Perspectives - Employee Rewards & Talent

To actually execute on optimizing total rewards, cementing the links between your talent and rewards practices must be a top priority.

Companies are finally putting more effort behind the unification of their employee rewards programs and talent strategies. However, to break down long-standing barriers between your talent and rewards functions, getting business leaders to align on a shared vision is critical. Cross-functional collaboration to connect your big-picture business strategy with your company culture, specific hiring plans, and numerous engagement, assessment, and compensation programs can’t happen until people are on the same page. It’s hard, but the effort is worth it.

Finding the ROI on Rewards

Since recovering from the great recession of 2008 and 2009, most technology and life sciences companies have acquired a voracious appetite for hiring key talent to support growth. As we often say, the competition for talent is as fierce as ever. Yet, as we now move into 10-plus years of economic recovery, many of the same companies are beginning to question if the exorbitant sums of money spent to attract and retain top talent—in the form of new-hire grants, retention bonuses, higher ongoing equity awards and more— is sustainable. Most companies and HR professionals would now say no.

Thus, to survive and thrive in an era of sustained hyper-competitiveness, businesses need to spend more time thinking about how their employees value different rewards and which ones are actually worth investing in. Figure A illustrates the many factors to consider.

Figure A
Categories of Total Rewards

Each reward listed above will vary in importance to different employees. HR leaders need to survey employees to determine which rewards are most effective and where customization is necessary and feasible. It’s obviously not cost-effective to provide a completely customized suite of rewards, but it’s a worthwhile exercise to explore what is doable.

At a minimum, you need to develop some basic personas around different employee types and assess what is most valuable to each group. Importantly, these personas should not just be tied to generational stereotypes. Within any generation, you will always find people who are more or less risk-adverse, who are more or less adaptable, who are more or less interested in your benefits offerings, and so on. The prevalence of these traits may vary within generational groups, but should not always be applied with a broad brush.

As an example, we see a small but growing set of companies allowing employees who are eligible for long-term incentives to choose their desired equity vehicle mix. This typically includes selecting from various ratios of stock options and restricted stock as follows: 0%/100%, 25%/75%, 50%/50%, 75%/25% or 100%/0%. Companies that use this model tend to find that employee decisions on equity mix are tied to their appetite for risk, and while this often correlates to how close someone is to retirement, employees at all ages make a variety of choices. For more information on this trend, see our article Equity Choice Programs: Making Your Incentives More Meaningful to Employees.

How to Optimize Total Rewards

If done effectively, talent and rewards programs that work in concert with one another result in higher rates of retention and engagement. Take the example of using talent programs to identify high-potential employees and notify them of their importance to the organization, and then leveraging your differentiated pay programs so these individuals get a higher merit increase. Shifting the focus to total rewards optimization takes this a step further: it enables these programs to complement one another while ensuring HR is utilizing programs to maximize their return on investment.

To continue with our example above, if you identify high potentials and allocate more of your merit budget to them, but they see the merit increase as an entitlement that is given to everyone in the organization (even if they get 5% while others might get 2% or 3%) then you clearly aren’t optimizing your rewards spend. Taking the following steps will set you on the right path toward total rewards optimization:

Determine what types of programs best resonate with different employee groups.

Again, don’t group employees into generational stereotypes; understand what they may value differently based on where they are in their personal and professional life. It’s also important to recognize that what have become more established benefits in just the past few years, such as flexible working arrangements, may have been spearheaded by a younger generation but are often valued and utilized by older generations in the workplace.

Analyze the expected cost and return of increased customization.

Think about the total cost of your existing programs and whether there are any additional costs needed to customize your offerings further. Then look at how many people are expected to take advantage of, and perceive value from, increased customization. Do the benefits outweigh the costs? Also, try to adopt an experimental mindset. See if you can pilot new programs and then leverage actual usage data to determine if the perceived benefit resulted in desired behavioral changes (e.g., higher employee engagement and lower voluntary attrition, etc.). Figure B below illustrates how rewards programs can be financially modeled to determine their ROI.

Stay aligned to your corporate culture.

Corporate culture is the output of many top employee engagement drivers, such as recognition and career opportunities. The importance companies place on these programs— and how effectively they execute them— are all pieces of the puzzle that makes up your culture. Therefore, you need to be sure your talent and rewards programs embody your corporate mission. Culture should be tangible to employees and it is what ultimately distinguishes your organization from competitors.

Ensure you have feedback loops in place to measure your programs.

Using your people analytics data to see how effective certain rewards programs are is well worth the time and investment. For example, are engagement scores higher among employees that are eligible for equity or those who receive retention bonuses?

Address pay equity and pay transparency within your rewards and talent programs.

These market forces are causing a seismic shift in how employees and organizations interact. Ensure your company is setting the tone for fairness and transparency. It should be at the very core of your compensation philosophy and filter down into compensation, hiring and promotion decisions.

Figure B
Mapping the Cost of Rewards vs. the Value to the Organization

Competition for Hot Skills and a Focus on Talent Strategies

Creating effective rewards and talent programs is the end goal for any HR professional, but the competition for a limited labor pool of workers with specific skillsets is making this task more important and also more challenging. Demand for technical and medical acumen is exacerbated by non-traditional technology companies looking to hire greater numbers of workers with skills that can enable their digital strategy (e.g., retailers improving their e-commerce business, health and technology companies partnering to create fitness devices, automated banking and investment platforms, etc.).

Data from our 2018 Radford US Hot Skills and Competency Survey indicates companies appear ready and willing to pay top dollar, particularly via larger than normal equity grants, for job candidates with critical skills. In the technology sector, these hot skills include computational linguistics, augmented and virtual reality, machine learning, data sciences and cybersecurity. Meanwhile, life sciences companies are paying more for medical doctors and workers with expertise in therapeutics, oncology and network management. You can learn more about pay premiums in technology here and life sciences here.

Rest assured, there are additional strategies companies with constrained payroll budgets can use to attract candidates with hot skills. The answer is turning away from the hard math involved in rewards programs and more toward the art of effective talent programs. Some of these talent programs can include:

Training
managers to be
career mentors

Enabling internal mobility,
both cross functionally and
geographically

Encouraging lateral job
moves as alternatives to
career hierarchy

Empowering employees to
be advocates and recruiters
for the company

Meet Our Authors

Aria Glasgow
Associate Partner, Employee Rewards

Octavio F. Cardenas
Partner, Employee Rewards

Patricia Averett
Associate Partner, Talent

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Radford Perspectives

Employee Rewards & Talent