Saturday, 8 September 2012

How to develop, design and execute a total reward system

Developing, introducing, managing, executing and reviewing a total reward programme is everything but a straightforward process. The procedure requires meticulous attention and care throughout and neglecting even one of the aspects which should instead be carefully considered for the successful implementation of the programme could reveal to be remarkably detrimental and ultimately leading to a complete, irreversible failure.

Henemen (2007), for instance, reports three cases of total reward programmes whose introduction failure was directly associated with fatal mistakes made during the designing and developmental phases. The total reward programme of a chemical firm miserably failed, accurate and long preparation notwithstanding, because during the first year of its introduction the business’ financial results were negative. The programme had been communicated putting great emphasis on the profit-sharing cheque it should have enabled employees to receive. In practice, however, because of the unexpected difficulties, staff did not finally receive any cheque. Resentment within the workforce led to the programme withdrawal, circumstance which should have been avoided if it should also have been communicated that the programme would not have been operated in case of downturn or slowdown periods.

Similarly, a government agency in the U.S. introduced a programme linking salary increases to a pay-per-performance scheme whose assessment should have been provided by means of a formal appraisal system. Unfortunately, or rather maladroitly, the performance appraisal system had not yet been implemented before the launch of the total reward programme and managers were obliged to assess their staff performance as they could, unable to rely on an objective measurement tool. The imprudent use of this unstructured, makeshift assessment approach was perceived by employees as unfair and, once again, the scheme had to be abandoned.

In another case, a total reward programme had been introduced in a plant of a heavily unionized business having several factories in different geographical areas. The success consequent to the introduction of the total reward scheme in the pilot factory encouraged the business management to replicate the model in the other factories. The lack of consultation of the union representative in each of the other plants, however, led to a series of unexpected difficulties emerged because of the unions harsh opposition to the scheme introduction (Henemen, 2007).

The glaringly obvious deduction emerging from these examples is that in order to avoid failures, backlashes and massive waste of money and resources, it is of paramount importance paying extra care and attention during the designing and developmental phases of total reward programmes. The most likely risk being that problems emerging during the execution phase could possibly no longer be effectively addressed and properly managed.

The project management team
In order to confer the programme the importance and credibility it deserves, the first step should hence be represented by designating a project management team in charge of developing and manage the project’s phases. Careful consideration should also be paid to the appointment of the Project Manager who necessarily needs to be a senior, respected manager, ideally a HR Manager with extensive experience in total reward (Henemen, 2007).

As maintained by Heneman (2007), equal careful consideration needs to be paid to the appointment of the rest of the project team. Business leaders should ensure that the necessary expertise and skills are considered and involved in the project development. Ideally: payroll, employment law, finance, tax and reward specialists as well should be all part of the team. In addition to these kinds of specific technical expertise, employers should also ensure that individuals skilled in practices and programmes development would be involved in the team.

Small organizations could also consider to entrust one or two internal managers with developing the project and have recourse to external consultancies or specialists for the technical advice they might need on specific fields they do not have any available expertise within their firms.
Data collection
This process can actually be carried out in different ways, but what matters the most is that, whatever the way identified to proceed, the method has to be considered as a structured and predefined flow where some precise and pre-identified steps cannot really be missed and necessarily need to be carried out. A clear route and direction, therefore, needs to be drawn since the very beginning.
In order to design and develop a consistent total reward system and ensure its successful introduction and implementation, it is crucially important and mandatory prerequisite to gather as much data as it is possible about and from the workforce in that, as we have seen, individuals are different and have different wants. It would, hence, be practically impossible for an employer being able to design and develop successful and consistent total reward systems without having previously gathered and analysed such data.

Data can be collected having recourse to a wide variety of means: face-to-face or by means of questionnaires. Amongst the former large group methods and focus groups clearly are the most used and effective as well.

Both large group and focus group approaches, beyond the fact of enabling the business to gather relevant and useful data, are clearly also effective means to give voice to employees and, hence, ensure their genuine involvement in the process.

Enabling businesses to reach a higher number of individuals, potentially the entire workforce, also employee surveys by means of questionnaires can be considered valuable tools to investigate individuals’ preferences about reward.

Ideally a combination of face-to-face and by-questionnaire investigations would be the best solution. Also examining current rewards practices and filled forms eventually available, for instance those containing records of performance appraisal meetings, can be useful to the project team in order to determine staff attitude towards total reward.
Heneman (2007) also suggests to gather information by means of benchmark surveys carried out amongst successful organizations of the same industry. This method is actually rather questionable, considering the best fit approach tenets, in fact, it should be considered rather dangerous to replicate practices which have revealed to be effective in other organizations just because of this circumstance.

Gap analysis
Although all of the above steps are genuinely part of a total reward system developing procedure they could, to some extent, be considered preparatory to the very first official phase of the process, i.e. the gap analysis. The main objective of the gap analysis is to depict a faithful picture of the current state of play of the reward system existent within an organization and oppose it to the desired state emerged from the data collected.

At this stage, it can also be very useful carrying out a literature review, of course the more the project team knows about total reward, and reward management and practice, the better it is.

The first phase can, at this point, be concluded with the identification of a “compensation philosophy statement”, which should be put at the basis of the future reward strategy. This statement should help employers to identify: the values and behaviour that should be rewarded within the business, what kind of rewards would work better in order to achieve this objective, how the total reward system would actually be funded and all of the other questions concerning communication, unions participations, if any, in designing total reward practices and so forth (Heneman, 2007).

Define total rewards components
Now that the project team has gained a thorough knowledge of employees wants and has produced a compensation philosophy statement, it is time to identify the components of the total reward system which will be offered to the business staff. If the previous phases of the project have carefully and thoroughly been carried out, this stage should not reveal to be particularly problematic.

In order to include all of the relevant elements and avoid missing some of them, using an empty traditional four-quadrant diagram and bit by bit filling it, might probably help. Of course, amongst the components of the total reward system equal attention to both pay, benefits, personal growth and the working context will carefully be paid.

Another crucial aspect associated with the determination of the relational components of reward concerns the balance of individuals and organizations needs. Whether elements such as career development and training, for instance, represent clear forms of reward for employees, who clearly perceive their worthiness, the benefit of these kinds of rewards might appear less obvious to employers (Heneman, 2007). For organizations, in fact, the circumstance an employee might gain additional skills will be perceived as valuable only if this in turn enables employers to gain new abilities which competitors cannot imitate and reproduce. It is, indeed, the existence of such circumstance which will actually enable a business to gain competitive edge (Barney and Write, 1998). In order to meet businesses and individuals needs and expectations, employers should, then, essentially offer individuals opportunities for growth that they value but that, at the same time, enable organizations to achieve their intended aims and objectives (Henaman, 2009).

Top and line management support
The role of top managers in supporting the introduction of a total reward system, as well as of any other new initiative within an organization, is absolutely crucial. In order to ensure that the new system is accepted by all of the organizations staff, top managers have to clearly and visibly back and foster the initiative. On doing so, as suggested by Heneman (2007), they need to consider that “action speaks louder than words”, so that their support has to be convincing and their actions coherent with their words.
Notwithstanding, for the successful introduction of a total rewards system employers need the support and efforts of the overall organization management, top and line managers as well. LMs definitely represent important and precious allies and partners in strategy and policy execution so that their full and genuine support and cooperation for the successful implementation of a total reward system can definitely be considered as a mandatory prerequisite (Longo, 2011). This consequently entails that if LMs do not consider the new total reward system valuable and adequate they could at best pay lip service to its implementation and at worst completely ignore it. Needless to say, employers have to do whatever they can to avoid that such a circumstance could ever occur. That is why organizations’ managers have to be involved, since the very beginning, in the process, because this is the most effective and practical way for them feeling that the new total reward system is something actually fruit of their work and activities.

Inasmuch as LMs involvement is of pivotal importance for the successful introduction of a new total reward system, it is crucially important their broad and deep knowledge of the system, of its mechanic and of the way it actually needs to be operated. LMs cannot really improvise and getting along in such a delicate circumstance without the appropriate knowledge and skills, so that employers have to pay extra care to LMs training in order to avoid jeopardising the attainment of the intended results (Longo, 2011). Clearly, training sessions have to be delivered before the introductory phase of the system, managers need to be ready to answer questions and support the programme before it is formally introduced to the workforce.

Formal introduction and execution of total reward systems
Once the system has been fully designed, the project team has decided the components which are fit for the organization system and full support from the organization management has been secured, there is still an activity of paramount importance which needs to be carried out, namely the launch of a communication campaign aiming to explain to the entire workforce the reasons for the introduction of the new programme.

More in particular, the mechanic of the programme and how employees will benefit from it need to clearly and thoroughly be communicated having recourse to all of the possible communications means which are usually used within the business, such as posters, brochures, intranet and a specific website where individuals can also post questions to which answers need to be provided as quickly as possible.

Another relevant matter which employers should duly consider before the introduction of a total reward system, especially during grim economic periods, is determining how the system will be funded. It is widely recognized that overheads are the most relevant costs organizations actually are used to face and the impact of a total reward system introduction could be quite remarkable.

Whereas some considerable savings can be achieved for the introduction of flexible benefits by means of a wise and savvy application of fiscal laws, in order to fund an overall system employers definitely need to go further afield.
Heneman (2007) suggests amongst the most effective ways of funding a total reward system overtime, seniority and merit pay reduction, and a progressive and slow headcount reduction as well. Whatever the means identified, what really matters is not let feel employees that the introduction of the new scheme basically represents a rip-off, i.e. that you are giving on the one hand something that you have taken from the other hand, basically offering nothing more than previously offered.

Another important activity, which needs to be carried out before officially launching the communication campaign, relates to the unions involvement. As properly suggested by Heneman (2007), employers should try to involve trade unions as early as possible in the total reward programme development. This can clearly enable employers to have their full support, in that having unions representative contributed to the new scheme they will feel committed to it.
Multinationals and big corporations having branches in several countries across the world should also careful take into consideration cultural diversity. Introducing exactly the same programme in different countries would entail the conviction that the one-size-fit-all approach could work, whereas obviously it does not. So that, in order to avoid jeopardising the successful launch of the system, firms deciding to design and develop programmes in their headquarters should afterwards adapt the pilot scheme to the different countries accordingly (Heneman, 2007).

Total reward scheme execution
The system is now ready to be introduced and executed within the organization. As suggested by Armstrong (2010), according to the circumstances, rather than deciding to suddenly change the overall reward system, employers could decide to progressively implement the new scheme. In terms of change management, it could be said that instead of a transformational, big bang approach to total reward an incremental approach could sometimes be considered preferable. The final aim is to gain employees trust by means of quick-win, win-win initiatives. Gradual developments can concern both financial and non-financial initiatives, for instance the introduction of flexible benefits if these were not previously offered and the introduction or improvement of work-life balance policies (Armstrong, 2010).
What matters is that a blended approach to this creeping up approach is eventually used, or, to put it another way, that a combination of financial and non-financial reward initiatives are introduced in order to make clear the underpinning idea and concept at the basis of total reward.

Once a total reward system has been introduced its regular review is clearly necessary. Individuals wants are different and subject to changes, additionally many studies confirm that individuals needs are also due to change with the passing of the time and new generations are likely to prefer different kinds of reward vis-à-vis older generations.

Considering that the system has been developed and introduced on the basis of a gap-analysis aiming to assess the current situation against the desired one, the review phase has to be carried out considering where the total reward system is vis-à-vis where it should ideally actually be. This process can enable employers to change total reward systems without particular backlashes when the need to adapt to the new eventually emerging circumstances should arise.

Missing to regularly assessing and reviewing the system can lead to the likely outcome of making it outdated and jeopardize the overall system functioning, ultimately producing irreversible backlashes rather than producing the positive objectives that the system basically aims and promises employers to attain.

Longo, R., (2012), How to develop, design and execute a total reward system, HR Professionals, Milan [online].

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