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When to Change Your Total Reward Strategy

25 September, 2020

This is the fourth and final (?) installment in my series on Total Reward Strategy. Good thing I procrastinated long enough to gain my best tips on when to change your strategy. You see, this damn pandemic is teaching us that reward strategy should be reevaluated when there is a significant change in external factors, internal factors, or both.

External Factors

As Mike Tyson says, “everyone has a plan until you get punched in the face.” (Tyson is a boxer, not a C&B guy, although I once almost got punched in the face when localising an expat whose 12-year-old contract said nothing about localisation.) COVID-19 punched us all in the face. We will fondly remember life pre-COVID, when we didn’t wear masks and we didn’t feel a need for a reward strategy:

We could drift along saying we pay market median without actually calculating market ratios or validating our midpoints; promising to keep people whole with inflation at town halls, then letting managers base everything on seniority after attending a briefing on pay for performance. Pre-COVID our salary ranges were more like “a guideline” and we gave highest paid “loyal” people raises year after year for doing exactly the same thing at the exact same performance level.

In fact, a surprising number of employers have no C&B strategy at all. So they are doomed to follow history, follow the herd or follow hearsay. (Relax! No one ever got in trouble for doing what everyone else does.)

So back to the punch in the face. COVID.

The global pandemic affected every organisation. It affected us personally and financially and culturally. So we started thinking strategically about people and rewards:

  • We stuck to our values and principles and delivered salary increases and 2019 bonuses in Q1
  • Or we froze salaries and even reduced management salaries to save jobs
  • Or good cash management allowed us to pay bonuses, give raises and save jobs as well, with the expectation that your industry—essential consumer goods, ecommerce or mobile computing—would thrive
  • We made working from home a standard option and converted office savings into a tech allowance for WFH employees
  • We reduced hours, not headcount, and reduced pay accordingly, adopting part-time work or job-sharing as a permanent option for staff
  • We eliminated recognition and team activity budgets and repurposed the money for COVID-related benefits, wellness support, EAPs and outplacement support
  • We reduced management salaries but replaced it with company share grants
  • We protected jobs by protecting your top line revenue by meeting with your salesforce, adjusting targets and performance thresholds to keep their “heads in the game”
  • We adopted OKRs in place of KPIs to be more agile and focus on the things that matter right now, not what mattered in Q42019

Internal Factors

Internal factors affecting rewards include culture, leadership, manager competence and reward philosophy. These will determine the policies, structures, frameworks, methodologies, technologies and the actual mix of rewards, when responding to external factors.

A paternalistic philosophy will protect employees from all forms of hardship, while a shared responsibility philosophy will measure what is intended against affordability. A decentralised culture will result in local resistance to a practice such as work-from-home in one location and strong adoption in another, while a centralised culture will be more consistent, like it or not.

When leadership changes, it is possible to see values, culture and rewards philosophy change also. It all flows from the top if there is strong leadership. Under weak leadership, anything goes and you get multiple subcultures under one roof.

Now I know when to develop a total reward strategy: you don’t. You make business decisions on your pay and benefits, and leadership sets the tone and ethos that will guide the organization’s response. This is what becomes your reward strategy. HR helps articulate this ethos and philosophy. The organisation then makes reward decisions, balancing money and value; optimising people, jobs, operational capacity and profit; rebalancing long term versus short term, variable cost versus fixed, team versus individual, retention versus attraction, make versus buy talent strategy, repurposing budgets from less essential areas to more essential.

In trying times, Maslow suddenly matters because physiological and safety/security needs are unmet or under threat, and they are normally met through income, job security and benefits. This too is total rewards strategy, making choices when something has to give. And it happens when it needs to happen. Let’s learn to recognise the onset of external changes that will demand a strategic decision, and let’s learn how to “read” the tone and ethos and beliefs which will shape the decisions that affect people, their families, jobs, customers and owners. Articulate the why (business reality), the considerations and the resulting reward decisions and together it constitutes a reward strategy for the moment. This strategy will remain in place until new business changes–internal or external–trigger new decisions on rewards.

This too is total rewards strategy, making choices when something has to give. And it happens when it needs to happen.

Reward strategy is important. It really affects thousands of lives. I suppose I have been involved in reward program decisions that have affected millions.. hopefully for the better!

We are talking about the biggest cost in most organisations: people. Let us strive to excel in total reward strategy, to get it right, then execute it well. And if we do it right, people won’t think about it, and will then be free to focus their energies on serving others.

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