and performance management programmes.

current programmes do not appear to be meeting talent and people management needs effectively.. Phil Pavard. what they're doing to reward and improve performance is not particularly effective. Reward and performance management programmes failing to keep pace . 35 years in HR (or Personnel as we used to call it) ." Some of the trends highlighted in the study include: • • • • Minimal customisation of rewards beyond the sales function.Similar /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// For the ppt 1. "What makes this of concern is that business changes have been anything but incremental.. Four in 10 said their systems did not effectively equip managers to identify." 1.. Let's Talk About Me.ac. principal at Towers Perrin. [PPT] Performance Management and Reward: File Format: Microsoft Powerpoint . www.lfhe. Phil Pavard. More than two-thirds said their organisation had no formal method for measuring the return on their considerable investment in rewards.com/...View as HTML Performance Management and Reward.ac. [PPT] Performance Management and Reward: File Format: Microsoft Powerpoint . "Overwhelmingly.uk/membership/sdcs/sdc2006/sdc06keynotepp./reward-and-performance-management-programmesfailing-to-keep-pace-with-demands-facing. or in line with overall business performance and strategy. Let's Talk About Me. Towers Perrin surveyed more than 600 HR and compensation managers at organisations in 21 countries. www. Head of Human Resources GMPTE. On the other hand. the research concluded. we found that companies are making very incremental changes in reward and performance management programs. Reward and performance management programmes are not keeping pace with the demands facing businesses today. few of the actual tactics they reported were consistent with this focus.Cached . Although many of those surveyed said their reward strategies were designed to retain and attract talent (73% and 57% respectively). 35 years in HR (or Personnel as we used to call it) .Similar 2.personneltoday.html .ppt ..lfhe. www.View as HTML Performance Management and Reward.Similar . according to a study by professional services.As a result.uk/membership/sdcs/sdc2006/sdc06keynotepp. Increased use of company-wide results in variable pay – surprising. given the relatively small number of employees who can materially influence corporate results. Crawley said: "It's encouraging to see that companies are emphasising performance and talent retention.ppt ..." said Jim Crawley. Head of Human Resources GMPTE. develop and reward high-performers or deal with poor performers.

boards and managements face less and less discipline. Neither do they vote . Because the professionals who manage these large pools of money seldom hold shares for long. would all stop. Some 40 years ago. Boards and shareholders rubber stamp management initiatives that aim less at enriching the firm than at enriching those involved. They have a distaste for corporate politics anyway. they have little interest in corporate governance. the shareholders. It worried that group think would create investment fads and dangerously extend trends. But in all that active conversation. the business interests of their firms or institutions would hold them in check. some public pension funds do get involved in corporate governance. but usually over the issues of interest to the politicians who control them and not over the long-term health of the company in which they own shares. Wall Street fret over what it called the “institutionalization” of investment management. Even the unions. few thought about the effect on corporate governance. To be sure. they would force boards and managements to behave differently. The growing prominence of pension funds and mutual funds had at last outweighed the influence of individuals in the stock and bond markets. They push more on green initiatives than on compensation packages. rich and greedy “fat cats” had a passionate interest in the long-term success of the firms in which they held shares. asserted their greedy personal interests. They balked at huge pay packages for incompetents.There Are Too Few Greedy “Fat Cats” Among Corporate Shareholders By econometrician Corporate abuse. (They seem to prefer direct political power to reach ends that they might achieve more effectively and certainly more cheaply through voting their shares. ignore their power as shareholders. voted their shares accordingly. if the owners of these firms. and even if they wanted to participate. Why do corporations pay lavish compensation packages to incompetents and allow rivers of cash to flow away from dividends or reinvestment opportunities that might enable longerterm growth? Why do boards of directors — the shareholders’ agents in management — rubber stamp such activities? The problem. If more shareholders had a direct interest in the long-term success of the firm. Most of the commentary of the day worried that trading activity would accelerate. and many wondered what it would mean to have large pools of money managed by a relatively small number of professionals instead of a relatively large number of individuals. Neither do these professional mangers have the resources to consider all the issues before corporate boards and vote the proxies accordingly. at least in part. which through their pensions own wide swaths of corporate America. When individuals had more power. and called attention to such goings on at annual shareholder meetings. particularly management’s outrageous compensation packages. Now the professionals at institutions do not even bother to attend such meetings. Now that effect is clear. is that most shares and the voting proxies that come with them are controlled by institutional functionaries with little or no interest in corporate governance. too.) While these disinterested professionals control more and more shares. It did. It has.

You’re right that the short-term nature of the majority of shareholdings tends to leave share ‘owners’ little interested in the long-term (by definition. in the light of them never being in a position to wield sufficient shares to cast a real influence in comparison to the proxy votes held in the pocket of the chief executive and in the light of motions on. It’s here that the waste of talent encouraged by the distorted banking salaries market (with most talented individuals heading for the financial services sector rather than ‘proper’ jobs. ultimately. Thanks for the comment. in turn. for example. providing a green light for the abuse about which everyone complains. which has been fairly widespread among shareholders. employers. have usually held only a few shares in key companies so as to make a nuisance of themselves at AGMs: a sensible strategy. I’m aware that that. a major part of the problems being experienced now. there has been considerable concern about the remuneration of company directors in the UK. Introduction Over the last year or so. That might not have been noticeable at the time and it might not have seemed much. You might like to know that a fellow blogger (http://labourandcapital. by the way. is likely to lead to the need for such markets to be banned… And so it goes. applying their ingenuities to the development not of economies but of ever more complex financial services products that only they and their peers understand) is to blame and that’s why. has focused on three elements within the executive remuneration package. apart from some sort of restriction on the proportion of a company’s shares that can be held for short-term trades. with hindsight. back then – but the decline in what influence such institutions did manage to wield is. Trade unions. These are: . I have to say I don’t know what is the answer to that. I think. they’re only interested in a quick profit). executive remuneration anyway being advisory only (at least. is likely to create its own problems via providing encouragement for short-term trade markets. have a much greater influence.com) deals with these very issues in the UK in far more depth than me. politicians and the press. I think something like 60% of UK shares are now held in the hands of short-term institutions – a huge turn around in the last decade from a position when pension funds held a much greater portion of shares and when they could. This concern. But how we get there (company management being accountable to shareholders who hold long-term interests as the key) from here is a tough question. 1. which in turn.blogspot. we need to control the rewards market for such individuals. this is the position in the UK).much against management. as a result.

The current downturn. Executives should effectively be made significant shareholders in the business through shareholding requirements and increased use of restricted share options without performance conditions. as previously modest infrequent bonuses have transformed into incentives that now form the majority of the total pay package of a senior executive. Front-bench spokesmen for the Labour Party have threatened that. (2) the large gains from share options. stronger corporate profits have made these higher levels . and aligning their reward with shareholder outcomes and some serious changes are required.” The unending upward momentum of executive remuneration also needs to come to an end... says that executive pay models have largely failed to meet either of their key objectives . when Labour is returned to office. Executive Remuneration in need of a major makeover Executive pay has changed beyond recognition during the last decade or so of economic growth. prompting greater rewards. as these standard models do not produce the desired results. PwC highlights in its May 2009 report “Preparing for the challenge ahead . Seegers says there is cynicism among shareholders that companies pay executives regardless of performance.The future of executive reward” that one of the key factors in this imminent transformation is that new executive reward models are required. PricewaterhouseCoopers SA partner and human resources tax specialist. “There is a clear need to ensure that the relationship between pay and performance is robust. Gerald Seegers.” Companies must also tackle the contentious question of ‘pay-for-performance’. where luck played a role. has brought the subject firmly into the spotlight. A pay-forperformance approach requires differentiation of these two and caution should be taken that such a remuneration policy does not encourage excessive risk. It has provoked widespread public anger about pay practices with regulators already issuing codes of practice that require appropriate reward structures that avoid incentives for excessive risk-taking.(1) the size of basic pay increases. Key to this is that companies must demonstrate when the financial success of a business is as a result of the skills of the senior executive team . Seegers says we need to challenge the use of the more traditional Total Shareholder Return and Earnings Per Share performance measures in long-term incentive plans. it will introduce statutory . exercising their discretion to pay out even when the formula does not yield the desired result.taking to boost performance.motivating executives. “Incentive designs should rather be tailored to the needs of that specific business and also kept relevant and simple. both in the number of elements and in their design.and conversely. particularly in the recently privatized energy and water utilities. and (3) the compensation payments to directors on loss of office. “The business responsibilities of executives have increased dramatically. There is also a greater willingness among shareholders to vote against the remuneration reports of companies adopting practices that they do not approve of. together with the turmoil in financial services. with long-term holding periods to generate closer alignment of interests.

“Committee members may have to increase their reliance on appropriate and truly independent advisers and specialists. The remuneration report has to move beyond being a mere compliance document to an effective communication tool. explaining and justifying policies. there is the legitimate requirement for companies to be able to justify executive pay decisions and demonstrate that they have made such decisions robustly and objectively. rather than merely presenting facts.and data can never provide the answers in isolation. and others concerned with financial stability issuing codes of practice requiring appropriate reward structures that will transform the governance and design of executive pay. However the remuneration committee must place a value on these different elements. typically including fixed short-term pay in the form of salary and benefits.” In the clampdown and changes that will occur to executive remuneration. all of the other components of reward introduce uncertainty. While there will always be a school of thought believing executive pay is excessive. Executive reward is multifaceted. and variable long-term pay in the form of deferred bonus and long-term incentive awards. Robust valuation methodologies involving specialist advice may be required to do this effectively. “There is the danger that poorlydesigned reward programmes lead to disengagement and discouragement. but to the potential payouts and the impact on future retention value. They must give thought not just to the value of reward today. “However companies must stop trying to be at the median of the corporate remuneration scale and rather pay relative to the market. many of the challenges over pay levels can be mitigated through greater transparency of the decision-making process and demonstrating the link between pay and performance.” This had led Regulators around the world. improve their own knowledge. and a talent war has supported this trend” notes Seegers. Not everyone can be at the median. Executive Remuneration .of pay more affordable. They should also first look inwards for talent as a more cost effective approach. The primary driver of reward decisions must always be the specific circumstances of the business and its stakeholders . variable short-term pay in the form of annual bonus. and cease being overly dependent on historic data which has limited relevance. Seegers says the remuneration committee will need to become more challenging and should not be afraid of exercising its discretion. Seegers says it is important not to lose sight of the value that skilled executives performing at the top of their game do create for shareholders. based on their own circumstances. However. when making decisions on incentive awards.” Reward packages must also be considered in their totality. with pay for performance decisions being lost in the general upward movement of the market as a whole. which can move significantly in value over time. Pegging of pay to market levels has introduced a systematic upward shift in the market itself. With the exception of salary and benefits. fixed long-term pay in the form of pension.

They are continuously developed as new information becomes available. there are not enough talented individuals out there who can both manage a company and provide it with entrepreneurial leadership. notably proprietary research that examines the international system of senior management remuneration. from a regulatory and corporate governance perspective. This has led firms to adopt an almost 'whatever it takes approach' to recruit and retain such people. performance and severance from the Chartered Institute of Personnel and Development (CIPD).600 UK reward practitioners. The rewards are high because the stakes are high. This fact also applies to directors and chief executives. or if. CIPD Adviser Reward. but also similar and common initiatives that aim to create a global best practice environment. regulation and corporate efficiency in different governance systems. Member states have transposed this EU regulation to different extents. put forward opinions and raise debates for further reforms in the light of current business practice. The debate on executive remuneration can be approached from various angles: as optimal pay structure for aligning pay with performance in order to reduce agency costs. Rewards for failure 'Rewards for failure' directors' remuneration . Until recently. as a regulatory issue with the objective of remedying any system flaws.In recent years. prove to be less successful in a different economic or business context. regulation aims to harmonise disclosure. In these pages therefore. At the European level. The debate is also multi-jurisdictional. It is a quintessential corporate governance issue about which there are many different views and opinions. It was assumed that directors would not want to fail because if they did it would ruin their ability to get a similar job elsewhere and this would be a sufficient deterrent. the professional body for those involved in people management and development. you will find links to proprietary ECGI research and other references to material on this important topic. the purpose of the Institute is to generate research. having succeeded for a time.contracts. executive remuneration has been the focus of considerable attention from the public. and as a public policy concern. The objective of this topic page is to share ideas. Our response is based on the input and feedback that we have received from our 48branch network and from our specialist forum of over 1. highlight issues. . academics and policy makers alike. stimulate debate and disseminate best practice. Context Economics dictates that when an item is in short supply then you have to expect to pay a high price for it. reflecting the changing dynamics of remuneration. Introduction This is the response to the Department of Trade and Industry's (DTI) consultation document: 'Rewards for failure' Directors' remuneration . performance and severance Comments from the CIPD on the DTI consultation paper September 2003 Charles Cotton. In this section of the ECGI website. The ECGI itself does not take a position on these matters. media. there has not been a great deal of attention given by companies or shareholders to the issue of what happens if such individuals fail to be successful. we set out some of the arguments and provide links to academic and other material that can shed light on the debate. The US and European approaches portrait several divergences in regulation and practice. in the rush to get these talented individuals. Rather.contracts.

They should consider at the outset. However. sensitive to the views of relevant shareholders. And concern over the size of executive pay-offs has led to the Government's consultation document on 'rewards for failure'. Reward packages at board level should be linked to performance and there should be clear alignment of interest between directors and owner/shareholder via directors receiving part of their remuneration in shares of their company. As the Combined Code on . • Performance-based . there has to be careful balance to ensure that that remuneration package meets the needs of the organisation. However. developed and appraised. In the future. In the past. The fact that to attract them they need to be highly incentived and rewarded should not mean that everyone else's package has to ratcheted up in line. Companies will need to judge what proportion of shares an ED is expected to hold to ensure that the level of risk being taken is appropriate for the that role. the CIPD believes that by focusing on severance. Are they up to the task? The Higgs report and the subsequent New Combined Code on Corporate Government recommends that to ensure that they are. it may be necessary to attract EDs from more highly performing organisations. reducing the supply and so increasing the size of the reward package needed to attract people to such positions. They should also consider looking at using more than one source of market pricing data.the total reward package offered by an organisation to its EDs need to be competitive enough to attract and retain talented individuals. shareholders and other stakeholders are looking at the wrong end of the pipe. with a depressed stock market coupled with the Government's Directors Remuneration Report Regulations more attention has been given to this issue and there has been an increase in the willingness and ability of shareholders to oppose the reward and severance packages of executive directors (EDs) where they believe they are not justified. bonus payments and benefits for EDs are determined by remuneration committees in the first place and how the package is linked to performance. In a poorly performing company. individuals may be put off from becoming EDs. Non-executive directors. its EDs and its shareholders. Or the fact that they will only join if they have an extended period of notice (such as two to three years) should not mean that they should not come down to one year's notice after that initial period. share options. If this not achieved. Our position However. remuneration committees need to consider more sophisticated ways of linking rewards to short and long-term measures and be prepared to justify why they have chosen the performance measures that they have. firms need to ensure that they are not offering more than they need to. including clauses on severance payments. Other aspects of the total reward package such as benefits and pensions also should be examined and justified. pensions. including salary levels. To achieve this careful balance the CIPD believes that packages should be: • Competitive . companies need to give more attention to how NEDs are recruited and selected. looking at what is coming out rather than what is going in. what is more important is that attention should be given to what is being rewarded and recognised. Also. should control more clearly the relationship of remuneration and rewards for success and failure. It is not necessary to be competitive on every aspect of the reward package and not effective just to follow fashions in reward. inducted. If ED remuneration is to be successfully linked to performance and large payoffs in case of non-performance avoided then there needs to be a clearer articulation in the initial contract of what will be paid in the different circumstances. Companies and shareholders need to examine and evaluate the effectiveness of their remuneration committees. the independent decision making body that decides executive pay and the nominations committee that determines their contract of employment.a lot of attention has focused on the size of the reward and redundancy package for EDs.However. Remuneration committees have to decide which of the various performance measures in existence are most appropriate. Attention should also be given to how the total reward package. what will happen if an ED fails to deliver the required level of expected performance. Where firms use market pricing to determine the salary level NEDs should be aware that this can lead to an upward ratcheting effect. ED pay was linked to simple measures of shareholder value and share price.

Should this be the case.g. ie what is appropriate in their particular context. the process for determining rewards needs to be clear and understandable.so that shareholders and staff understand why an executive is being awarded a particular reward package. best practice on compensation and severance payments could be limited by: restricting notice periods (and therefore severance) to less than one year. at least in the early stages of a contract.contracts. this will be around the 12-month mark. • Timely . then firms should reduce this either by appointing new members who meet the requirements. For instance.it is important that the decision-making body. the remuneration committee consists of independent members in order to promote trust among shareholders and staff. • • • Integrated . The remuneration committee also has to be well informed and experienced in such matters. All elements that make up the reward package should be reported and justified. our members are against prohibiting listed companies from agreeing notice periods of more than one year. where there are recruitment difficulties. our position is as follows: 1. performance and severance. e. In general. what will the impact be on staff commitment to an organisation if they receive a low or no pay increase while the directors of that company receive a large increase? This is one of the reasons why the professional input of an organisation's senior HR professional is so important to the design of executive reward arrangements. selected and inducted. On the latest consultation document from the Department of Trade and Industry 'Rewards for failure' directors' remuneration . Remuneration committees need to move away from an undue focus on market practice and following competitors. or by developing existing members. Members believe that while companies should be free to negotiate the notice period that they believe is most appropriate for their sector. . and if so how. They fear that this could put some employers at a disadvantage as they compete with private companies and subsidiaries of foreign owned companies to recruit talented individuals at home or from abroad.the directors' reward policy needs to be set in the context of the organisation's overall reward strategy.. Members need to question and challenge executive reward decisions to ensure that they are practical and appropriate to the needs of the organisation and its market. the CIPD is in favour of a minimum-legislative framework to set boundaries and prevent abuse. firms must be able to justify how and why they came to that decision to their shareholders and other stakeholders.' Setting an effective structure of rewards at the outset of a director's employment should help to avoid the dilemma of how to compensate EDs who are removed due to poor performance. Companies should regularly evaluate what skills and knowledge are required by remuneration committee members to be effective in determining the size of the reward package. Transparent . may need to be higher.Corporate Governance states: 'The aim should be to avoid rewarding poor performance. capping the level of liquidated damages. The committee should consider whether the size of the package is justified in light of business and individual performance. towards best fit.. Independent . If there is shortfall. National Association of Pension Funds/Association of British Insurers' guidance on executive contracts and severance. though we believe more time will be needed to evaluate the longer-term impact on shareholder activism and corporate behaviour and performance. and in linking the reward package to performance. We supported the remuneration report regulations. More consideration should also be given to how new committee members are recruited. At least one member should be HR/reward trained and qualified and the remuneration committee should have access to various sources of independent and quality reward pay and benefits data and appropriate guidelines.if organisations are to engage in meaningful way with its shareholders over its remuneration policy for directors it needs to give them sufficient time to make a reasoned judgement. With regard to the law on directors' pay. region and size of organisation they believe that in most cases. Views are sought on whether. which have clearly had an immediate impact.

Views are sought on how improvements in best practice might be most effectively promulgated (eg by Institutional shareholder guidance. 2. and if so how. However. however in those circumstances where they believe such an approach is not appropriate. However. Members are against a legislative approach.the amount that will be paid in the event of severance of the contract.Members also agree with the concerns raised in the DTI's consultation document that shorter notice periods could result in an increase in base pay and may encourage short-term strategic thinking by directors. . Our fear is if they are used and capped then it could just increase payments to that level. and if so in what ways. they should justify their approach to shareholders. amendments to the Combined Code). The ABI/NAPF guidelines do not regard this approach as desirable where the level of liquidated damages cannot be varied to reflect underperformance. Liquidated damages. to legislate for directors' contracts to include provision that require the board to take into account underperformance in determining severance payments and which would avoid the potential for litigation. The biggest problem with this approach would be to establish a clear correlation between the director's personal contribution and share price movement. Members thought that the option of offering severance pay that is the lower of 12 months salary or the present value of shares (based on past equivalent annual salary when starting in the job) is worth considering in more depth. for instance where companies and directors want a 'clean break'. 5. They may perform very well. The DTI notes that such clauses are not uncommon and that 'some' consider that these clauses. 4. Some practical issues would need to be worked through (indexation of the share formula in the light of subsequent salary increases. to encourage the use of phased payments to limit the total severance or compensation payment. are more appropriate. rather than phased awards. To prescribe the method of payment would be to deny the firm the flexibility to do what is appropriate in the light of the prevailing circumstances. and recommend arbitration. Would it be possible. then a generous pay off that reflects their contribution in trying to turn the company around would be appropriate. usually set the damages at too high a level. Views are sought on other best practice options that would have the effect of limiting severance payments in cases where a company has performed poorly. 3. involves agreeing . For instance. They believe that disclosure and investor guidelines coupled with better educated and informed NEDs are more effective ways of setting standards and holding the remuneration decisions of companies to account. but the firm could still founder. Views are sought on whether.at the start of the contract . for instance). Our presumption is that employers should phase payments. Our members strongly believe that companies should actively consider the spreading the cost of severance payments over the term of the unelapsed contract for the length of the agreed severance period or until the individual finds new work. members believe that there is a difficult balance that companies need to address when designing a severance package on the one hand that compensates an individual for both loss of office and income and on the other hand that ensures that they are not rewarded for failure. they are against legislation forcing companies to adopt this approach as there may be rare instances lump sum severance payments. while welcome in principle. In such circumstances. an executive could be brought in to turn a company around. Another proposal to counteract this problem is that there should be a recommended restriction or 'cap' and the DTI asks for views on this approach.

THE DETERMINANTS OF EXECUTIVE SALARIES: AN ECONOMETRIC SURVEY . selected. while it can be possible to measure individual performance.. 7. as recommended by the Company Law Review? Members agree with this recommendation from the Company Law Review. How are members of remuneration committees recruited. Should companies legislation provide for the prohibition of rolling contracts having a notice or contract period in excess of the period permitted by section 319. as appropriate? See response to question 6. . especially the performance element. developed and appraised? The CIPD believes that transparency over executive remuneration is important. there should full disclosure to shareholders of the reward and remuneration packages of EDs • • • • • 1. The CIPD does not believe that the case for legislation on 'rewards for failure' at this stage is proven. The Institute does believe that firms and shareholders need to examine the whole issue of executive remuneration. inducted.. rather than just the issue of severance. At the earliest possible opportunity. there are many influences on overall business performance. 8. Should companies legislation provide that the statutory period for a director's contract would be limited to one year's duration. What also needs to be examined is the context in which executive remuneration is decided and performance agreed.' The only people who will probably benefit from such a move will be the legal profession. Or in the words of the consultation document: 'It might be very difficult to establish a causal relationship between the performance of an individual director and the performance of a company as a whole. However. 6. as recommended by the Company Law Review? See response to question 6. as Higgs says. Should companies legislation provide for the prohibition of covenants that provide for more compensation than would be available under a one year or three year term contract. boards need to establish effective performance management and review arrangements at board level. we would expect notice periods to be no more than one year in length. There may be instances where a longer period may be called for due to recruitment difficulties. For instance.Members believe that the government should not legislate in this area given the legal and practical difficulties raised in the DTI's own consultation document. Typically. or three years on first appointment. as our profession is well aware. Conclusion • The directors' remuneration report regulation has clearly had an impact on shareholder activism.

more gains on the upside.ponents on both sides of this issuethe .. becomes much more complex. The question of what kind of pay for what kind of performance. based on extensive data.Related articles . Sylvia Lee pointed out that "we want knowledge sharing but reward knowledge hoarding. be based on the achievement of both financial and non-financial objectives." The perverse effects of pay for performance were also targeted. Kay and Steven Van Putten. encourage retention. several voiced the need to link pay to both financial and non-financial performance measures. is that "a CEO must develop and implement strategies that provide long-term sustainable outcomes to the benefit of shareholders. However.. and in general create value for shareholders. Taken to an extreme. suggesting a practice in need of further examination.. As Ellis Baxter put it. expressed by John Ippolito. there is a sense. . recognize special needs of an organization. Their book represents a useful effort to shed light on the issue.All 2 versions lishing the level of the executive's reward? Pro. But is there another subject as important as this one about which we assume so much and know so little? How do you explain this? What do you think? To read more: Ira T. however." However. saying. saying that "Salary and retention are interlinked these days … (the latter) is also of utmost importance." Ashok Malhotra favors "reasonable incentives for short-term performance" and "higher incentives for long-term performance. why don't we think more about (paying to retain them) for (their) competence?" Pallavi Marathe concurs. fraught with serious theoretical and econometric problems. Veronica Serrano suggests that this occurs when "extraordinary performance or major business change is required." The rationale.. "Do you give (mid-range managers) larger incentives in the hope of retaining them?" Special needs sometimes dictate pay in relation to expected performance. "… sanity is paying for what you want to have done…. But CEO pay increased substantially even in lowperforming firms in their study.jstor. that there is a lack of perception in boards of directors of "what constitutes 'creating value' in the enterprise … many boards are too ready to turn over the keys to the incoming CEO— then watch the stock price to see if he or she did a good job. due out summer 2007). 2007 Author: Jim Heskett . www. How Should Pay Be Linked to Performance? Published: June 1. that they have found a correlation between executive pay and long-term total returns to shareholders.Cited by 180 . as Mark Evans explains. pay for performance value can be diminished the longer the time delay for receiving performance pay. we lose track of real value and performance." Xu Jian comments that "competitors hire (our employees for their) competence." In commenting on executive pay." Generally speaking.. Myths and Realities of Executive Pay (Cambridge University Press." Ira Kay and Steven Van Putten report.1980 . respondents favored schemes designed to reward long-term as well as short-term performance. CEO Nari Kannan noted that CEOs seek "less loss on the downside." Whether this is the case or not.org/stable/1924267 Summing Up Pay for performance: Why do we assume so much and know so little? Pay for performance is an important element of good management. it leads to a conclusion such as that of Renat Nadyukov: "Sometimes we forget why we pay people. So beyond paying for (their) performance. "in the compulsion to stay on par with other players." Karla Ortega commented that "… a wellstructured compensation plan communicates corporate objectives to your employees…. The company's goals are the (opposite).by DH Ciscel . Gary Johnson cautions that "Because excitement is so critical to success." Jim Chorn asks." Sivaram Parameswaran concurs." Claude Des Rosiers warned that "There are enough challenges to get people in an organization to work together (without compounding the problem by paying for individual performance). judging from responses to this month's column.

the relatively simple compensation and benefits programs of the past were requiring consideration of their strategic impact and relationship to one another. Integration became a key. Organizations were responding to: • • • • • Global economic development and the emergence of multinational firms A much more competitive business environment Diversification of the work force to include workers who didn't fit the sole breadwinner. Throughout history. ..Cited by 1 . Total rewards include everything the employee perceives to be of value resulting from the employment relationship.1. head-of-household model of the '50s and '60s New government mandates related to employee benefits Rapidly rising benefits costs that prompted flexibility in programs to reduce costs.. the organizational premise has been the same: Provide productivity and results to our enterprise and we will provide you with something of value. motivating and retaining employees. From the simplest barter systems of centuries past to the current complex incentive formulas of today. motivate and retain employees. reward. In the 1970s and 1980s.com/retrieve/pii/S1048984308000349 What is total rewards? Total Rewards: All of the tools available to the employer that may be used to attract.. organizations recognized that strategically designed compensation and benefits programs could give them the edge in a rapidly changing environment.Related articles .a position still occupied by leaders in the field today. practice was based largely on formulas that served the entire employee population in an organization. Specifically these efforts have resulted in a collection of theoretical. Emerging paradoxes in executive leadership: A theoretical . employers have been challenged with attracting. Salary structures were just that -.elsevier. Historical Snapshot In the earliest years that the fields of compensation and benefits were recognized as professions. depends on the next generation of leaders and how they champion.. Companies have experienced unprecedented challenges including: ... problems can emerge when adherence to such classic business values are not .... by CC Manz . and compensation and benefits professionals emerged as critical strategic partners in their organizations' leadership -..rigid and highly controlled -and benefits programs were designed as a one-size-fits-all answer to a homogenous work force.2008 .. Suddenly. . linkinghub.

it has become clear that the battle for talent involves much more than highly effective. Increasingly. strategically designed compensation and benefits programs. effectiveness and marketplace viability. acquisitions and global competition. performance and recognition and development and career opportunities -.including compensation. Unprecedented mergers. While these programs remain critical. Collectively. In 2000. after facilitating discussion with leading thinkers in the field. practices and cultural dynamics to satisfy and engage the best employees. Since the 1990s . home and work demands. WorldatWork Total Rewards Model As the association representing the professions comprising total rewards. Advancement of pay-for-performance practices.particularly those specializing in compensation and benefits -. these forces and others caused business leaders to scramble for ways to improve efficiency. And they must deploy all of the factors -. many organizations have recognized that an integrated and enriched "value exchange" between an employer and its employees can accelerate velocity and success. HR professionals -. combined with the other tangible and intangible ways that companies seek to attract. These professionals were at the forefront of designing and implementing programmatic changes that have shaped the next generation of compensation and benefits. While program efficiencies and cost controls have been pivotal for survival. benefits. The model focused on three elements: . practices and culture that have slowed or prevented progress. Forward-thinking professionals realized that programmatic advances would not be enough. and more relevant and valued employee rewards programs. Fewer resources available for pay increases. Geographic movement of many manufacturing and service roles. WorldatWork has served as a focal point for intellectual-capital development and dialogue about this topic.to their strategic advantage. the most successful companies have realized that they must take a much broader look at the factors involved in attraction. The results have included improved alignment of pay and performance.• • • • • • • • • Dramatic changes in the workplace. While each approach presents a unique point of view. contributing to improved business performance and results. work-life. various total rewards models have been published. WorldatWork introduced a total rewards framework intended to advance the concept and help practitioners think and execute in new ways. motivation and retention. Substantial increases in health-care costs in some countries. stay-at-home-mother model of previous decades. while other organizations have struggled with entrenched organizational structures. Tremendous advances in technology and the emergence of new business opportunities. The concept of total rewards emerged in the 1990s as a new way of thinking about the deployment of compensation and benefits. Flexible companies and start-ups were able to deploy these concepts rapidly. all of the models recognize the importance of leveraging multiple programs. tighter controls on benefits costs.were challenged to contain costs and contribute to improved business results. Workforce demographic changes that challenged the traditional working-father. motivate and retain employees. Rapid decline of defined-benefit pension plans as a financially viable retirement model. including increased awareness of conflicts caused by family.

the association had focused solely on compensation and benefits. understanding of the concept advanced rapidly. Yet. During the past several years.• • • Compensation Benefits The Work Experience o Acknowledgement o Balance (of work and life) o Culture o Development (career/professional) o Environment (workplace) Up to this point. motivate and retain talent. the concept has become the practice in many companies. Thus "the work experience" aspect of the first WorldatWork total rewards model included aspects of employment that may be programmatic or part of the overall experience of working." "total compensation" or "compensation and benefits" to describe the collective strategies deployed by their companies to attract. service providers and academic institutions have made significant contributions to our understanding of total rewards.while foundational and representing the lion's share of human-capital costs -. Workplace flexibility (part of work-life) may manifest itself as a formal telework program or as having a culture and practices that embrace work-life flexibility. For instance. As companies were exposed to total rewards. Today. . human resource professionals. At the same time. consulting firms. professionals primarily use the terms "total rewards. recognition (acknowledgement) may be part of a formal rewards program or may be as simple as a thank-you from the boss or co-worker. In fact. motivate and retain top talent. high-performing companies realize that their proprietary total rewards programs allow them to excel in new ways. the concept of total rewards has advanced considerably. specialists and generalists alike agreed that compensation and benefits -.cannot be fully effective unless they are part of an integrated strategy of other programs and practices to attract. motivate and retain the talent needed to be successful. Practitioners have experienced the power of leveraging multiple factors to attract.

as WorldatWork has defined them. engaged and productive employees. recognition could be considered an element of compensation. organizational culture and HR strategy. Indeed. a company's exceptional culture or external brand value may be considered a critical component of the total employment value proposition. Context for Total Rewards The WorldatWork model recognizes that total rewards operates in the context of overall business strategy. each of which includes programs. such as: • • • Legal/regulatory issues Cultural influences and practices Competition The Exchange Relationship An important dimension of the model is the "exchange relationship" between the employer and employee. practices.driven activity or may be decentralized in line organizations.Elements of Total Rewards There are five elements of total rewards. • = L e v e r a g i Total Rewards Strategy . representing the external influences on a business. benefits and work-life. The elements. These elements are: • • • • • Compensation Benefits Work-Life Performance and Recognition Development and Career Opportunities The elements represent the "tool kit" from which an organization chooses to offer and align a value proposition that creates value for both the organization and the employee. An effective total rewards strategy results in satisfied. performance management may be a compensation-function. Successful companies realize that productive employees create value for their organizations in return for tangible and intangible value that enriches their lives. Likewise. motivate and retain employees. The backdrop of the WorldatWork model is a globe. are not mutually exclusive and are not intended to represent the ways that companies organize or deploy programs and elements within them. who in turn create desired business performance and results. elements and dimensions that collectively define an organization's strategy to attract. For instance. it can be managed formally or informally.

R e t a i n • • • Compensation Benefits • • Performance and Recognition Development and Career Opportunities Work-Life The Exchange Relationship EMPLOYER PROVIDES: | EMPLOYEE PROVIDES: Time. effort and results Total rewards valued by employees Context of Total Rewards • • • Business Strategy Organizational culture • • External influences (competition. etc. Geography (location of workforce) HR strategy . regulation. industry. talent.n g F i v e E l e m e n t s t o A t t r a c t . M o t i v a t e .

effort and skill). restricted stock. The five key rewards elements are: • • • • • Compensation Benefits Work-life Performance and Recognition Development and Career Opportunities Total rewards strategy is the art of combining these five elements into tailored packages designed to achieve optimal motivation.Also known as "base pay. employees must perceive monetary and non-monetary rewards as valuable. Compensation Pay provided by an employer to an employee for services rendered (i. It involves the deliberate integration of five key elements that effectively attract. Compensation comprises four core elements: • • • • Fixed pay -." variable pay changes directly with the level of performance or results achieved. talents. Typical forms include stock options. Short-term incentive pay . Long-term incentive pay -. For a total rewards strategy to be successful.A form of variable pay. time. short-term incentive pay is designed to focus and reward performance over a period of one-year or less. efforts and results. performance shares. motivate and retain the talent required to achieve desired business results. It usually is determined by the organization's pay philosophy and structure.e. It is a one-time payment that must be re-established and re-earned each performance period. • These programs are designed to protect the employee and his or her family from financial risks and can be categorized into the following three elements: • Social Insurance o Unemployment o Workers' compensation o Social Security o Disability (occupational) Group Insurance o Medical o Dental o Vision o Prescription drug • . Benefits Programs an employer uses to supplement the cash compensation that employees receive.Also known as "pay at risk." fixed pay is nondiscretionary compensation that does not vary according to performance or results achieved.Model Definitions Total Rewards Total rewards is the monetary and non-monetary return provided to employees in exchange for their time. performance units and cash.. Variable pay -. long-term incentive pay is designed to focus and reward performance over a period longer than one year.A form of variable pay.

communicates how well people do a job or task compared to expectations. they address the key intersections of the worker.o o o o o o • Mental health Life insurance AD&D insurance Disability Retirement Savings Pay for Time Not Worked -. uniform changing time) o Away from work (vacation.is a process whereby expectations are established linking individual with team and organizational goals.is the manner of demonstrating a skill or capacity.. benefits and other HR programs.These programs are designed to protect the employee's income flow when not actively engaged at work. plus a philosophy. which actively supports efforts to help employees achieve success at both work and home. • • Recognition Acknowledges or gives special attention to employee actions. In combination. efforts. Performance feedback can motivate employees to improve performance. o At work (breaks. company holidays. behavior or performance. It meets an intrinsic psychological need for appreciation for one's efforts and can support business strategy by reinforcing certain behaviors (e. The seven major categories are: • • • • • • • Workplace flexibility Paid and unpaid time off Health and well-being Caring for dependents Financial support Community involvement Management involvement/culture change interventions. alignment of organizational. Performance and Recognition Performance A key component of organizational success. Care is taken to ensure goals at all levels are aligned and there is clear line of sight from performance expectations of individual employees all the way up to organizational objectives and strategies set at the highest levels of the organization. team and individual effort toward the achievement of business goals and organizational success. programs. clean-up time. Performance . his or her family. policies. performance standards and goals.g. the community and the workplace. and how it was accomplished. These categories encompass compensation. Performance involves the alignment of organizational. personal days). There are seven major categories of organizational support for work-life effectiveness in the workplace. Performance feedback . Work-Life A specific set of organizational practices. extraordinary accomplishments) that . • Performance planning . team and individual performance is assessed in order to understand what was accomplished.

o Self-development tools and techniques o On the job learning. usually without predetermined goals or performance levels that the employee is expected to achieve. in or outside one's own organization. dinners. Career Opportunities A plan for an employee to advance their own career goals and may include advancement into a more responsible position in an organization. recognition programs acknowledge employee contributions immediately after the fact. Development and Career Opportunities Development A set of learning experiences designed to enhance employees' applied skills and competencies. tickets. virtual education.g. attendance and/or presentation at conferences outside of one's area of expertise o Exposure to resident experts o Formal or informal mentoring programs.). rotational assignments at a progressively higher level o Sabbaticals with the express purpose of acquiring specific skills.. etc. knowledge or experience. etc. The organization supports career opportunities internally so that talented employees are deployed in positions that enable them to deliver their greatest value to their organization. Whether formal or informal.association memberships. Advancement Opportunities o Internships o Apprenticeships with experts o Overseas assignments o Internal job postings o Job advancement/promotion • • . Awards can be cash or non-cash (e. trophies. development engages employees to perform better and leaders to advance their organizations' people strategies. Development and career opportunities include the following: • Learning Opportunities o Tuition assistance o Corporate universities o New technology training o Attendance at outside seminars. Coaching/Mentoring o Leadership training o Access to experts/information networks -. The value of recognition plans is that they: • • • • • Reinforce the value of performance improvement Foster continued improvement. plaques. conferences. certificates. although it is not guaranteed Formalize the process of showing appreciation Provide positive and immediate feedback Foster communication of valued behavior and activities. verbal recognition.contribute to organizational success.

(1990) Organizational Culture. It is the tangible manifestation of organizational culture. Typically. 2. specific elements of the environment can be deliberately manipulated or changed. The external environment in which an organization operates can influence the internal environment. Source: Schein. A deliberate strategy to attract the quantity and quality of employees needed to drive organizational success is one of the key planks of business strategy. February. which is why a formal retention strategy with appropriate steps is essential. Motivation is comprised of two types: . thus. 43. it is comprised of a set of often unspoken expectations.o o o Career ladders and pathways Succession planning Providing defined and respectable "on and off ramps" throughout the career life cycle An Integrated Total Rewards Strategy Culture Culture consists of the collective attitudes and behaviors that influence how individuals behave. overlapping within and outside the organization. 109-119 Environment Environment is the total cluster of observable physical. not all retention is desirable. One way an organization can address this issue is to determine which "attractors" within the total rewards programs brings the kind of talent that will drive organizational success. Attraction The ability an organization has to draw the right kind of talent necessary to achieve organizational success. Culture determines how and why a company operates in the way it does. Vol. American Psychologist. Environment sets the tone. However. behavioral norms and performance standards to which the organization has become accustomed. thus. environment is depicted as a contextual element of the total rewards model. Because they are directly observable and often measurable. Attraction of an adequate (and perpetual) supply of qualified talent is essential for the organization's survival. no. Desired talent can be kept on-staff by using a dynamic blend of elements from the total rewards package as employees move through their career lifecycles. either consciously or unconsciously. Motivation The ability to cause employees to behave in a way that achieves the highest performance levels. Organizational culture is subject to internal and external influences. culture is depicted as a contextual element of the total rewards model. Culture change is difficult to achieve because it involves changing attitudes and behaviors by altering their fundamental beliefs and values. and it is one of the key planks of business strategy. as everyone who enters the workplace reacts to it. overlapping within and outside the organization. E. psychological and behavioral elements in the workplace. Retention An organization's ability to keep employees who are valued contributors to organizational success for as long as is mutually beneficial.

Extrinsic motivation is most frequently associated with rewards that are tangible such as pay.how much I like things here Commitment -.Linked to factors that include an employee's sense of achievement. intrinsic motivation consistently results in higher performance levels. motivation can drive organizational success .how much I want to be here Engagement -. Extrinsic Motivation -. Another key plank of the business strategy. trust.• • Intrinsic Motivation -. There also are defined levels of intensity with regard to motivation: • • • Satisfaction -. appropriate advancement opportunities and others. respect for the whole person.how much I will actually do to improve business results.

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