Hay Group Book Highlights Line Managers as Critical to Success of Compensation Programs

Business Wire, Nov 7, 2006

Manager's Guide to Rewards Cites Research Showing Non-Monetary Rewards Are Key for Inspiring, Retaining, and Developing Top Talent

PHILADELPHIA -- Years of research have focused on designing successful reward programs that keep employees productive and engaged, yet one critical audience - the line manager - has often been overlooked, according to The Manager's Guide to Rewards, a book co-authored by Hay Group consultants and Vice Presidents Doug Jensen, Tom McMullen and Mel Stark.

"The current reward system is broken in many organizations - companies need to focus more on the 'how' than the 'what,'" said Tom McMullen. "The most well-designed employee rewards programs fall flat without proper execution. Line managers, who ultimately serve as the face of an organization to its many employees, are typically the ones who can make or break their success."

The book demonstrates the influence line managers have on implementing the entire range of employee rewards, including the substantial impact of non-monetary rewards.

Rewards: Thinking Outside of the Box

While many organizations focus heavily on monetary rewards for motivating employees, the book points to the significant impact of intangible incentives such as job design, career development and the work climate of the organization. It identifies the most successful managers as those who recognize and use a variety of tools to reward employees - from linking specific performance measures with larger goals for the organization, to recognizing and rewarding valuable employee contributions, to clearly defining job roles. In fact, Hay Group research has shown up to 30% of variance in business results can be explained by differences in the work climate created by the manager.

"Managers who are able to create an all-around engaging work climate can have an invaluable effect on an employee's commitment to a company and the productivity a group of employees can generate," said Mel Stark. "Human resource executives and line managers must work hand-in-hand to create these positive environments. HR executives can help managers understand the role they play in the rewards system, as well as all of the tools and resources at their disposal. In turn, managers can provide insightful feedback on the possible benefits and risks of different rewards programs."

What's the Bottom Line?

Despite the fact that compensation is one of the largest controllable expenditures an employer makes - up to 70% of total costs - less than 20% of organizations report using a formal Return on Investment (ROI) analysis for making decisions, according to the book. While there may be evaluations on specific pieces of the reward system, such as benefits or training costs, there is often no one accountable for assessing the total investment in its human capital.

"Most companies view compensation as a 'cost' to minimize on their balance sheet instead of a long-term 'investment' that needs to be optimized," said Doug Jensen. "As the competition for talent intensifies, it will become increasingly important for companies to accept the 'investment' viewpoint and look beyond traditional compensation vehicles to attract and retain employees."

Organizations also need to more formally and consistently examine performance metrics in assessing the return on its compensation investment. A balance of quantitative and qualitative bottom line performance measures, productivity measures, behavioral and perception measures are among the metrics that can help companies evaluate the effectiveness of its compensation ROI.

Non-Monetary Rewards Pack a Powerful Punch

The Manager's Guide to Rewards stresses the concept of "total rewards" when it comes to developing a motivated and engaged workforce. Intangible rewards like flexible work hours, career growth, recognition, leadership and job enablement have become more important as the workforce has diversified and companies have renewed their focus on retention and engagement.

"Competitive pay and benefits gets you in the game but it's no guarantee you'll win the race. It's the intangibles that are hardest things for competitors to imitate," said McMullen. "One of the most surprising things we learned while developing the book was the prevalence and density with which employees cited these non-monetary issues as being most valuable to them. This is also a key area where managers can make a significant and positive impact."

There are numerous opportunities for managers to foster a better work environment through non-monetary rewards, such as:

* Be clear about and acknowledge to your workers the cultural attributes the company seeks to encourage, support and reward

* Recognize employees for some of the everyday things that often go unnoticed

* Provide feedback and coaching on how individuals can do things better

* Look for opportunities for staff development

"Career development is one aspect of the reward system that both employees and employers typically breeze over. Designing and implementing a finely-tuned career development program can be a time-consuming and laborious investment for companies, but this type of dedication and long term commitment to people lends itself to rewarding experiences for the workforce and payback for the company. Employees are more likely to stay in organizations that say they care about their people's development and really do something about it," said Stark.