Book Title: UMGC. (n.d.). Module 3: Core Elements of Non-monetary Rewards and Work Experience

Link: https://learn.umgc.edu/d2l/le/content/715326/viewContent/29088054/View

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Commentary

Module 4: Designing and Implementing a

Total Rewards Program

Topics

Topic 1: Core Steps of Designing a Total Rewards Philosophy

Topic 2: Segmentation of the Workforce

Topic 3: Implementing the Total Rewards Philosophy

Topic 4: Communicating/Marketing Total Rewards

Topic 5: Conclusions

Topic 1: Core Steps of Designing a Total Rewards Philosophy

Nine core steps in the strategic marketing approach of designing a total rewards program and

implementing it are summarized in table 4.1 below. In this first topic, the focus is on steps 1-5

(the designing steps) and each is described in sequence. The remaining steps (6-9) are addressed

in topic 3. The steps are presented in a sequential manner, but the organization may perform

some of the steps concurrently. The steps may also vary if the organization is a start-up

organization, one that is long established, or if a total rewards strategy is already in place.

Table 4.1 Core Steps in Designing and Implementing Total Rewards

Designing:

Step 1: Understand the organization

Step 2: Define the requisite KSAs required for success

Step 3: Identify current and potential employees' "drivers"

Step 4: Design a total rewards philosophy statement

Step 5: Assess financial costs and plans with key leadership

Implementing:

Step 6: Pilot the total rewards assumptions

Step 7: Develop timeline, obtain vendors, assign duties

Step 8: Implement plan

Step 9: Communicate and market

Step 1: Understand the Organization

Providing rewards for the purpose of attracting, retaining, and motivating employees with the

requisite KSAs in order to enable the organization's success is the ultimate goal of the total

rewards approach. Therefore, an understanding of the organization's business objectives,

mission, vision, values, and business model is essential in the process of designing and

implementing a total rewards program. Achieving this understanding begins with how the

business creates marketable products, services, or expertise, and markets, sells, and delivers

them, along with a review of the organization's mission, vision, values, and culture (Kaplan,

2005). Also important is being familiar with the business model, revenue generation strategy, the

business life cycle, business design, the current brand impact, and geographic requirements.

Organizations achieve their success in various ways; some take a centralized approach while

others take a decentralized one. Some organizations have socially conscious values they hold

important, while others do not. Some organizations are in the infancy stage of their growth,

others are stagnant, and still others are experiencing huge growth. Many organizations are

structured as not-for-profit, some are for-profit, some are publicly traded, and others are privately

held; and then there are government agencies and the military. There are tremendous differences

among these organizations, and their differences and uniqueness must be examined.

Some of the questions helpful in understanding the organization and leading to an effective

design of the total rewards strategy are listed in table 4.2 below. Although more questions may

need to be asked to reach a good understanding of the organization, these are a good start:

Table 4.2 Questions for Understanding the Organization

1. What are the vision, mission, and objectives of the organization? Will any of them

change in the next three years?

2. What are the values of the organization? What social values have been demonstrated

outside the organization? On what does the organization want to have an impact? Are

there written values and, if so, are they demonstrated?

3. What is the culture of the organization?

4. How does the organization generate revenues today? Will that change over the next three

years?

5. What business cycle is the organization in (stagnant, growth, decline)? Are any mergers,

acquisitions, downsizing, or global expansion planned?

6. What business design supports the organization's ability to make money? (For example,

is the design a cost-savings or a market-leader approach?)

7. Does the organization have an existing employment brand?

8. If so, what is the value of the organization's employment brand today in attracting and

retaining employees?

9. Where does the organization want to be geographically?

10. Does the organization have a clear marketing brand and, if so, what is it and how is it

viewed by the public?

The questions presented in table 4.2 are best asked in person and directly to senior management.

Asking the questions in person will allow for follow-up questions and clarification. In addition,

existing documents describing the items mentioned, such as the vision, mission, business

objectives, and values, are likely available and should be gathered. The purpose of this step is to

understand as much about the organization as possible because the success of the organization is

the end result being sought.

Step 2: Define the Essential KSAs Required for Success

This step makes explicit what knowledge, skills, and abilities (KSAs) are required to accomplish

the business objectives, not only for today but also in the future. It aligns the total rewards

strategy with the business strategy. The specific KSAs (and the people who possess them) are the

target for recruitment, retention, and motivation. The organization may already have the KSAs

identified by level of employee (i.e. leadership, management, general employee population) and

by business function (i.e. marketing, finance, accounting, operations, human resources, customer

service, research and development). If so, they will need to be validated, keeping the current and

future business objectives and business model in mind. If the KSAs are not already identified,

the steps of job analysis, job description, job specification, and job evaluation (discussed in

module 2) are used to identify them. The KSAs are grouped by KSA set, which is a type of

segmentation by KSAs needed by job function (such as sales, accounting, service, research) and

by level within the organization. The segmentation by KSA set is important because employees

or potential employees of each KSA set may have different drivers for wanting to work for and

remain with the organization (Kaplan, 2005). Of course, other segmentation may occur as well.

In table 4.3, questions about the KSAs are posed that need to be answered.

Table 4.3 Questions About Knowledge, Skills, and Abilities (KSAs)

1. What KSAs are required by level and by function to generate revenues (at each stage)?

This question should be asked of major KSA sets within the organization by level and

function.

2. Will the KSAs needed by level and function change in the near future? How about in

three years?

3. Are there gaps in the existing KSAs that need to be addressed?

4. What has been the turnover by KSA level and function?

5. For each KSA set (by level and function), where are they located geographically? Are

there any cultural differences by KSA set?

The KSA questions can be answered through personal or electronic interviews or surveys. After

the study is done it needs to be verified by the key leadership of each function and each level of

the organization.

Step 3: Identify Current and Potential Employees' "Drivers"

The research in this step leads to the identification of the "drivers," which are the composite

wants, needs, and preferences of current and potential employees. As in consumer product

marketing, in which the product is designed based on the consumer's drivers, the reward program

will be designed based on the employee's drivers. This step requires internal and external

research and an evaluation of the two. Internally, what is working (or not) in attracting, retaining,

and motivating employees is explored. Externally, what is attractive to the larger population is

studied, including other organizations, geographic locations in which the organization may be

expanding, and demographic groups that may not be in the workforce currently but will be in the

near future.

A. Internal Research

It is important to include in the research the current demographic and psychographic composition

of the current population of employees and potential employees, again by level and job function.

Table 4.4 provides some of the questions to be answered internal to the organization.

Table 4.4 Questions for Internal Research

1. What challenges for recruitment are foreseen in the labor market?

2. What challenges of retention are foreseen within the organization?

3. What is the composition demographically of the current employees? What is the current

geographic disbursement of employees?

4. What is the retention rate overall, and what is the rate by specific KSA set (by level and

function), by department, by division, by geographic location, by demographic?

5. What is the time to hire a specific KSA set (by level and function), by department, by

division, by geographic location, by demographic?

6. What is the level of satisfaction, in general, of the employees? What is the level of

satisfaction of the employees with each of their rewards?

7. If given a list of rewards (monetary, non-monetary, and work experience), what is the

most important to the current employees in order to retain and motivate them? There may

be items that are relatively inexpensive, or even cost neutral, that are important to

attraction, engagement, and retention. Having the employees rank their preference for

rewards is an effective way to gain this information, in addition to determining price

points if the employee is asked to pay for a benefit (insurance, for example).

8. Have current employees been tempted to leave in the past six months? If so, what caused

them to think about leaving? What would entice them to leave today?

The data may be gathered though a variety of means: telephone surveys, electronic surveys,

individual interviews, focus groups, or paper-and-pencil surveys. After the information is

gathered, the organization can use statistical modeling techniques that allow analysis of other

existing employee data to better understand employee preferences. This statistical modeling will

help to identify trends by the various categories (level, functional job groups, and demographics).

It will also point out inconsistencies in the answers. For example, what employees really care

about, as measured by things such as making a decision to leave the company, are sometimes

different than what they say they care about. The statistical modeling provides human resources

professionals with more robust information on which to design their total rewards program. If

statistical modeling is unavailable the team working on the total rewards program design can

read through all the data, synthesize the key findings, and validate it with focus groups of

employees at all levels of the organization.

B. Research External Data

Reliable normative data, such as Mercer's What's Working data on country- and region-specific

employee perceptions and attitudes about work, help to determine how the information you have

gathered internally compares to external data. Information may also be gained from the Bureau

of Labor Statistics; WorldatWork; through local, state, and national Society for Human Resource

Management Societies; and through partnering with other organizations to benchmark data and

practices. Ideally, the same information about reward preferences of potential employees and

what would cause them to leave their current jobs to work for another organization would be

obtained. This information can be gained through a variety of methods, such as published

reports, focus groups, written or electronic surveys, telephone interviews, etc. Some

organizations that conduct employee satisfaction surveys for large firms share a composite of the

results. Telephone interviews or focus groups allow the facilitator to ask probing or follow-up

questions easier than can be done in a written survey. Table 4.5 poses some of the questions that

need to be answered external to the organization.

Table 4.5 Questions External to the Organization

1. What are outside experts' reports about challenges for recruitment by job function and

geographic location?

2. What demographic trends are reported (increases, decreases by segments)?

3. What are psychographic trends for reward preferences by demographic segment?

4. What is the economic forecast domestically and globally?

5. What rewards are your competitors offering? What is the competitors' experience with

attracting, retaining, and motivating employees? The competitive market survey for rewards was described in an earlier module. Most organizations conduct this survey on an

annual basis, so it may already be current and available.

C. Compare Internal and External Research

After the internal and external data is gathered, the two sets are compared for consistencies and

inconsistencies. As with the other two steps, statistical modeling programs are available to help

synthesize the data and identify trends, consistencies, or inconsistencies. The computer programs

are also helpful in identifying existing challenges versus future ones, based on such things as

population changes, growth of the current organization, expansion into new markets,

introduction of new products and services, downturn in the economy, and changes in the

business model.

Table 4.6 Comparative Questions

1. Is the internal data consistent with the external data?

2. What, if anything, differs?

3. What issues are there with recruitment, retention, and motivation internal to the

organization that may be influenced by the external population?

4. Given the internal and external research, what challenges must we address through the

rewards programs in order for the organization to be successful?

Step 4: Design a Total Rewards Philosophy Statement

The design of the total rewards philosophy statement is what Kaplan (2005) calls a total rewards

road map. A total rewards philosophy is a statement of the total offerings of rewards, what some

refer to as the employment brand of the organization. This is a formulation of the total rewards

strategy from a big picture perspective, one that determines the general areas of focus by

segment of the population. The resulting portfolio of rewards is designed to align the rewards

strategy and the business strategy, to reach the goal of attracting, retaining, and motivating

employees with the requisite KSAs to achieve the business objectives.

Given what was learned through the internal and external research, the organization is now ready

to propose what rewards would attract, retain, and motivate the employees most needed for the

company to be successful. They will need to determine the mix of the monetary, non-monetary,

and work experience elements to attract, retain, and motivate respective employees by level and

by job function or other segments they have identified as important. These are decided with the

culture and values of the organization in mind. Other decisions will be made regarding items

such as what rewards will be designed for each segment, eligibility, how the rewards will be

earned and awarded (performance versus entitlement, individual versus team, fixed versus

flexible, offered to all, part time or full time), competitive positioning of compensation and

benefits, and if the rewards will be administered internally or externally (through outsourcing),

and the timing of the introduction of the rewards. The organization will also need to ensure that

pertinent laws and regulations affecting rewards and their administration are followed. First,

however, a draft total rewards philosophy statement is prepared so that the financial costs and

commitment can be measured. This step also begins the process of setting baseline

measurements for the key objectives of the rewards philosophy. Table 4.7 below, from the

Constellation Energy Web site (2008), shares excerpts of a sample total rewards philosophy

statement.

Table 4.7 Total Rewards Philosophy Statement: Constellation Energy

We believe our employees are the brightest stars in our constellation. That's why we invest

almost $1 billion annually in total rewards. At Constellation, total rewards is more than just pay.

It is the combination of pay, benefits, learning and development, and the work environment.

Together, these elements help make Constellation a great place to work. By integrating our total

rewards offering, Constellation delivers to employees a work experience that rewards their

contributions, supports their work and life needs, and provides the opportunity to learn and to

grow.

Pay: Our total compensation philosophy is to pay employees competitively and to vary rewards

based on individual and company performance.

Benefits and Time Off: We offer competitive benefits to our employees on a partnership basis,

including health care choices, a retirement plan, insurance coverage choices, and flexible

spending accounts.

Development: Professional advancement is important to everyone at Constellation. Employees

who continuously update their skills are more satisfied with their work and contribute more to

our collective success.

Work Environment and Community: A positive work environment, opportunities to give back

to the communities where we live and work, and the ability to balance work and life demands are

important to all of us.

Diversity: We're equally proud of the success of our programs that promote minorities and

women, and we continually reaffirm our commitment to equal employment opportunities.

Source: Constellation Total Rewards Statement. (2008). Retrieved May 4, 2008, from

http://www.constellation.com/portal/site/constellation/menuitem.37364b5370ec64875fb6061002

5166a0/

Step 5: Assess Financial Costs and Discuss Costs/Objectives/General Plan with Key

Leadership

Rewards can be a very large percentage of an organization's operating expenses. In fact, for

many it is the largest single expense. The step of assessing the financial implications puts the

expense into perspective and helps to gain concurrence and buy-in of the top leadership and

management of the organization. Although costly, offering the right rewards can maximize the

reward dollars spent. Offering the right rewards, while at the same time eliminating those ones

that employees may not value, ensures that time and money is not wasted. Key leadership must

be involved in the total rewards initiative throughout the process of designing and implementing

them, but at specific times the commitment must be checked. Prior to the final decisions being

made, as with the implementation of any large and important initiative, it is crucial that the

decisions are officially agreed upon. It is advisable to keep a written record of the decisions

made in case reference is needed later.

Topic 2: Segmentation of the Workforce

Before the final steps of implementing the total rewards plan are addressed, the use of

segmentation will be described to ensure an understanding, because it is a key activity and

perhaps one that is new to some human resource professionals. Segmentation is a term used in

marketing (as well as other disciplines) to refer to how the population divides according to

differentiating factors. In human resources, the segments can be psychographics (individual

personality preferences) such as career goals, desired schedules, and the need or preference for

certain benefits or work experience. Segmentation can also be made by demographics, level of

the organization, or job function. Segmentation by demographic group can include, for example,

men, women, age groups, ethnicity, marital status, or education.

Organizations use segmentation of the population to target their marketing efforts to groups of

consumers who may purchase products or services. The organization offers unique features in its

products or services that the targeted population prefers (for example, minivans for families,

pickup trucks for farmers, or alternative fuel vehicles for the cost conscious or environmentally

conservative). They also design their marketing efforts to reach the targeted audience by creating

advertisements that appeal to the particular segment they are targeting. To communicate the

unique features of the product or service, key messages and the medium for the communication

are chosen to reach and appeal to the targeted population. In the same way, an organization can

segment the internal and external workforce population, determine the unique features

(monetary, non-monetary, and work experience) desired by each, and design a total rewards

program customized for the individual segments of the organization or the individuals they are

seeking to hire.

There are many ways in which segmentation of the workforce can be achieved. Three examples

follow. The first is suggested by Mercer (2007), the second by Erickson and Gratton (2007) in a

Harvard Business Review article. The third is an example from a fast food company dealing with

a problem of very high turnover of employees. Keep in mind that how employee groups are

segmented will likely be unique to each organization. Specific job families, geographies, or skill

sets do not consistently map to specific workforce segments across organizations. Rather,

segments that appear in an organization will depend entirely on the role of different employee

groups of the organization, its geographic disbursement, its individual values, culture, or

business model. The way segments are identified may also vary outside the organization.

Table 4.8 Segmentation by Value Created

In a study by Mercer (2007), they found the following segments to be beneficial as they

attempted to segment the employees. They found the employees could be grouped into categories

that were either performance drivers, performance enablers, or legacy drivers.

Segmentation by Value Created

• Performance Drivers

• Performance Enablers

• Legacy Drivers

Performance drivers are employees who directly create value for the organization. This

segment could include employee groups or functions such as marketing in consumer products

companies, research scientists in pharmaceutical organizations, chefs in restaurants, or athletes in

the National Football League (NFL).

back to tab

The identification of the segments is only the first step in the research process. The individual

employees will also need to be interviewed or surveyed to determine if there are common

rewards in each segment the organization could offer in order to fulfill their needs and desires.

Table 4.9 Segmentation by Drivers for Engagement

Segmentation: by Drivers for Engagement. Another set of segments comes from authors

Erickson and Gratton (2007), who were able to see segments differentiated by roles the

employees wanted the organization to play for them. Their studies suggested that work played

six general roles, which correspond to six types of employees, and were based on psychographic

characteristics. Each worker segment, they found, cares deeply about several aspects of the

employee-employer relationship and little about the others.