Monday, 26 December 2011

Total reward statements’ influence on retention, attraction and engagement. Implementation critical factors

Retention and attraction
Inasmuch as retaining valuable individuals is a difficult feat to achieve for employers in whatever circumstances, in the current economic climate, broadly characterised by belt tightening, attaining this objective clearly becomes even harder. Paying particular care on effectively and properly communicating to each member of staff the value of the overall reward package he/she receives appears, then, to be particularly crucial (KPMG, 2002). Since pay increases could be unlikely or, at best, not as generous as they had been during the previous years, the importance of effectively communicating staff the worthiness of their current reward package could help organisations to improve staff’s morale or, if anything, to soften the negative impact that belt tightening periods can generate over staff (NorthgateArinso, 2009).
Ensuring that individuals truly understand and properly value each component of reward can turn to be particularly useful and effective in order to “developing or reinforcing a branding for reward and benefits within an organisation” (Hay Group, 2008). Additionally, this awareness can effectively contribute to deter employees from leaving their current employer just for a meagre basic salary increase, as well as make them understand that the organisation really care about them. By comprehensively representing the real value of the overall reward package, rather than only that of the core salary, offered by an employer, TRSs can act as an affective and “valuable retention tool” (NorthgateArinso, 2009). Recruitment is widely recognised as being a quite expensive exercise; additionally, replacement cost is conservatively estimated to reach 150% of the leaving employee’s annual compensation amount (IDC, 2011). Statements, offering a real and complete picture of the worth of the package an individual receives, will certainly make individuals thinking over about the possibility of leaving their current employer.

Enabling organisations to show individuals that they are adequately and competitively rewarded for their capabilities and performance will turn to be particularly important not only in order to retain individuals but also in order to attract new talents (KPMG, 2002).

Statements, helping organisations to provide candidates with a thorough and comprehensive knowledge of the worthiness of the total reward package they receive “above and beyond the core salary”, can effectively help organisations to attract valuable individuals (NorthgateArinso, 2009). Giving potential recruits the possibility to gain a good understating of the package’s value on offer will, also, definitely enable organisations to manage more effectively and consistently the recruitment process whilst developing the organisation’s brand of employer of choice (NorthgateArinso, 2009).

Motivation and Engagement
Taking as axiomatic that total reward statements, providing staff with a detailed knowledge and understanding of their packages, can actually help businesses to retain current and attract new staff, it could also be worth investigating if this tool can actually also enable organisations to achieve better staff engagement levels.

Considering engagement more strictly associated with the job carried out by each individual, rather than with his/her organisation, it cannot be excluded that statements could actually act as drivers to produce better engagement levels. Since they also contain details of all of the developmental opportunities offered to them by their employers, on reading statements employees should immediately found out that if they perform at certain levels it is also and mainly because their employers have provided them with these developmental opportunities, training and a job enabling them to carry out their activities with that enthusiasm, stimulation and positive behaviour to which refer Murlis and Watson (2001).

Statements should also help firms to attain better results from the motivational point of view. Individuals, in fact, by means of TRSs will have the opportunity to have, at a glance, a complete view of all of the benefits they receive from their employer. An individual not seeing in a statement anything motivating, neither from the tangible nor from the intangible point of view, will clearly be an individual totally unsatisfied, with his job and with his overall working situation. Since organisations who have decided to introduce statements are clearly not organisations offering their staff only basic salary, this circumstance should be in practice the most unlikely to occur.

This is what can actually be said about the impact of TRSs on engagement and motivation if we consider statements in isolation.

In actual fact, nonetheless, statements do neither represent an isolated tool nor provide a distinctive, additional value to employees on themselves, but they are important to stress and highlight the value of what employers already do for their staff. The real value employers provide to their staff is, in fact, incorporated in all of the tangible and intangible, financial and non-financial, elements included in their total reward programmes. To put it another way, statements do not provide value, rather enable individuals to value what their employers do for them, so that they basically support total reward programmes meaning and effectiveness. Once again, we are looking at the bundle effect, where the combined power of more forces, by means of synergy, enable businesses to attain a better result compared to that which they would have achieved by means of each single force used in isolation.

Implementation critical factors
Communication approach and strategy
Total reward statements are basically concerned with total reward communication and, as such, they are considered as a crucial element of total reward programmes implementation. Though TRSs represent an important means by which employers aim to stress and emphasise the value of their total reward programmes, in order to be effective total reward statements need to be supported by a specific and effective communication programme themselves.

In order to properly put the message across, employers should, first of all, identify the most suitable communication strategy and approach.

Clearly, on designing and deciding the communication approach employers should consider that this has to be in line with the usual approach used within the organisation.
Indeed, total reward statements need to be consistent and coherent not only with the communication style used within an organisation but also with its employer’s brand (Hay Group, 2008).

Having recourse to a pre release communication strategy has revealed to be a very effective approach, enabling employers to attaining an average 75/80% employee utilisation compared to the more common 25/40% average (Hay Group, 2008). Ads, pop-ups and specific messages posted in the corporate intranet, poster, newsletters, leaflets, memos, mails, you name it we have it can effectively contribute to generate staff’s interest and draw their attention towards this initiative.

When it comes to total reward statements communication acquires a remarkable role not only to support their introduction but also as for what concerns their content. So that, in order to provide individuals with the necessary information they need in order to take informed decision for their future choices and avoid any possible form of mix-up, businesses need to keep communication clear and simple, totally avoiding, in particular, any recourse to jargon (Pearce, 2009).

As suggested by Silverman and Reilly (2003) employees need to be knowledgeable about, if anything, the essential mechanism of the benefits scheme in place and TRSs can be the most suitable means to explain them how benefits plans are operated. Ultimately, employers can also decide to provide access to external financial advisor or a dedicated helpline in order to offer staff more specific advice, clearly this would be a superb initiative, but it will obviously have a considerable impact in terms of cost.

Benefits valuation
There is broad consent on the critical importance the correct valuation of benefits showed in TRSs has for their successful implementation. All of the data and information provided to each member of staff, in fact, need to be accurate and absolutely reliable. Differently, the statements exercise will turn to be a massive waste of time and resources, not to mention the counterproductive effects it is very likely to produce on staff morale.

Although, by and large, the TRSs exercise seems to be rather straightforward, benefits evaluation actually represents one of the trickiest decisions businesses need to take.

More specifically, employers have to decide if they intend to show in the statement the value each perk is likely to provide to the individual concerned, the cost faced by the firm to provide each of them or both. If, for instance, an employee would need to spend £500,00 for a seasonal ticket enabling him to travel from home to work, it is likely that the employer could offer the same ticket actually paying it, for instance, £450,00 (depending on the number of seasonal tickets bought and the agreement cut with the rail company).

According to Silverman and Reilly (2003) organisations usually decide to state in the document the value of each perk in terms of the advantage they offer to employees (in the example £500,00), in that it is clearly associated with a higher value compared to the cost actually faced by the employer (in the example £450,00), who can, in fact, benefit of favourable prices on account of buying a relevant quantity of each item or service. But the Authors also highlight the circumstance that considering this perks’ valuation method could give raise to dispute with employees and/or their representatives. In some circumstances and depending on the different kinds of perks, in fact, the value each employee will associate with each perk can be differently perceived according to the different circumstances. Clearly individuals near their retirement will perceive as higher the value associated with complimentary pension schemes and health insurance, whilst younger people could perceive as less worth the value of these kinds of benefits. Those perks which can be enjoyed by employers with their family members would possibly be perceived as having even more value than they objectively have.

Employers should be careful on considering the impact of these different perceptions on the acceptance of data reliability, the risk being of jeopardising the legitimacy of the overall reward package on offer. That is why businesses very often do prefer showing for each item both the value for the employee and the cost faced by the organisation to offer it.

Other Key factors
In addition to data accuracy, content personalisation, clear and simple communication and a consistent data valuation method, there are other relevant factors which need to be duly taken into consideration by employers when designing statements.

One of the things employers need to completely avoid, for instance, is to oversell benefits (Hay Group, 2008). Employers should then be careful on not including in statements more than is actually available and on offer, avoiding as well attributing to benefits, independently of the used method, more than their actual value.
Another pitfall business should avoid to fall into is to overfill statements with figures (Hay Group, 2008). Despite numbers and charts can help employers to provide a synthetic view of statements’ content, their usage has to be appropriate and a descriptive section explaining and clarifying the meaning of the different charts and figures has invariably to be included.

Some issues, albeit apparently of secondary importance, which employers should be ready to address during the phase of statements implementation, concern the determination of the number of pages the overall document needs to contain and the different lengths statements can reach according to the different individuals to whom they are addressed (Hay Group, 2008). Depending on the support chosen, i.e. paper or online, in fact, the different length and number of pages, if not considered since the very beginning, can, in fact, give raise to problems which could reveal to be not as simple and easy to overcome. Once decided the standard layout, employers could decide, for instance, to leave some spaces blank in the first instance in order not to change the overall scheme and number of pages. In this case, nonetheless, decisions need to be taken in order to determine the best way to fill these spaces before issuing the final version of the statements.

Designing and Implementation approach
In order to design and implement total reward statements, employers have to use a clear, structured approach. The method suggested by Watson Wyatt (2006) is formed by 6 different stages. During the first stage businesses have to complete the checklist of the benefits offered by the organisation to staff. The second phase will be, instead, dedicated to take the decisions concerning the statements’ structure. The third stage represents a quite delicate phase in that is it concerned with the definition of the valuation method, which will be used in order to determine data to be showed into statements. During the fourth stage businesses will develop statements content and layout, whilst the fifth stage will be concerned with data collection, which represents one of the most sensitive phases of the overall process. At this point everything is ready for the sixth stage, i.e. total reward statements launch.

Clearly, before carrying out the statements designing and implementation processes a previous analysis aiming to clearly highlight the business’ strategy and objectives and determine how statements can actually support organisations to achieve these has to be considered mandatory. This analysis is also of paramount importance in order to determine where statements “sit in the broader reward context” (BDO, 2010).

Since statements are directly linked to the total reward programme in place within an organisation and, as such, to the flexible and voluntary benefits schemes eventually offered, TRSs after having been launched also need to be reviewed according to the eventual changes applied to these schemes.
However, design, development, launch and maintenance are not the only activities associated with issuing TRSs. After having launched statements, in fact, employers should carry out an employee survey aiming to investigate employees’ perception of this tool (Hay Group, 2008) and whether the intended objectives have actually been attained. Clearly, employers will review statements according to the feedback received by their staff, triggering a “refine and refresh” stage which will, very likely, lead to a re-issuing phase (Hay Group, 2008).

This process, aiming to modify and eventually adapt statements according to employee feedback, has actually to be considered part of the maintenance process itself, meaning by that that it has to be fully considered part of the overall process and, as such, be carried out as a matter of course.

TRSs and the public sector
Issuing total reward statements could appear to be a practice typical of private sector organisations, but this is not actually always the case. In the UK, in fact, three big local authorities, namely the Buckinghamshire, Cambridgeshire and Hertfordshire councils decided, during the summer of 2008, to join forces in order to pilot a project aiming to design and implement total reward statements to be issued for 60,000 staff (Berry, 2008).

After all, this should not really be that surprising in that, although on the one hand local governments’ reward packages have always been undervalued and underestimated by staff, on the other hand it cannot be denied that public sector employees usually enjoy benefits such as pension, holiday and flexible working whose value very often overcomes those offered by private sector employers (Berry, 2008).

And that is actually why in 2008 the Cabinet Office in the UK recommended to public bodies to have recourse to TRSs, the aim and objective are clearly exactly the same as those pursued by private sector organisations.

TRSs exercise is of paramount importance especially in a period when salary increases granted to public sector staff are below the inflation rate; fostering the value of the overall package offered to staff becomes, then, of paramount importance (Hibberd, 2008).

What next
Summarising the statements introduction process it can be said that by means of TRSs introduction employers can clearly communicate to their staff the total reward concept to which the organisation reward programme is inspired. Employees can then have a clear view and understanding of what benefits their employer offers to them and of the cost and value of the perks they receive. Ultimately, by means of this tool employers can also clearly establish within the business the principle of associating or integrating reward and benefits (Watson Wyatt, 2006).

That done, employers, will need to gather employees’ feedback in order to eventually change the tool accordingly and verify that the intended objectives have been achieved. But this is not all, after having introduced total reward statements, businesses will also need to analyse statements data in order to identify possible opportunities in terms of financial savings, make changes in the benefits packages and, eventually, in the cafeteria benefits schemes offered (or deciding to introduce this latter scheme if not yet introduced within their organisations) (Watson Wyatt, 2006).

Longo, R., (2011), Total reward statements’ influence on retention, attraction and engagement. Implementation critical factors, HR Professionals, Milan [online].

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