Lessons Learned About Reward Program Effectiveness

Lessons Learned About Reward Program Effectiveness

2© 2009 Hay Group. All Rights Reserved

Why study the Most Admired Companies?

Most Admired Companies outperform industry peers and the market as a whole

Total shareholder returns for the top fifty World’s Most Admired Companies all stars greatly exceed those of the S&P 500

Most Admired

17%17%

S&P 500

6%6%

15%15% 9%9%

17%17% 13%13%

10%10% 6%6%

One YearOne Year

Three YearThree Year

Five YearFive Year

Ten YearTen Year


MAC reward program differentiators

Reward Strategyand Design

Reward ProgramImplementation

Evaluation of Effectiveness

Tracy KofskiGeneral Mills

David NessMedtronic

Marc WallaceHay Group

John MulliganTarget Corp.

Adam Kahle Hay Group

Total Rewards


Total rewards

% Agree0 10 20 30 40 50 60 70 80 90

Employees understand & appreciate that rewards consist of tangibles and

intangibles. 61

74

Peer GroupMost Admired

Total Rewards

Global/local nature of reward programs


55

70

74

83

81

93

0 10 20 30 40 50 60 70 80 90 100

Reward strategy

Global, centralized approaches are key…

We have a clearly defined global approach to performance management.

We have a clearly defined global compensation strategy.


% Agree

Our compensation structures are centralized (emphasizing consistency in

market comparators, positioning strategy and incentive eligibility).

Global/local nature of reward programs

Pay Levels


Pay differentiation

-8

-6

-4

-2

0

2

4

6

Average = 5% less for Most Admired Companies

Junior jobs Senior jobs

% p

ay d

iffer

ence

: MA

Cs

vs. p

eers

Most Admired Companies generally pay less…


Pay differentiation

Greater use of performance –related bonuses

0

5

10

15

20

25Most Admired Average

Junior jobs Senior jobs

Ann

ual B

onus

as

a %

of T

otal

Cas

h

… but use bonuses more


Pay differentiation

Difference in pay increases for TOP performers vs. average

32%

“We pay 1.5times

or less.”

68%

“We pay 2 times

or more.”

But Most Admireds find a way (Companies w/ a 2X differential)

53%

32%

America’s Most Admired

Other Respondents

“The A’s (the top 20%) should be getting raises that are two-to-three times the size given to the B’s. B’s should get solid increases recognizing their contributions every year. C’s (the bottom 10%) must get nothing.”

- Jack Welch, former Chairman & CEO, GE

All Companies

Source: Hay Group, Loyola University Chicago, WorldatWork (2002)

Pay Levels

Reward communications and implementation


Reward communications


We regularly provide employees with total reward statements.

64

82

0 10 20 30 40 50 60 70 80 90

We regularly reinforce our reward philosophy in communications with

employees.

5379

0 10 20 30 40 50 60 70 80 90 100



The role of line managers

Most organizations get poor marks in utilizing line managers in effectively implementing their reward programs.

34%

34%

37%

48%

35%

36%

43%

34%

34%

38%

20%

27%

33%

25%

41%

45%

27%

33%

60% 40% 20% 0% 20% 40% 60%

Managing overall pay for performance relationshipCommunicating about what it takes to advance

Utilizing non-financial recognition programs

Implementing total rewards programsCommunicating total rewards programs

Communicating rationale for variable pay program

Coaching employees and providing feedback

Communicating rationale for salary increases

Communicating about benefits programs

HR Line Manager

% Effective/Very Effective

34%

34%

37%

48%

35%

36%

43%

34%

34%

38%

20%

27%

33%

25%

41%

45%

27%

33%

60% 40% 20% 0% 20% 40% 60%

Source: Line Managers Impact on Reward Effectiveness (Hay Group: 2007)

Reward communications and implementation

Measuring effectiveness of reward programs


Most organizations don’t calculate ROI

Most AdmiredAll

36%62%Not applicable; we do not attempt to assess ROI

18%9%We do this formally by assessing employee and management attitudinal data

21%9%We do this formally by comparing our investment in human capital to financial and productivity measures

21%20%We do this informally through discussions with management and employees

How does your organization monitor the ROI of its reward programs?

Source: Hay Group, Loyola University Chicago “Fiscal Management of Compensation Programs,” WorldatWork Journal, (2005).


Reward program evaluation

0%

20%

40%

60%

80%

100%

Financial results

Employee productivity

Customer satisfaction

Product quality

Ability to attract talent

Ability to retain talent

Employee engagement

Employee feedback

Importance of criteria in determining reward program effectiveness

Peer Group

Most Admired

% Very Important/ Important

Measuring effectiveness of reward programs

Economic Uncertainty


In response to the recent economic downturn, Hay Group conducted a global study to determine howorganizations are changing their reward programs, work rules, and staffing levels.We will highlight key findings.


Participating countries:2589 respondents in 91 countries

AlbaniaAlgeriaAngolaArgentinaAustraliaAustriaAzerbaijanBahrainBangladeshBelgiumBelizeBoliviaBosniaBotswanaBrazilBulgariaBurundiCameroon

CanadaChileChinaColombiaCongoCosta RicaCroatiaCzech RepublicEgyptFinlandFranceGermanyGreeceHondurasHong KongHungaryIcelandIndia

IndonesiaIranIraqIrelandIsraelItalyJapanJordanKenyaKuwaitLatviaLebanonLithuaniaLuxembourgMalaysiaMauritiusMexicoNepal

NetherlandsNew ZealandNicaraguaNigeriaNorwayOmanPakistanPeruPhilippinesPolandPortugalQatarRomaniaRussiaSaudi ArabiaSingaporeSlovakiaSomalia

South AfricaSouth KoreaSpainSri LankaSwedenSwitzerlandTaiwanThailandTrinidad and TobagoTunisiaTurkeyUgandaUkraineUnited Arab EmiratesUnited KingdomUnited StatesUzbekistanVietnamZimbabwe


62%

31%

7%Business results are close to targeted levels

Business results are significantly worse than targeted levels

Business results are significantly better than targeted levels

55%39%

6%Business results are close to targeted levels

Business results are significantly worse than targeted levels

Business results are significantly better than targeted levels

Business performance

How is the current economic uncertainty affecting your overall business performance in this financial year?

Global US


Cost-of-living / inflation was not a top theme in the US, but is a majorconcern globally. In the US, the loss of value in 401(k) and other

retirement plans was a major concern.

Employees’ biggest concerns: top themes


Organizations’ biggest concerns: top themes


Often the automatic response to a downturn is to cut HR budgets. Businesses that avoid making rash decisions and manage their talent are the ones that come out on top.


Shorter term

Longer term

Top five areas of focus

1. Communicating clearly and frequently

2. Pruning the rose bush

3. Retaining your top talent

4. Taking a broader reward perspective

5. Ensuring a solid reward foundation

Economic Uncertainty

Thank You!

www.haygroup.com

Lessons Learned About Reward Program Effectiveness

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