WHEN SHOULD REWARDS CHANGE?

How do you know if your company''s rewards should change? We think you should use the same indicators to develop any business case for change. Do you have a business opportunity that rewards can help take advantage of? If yes, change is probably justified.

Here are six common situations where changing rewards needs to be considered:

1. The company is changing and new messages need to get to the workforce.

2. The best people are leaving.

3. The company is unable to attract the talent it needs.

4. Work is changing and new strategies need to be planned.

5. Performance is poor.

6. The company is not getting good value for cost, because it''s paying for the wrong things.

Other reasons undoubtedly exist, but these are among the most telling and important.

WHY THE NEED FOR CHANGING REWARDS IS OFTEN IGNORED

These indicators for changing rewards are often ignored. Pay is an emotive subject and many managers prefer to avoid it. In change situations many managers choose to do something easier, such as implement a new training-and-development program. Indeed, even most change gurus either ignore pay as an element of change or address it only in passing.

Another excuse for not changing rewards is that managers fail to recognize the importance of aligning rewards across the entire workforce. One executive said, "We have worked with nearly every executive-reward adviser to help us align executive pay with the business. As for the rest of the workforce, as long as they''re competitively paid, it''s OK." Our reply: "Executives are important but are only a minor cost in most companies--the major opportunity to do something positive with rewards is with the rest of the workforce."

EXAMPLES OF CHANGE

Company Changing?

Many reward solutions come from the 1950s and are retained because "that''s the way things are done here." Companies have new products and services, new priorities for customer service and attention, and a host of other initiatives in the works. Because pay and rewards are attention-getters, it''s essential that they communicate these new directions. Changing the business emphasis while communicating "business as usual" through rewards is inconsistent--yet all too prevalent. Unless rewards change, the workforce may think, "This too will pass."

When Lou Gerstner ran IBM he saw a need to communicate the message of a high-performance culture and "we are all in it together" to its global workforce. To do this, the corporation revised how total rewards are delivered--from basing pay and rewards on tenure and entitlement to emphasizing business results and valued-added capabilities.

Before Gerstner, rewards at IBM changed little. Was he the first to see the need to change? Probably not, but he was the first to have the courage to make changes. Now, everyone at IBM participates in variable pay tied to business results. When we were in Brazil, an IBM manager told us: "Putting everyone throughout IBM on variable pay communicates IBM business goals throughout the world."

Best People Leaving?

Many, if not most businesses in the US are having trouble retaining talent. Yet few businesses are doing anything innovative with rewards to address this problem. Now that the United States is near full employment, the workforce has much more of a choice--a fact that is obvious from the opportunities on the Internet and in the press. Employees are leaving, and companies can''t stick to what worked in the past. Speed counts, particularly if those leaving are the best performers or the ones critical to the core business.

Many top-drawer people are walking out the door because they want to work for only superior companies. When Steve Jobs departed and John Sculley changed the work environment, Apple Computer lost its spark and, subsequently, people. With the return of Jobs, it''s getting much of it back because of the rewarding workplace. What Jobs makes of a workplace is more than just pay. A vision, leadership, and a compelling future are important to show people that they fit and to engage them.

Matching what others do isn''t the solution. No evidence suggests that, by itself, high pay is the answer. The whole work experience is critical and applies to the very best people. It often makes little sense to continue pumping money into antiquated solutions just to keep people. Being unique to get advantage with the existing workforce will enable you to keep the best people you have and help attract the new ones you need.

Can''t Fill Jobs?

Along with the difficulty of retaining talent comes the problem of attracting it. Many are pulling out the stops to get the people they need; some are more successful than others. Some pay hiring bonuses and offer stock options to draw people into the fold. The wise ones like Sun Microsystems, Hewlett-Packard, Microsoft, and Intel are not in the "commodity pay" game. Rather, they emphasize total rewards. They''re not "paying to buy" but rewarding to keep. This involves making the entire work experience positive--providing a compelling future that makes the company attractive, investing in workforce growth and development, providing a positive workplace in terms of colleagues and leadership, and, of course, aligning total pay with business goals.

An executive once said to us, "Our reward strategy is to recruit, select, and retain the best people in our business--but we can''t fill our jobs." "Not surprising," we said, after reviewing their reward strategy. There was nothing special, let alone unique, about it..

Amazon.com''s total rewards involve people by providing inspiring and challenging work, by creating the compelling future of e-retail to share with the workforce, and by emphasizing leading-edge technology and business processes. In addition, the pay solution is based on economic stakeholdership in which a major part of total pay comes from options. To Amazon.com, this means less in terms of base pay and more in terms of stock options. This approach attracts people willing to bet on the future of the enterprise and help make it a reality.

Profile the type of people you want, find out what makes a workplace attractive to these people, and design total rewards to match. The other side of the "keep who you''ve got" strategy is a "get who you need" one.

Is Work Changing?

Many companies are trying to move to teams while leaving reward focused on the individual. There is not much chance of team success if only individual performance is a priority. Whether companies call it process improvement, business simplification, or whatever, they''re changing how work is done. People are being asked to work "out of the box"--to be more flexible and adaptable. They''re moving from traditional jobs to more agile roles, doing what is needed and not just what is covered in an old, stagnant job description.

Solectron, a two-time Malcolm Baldrige National Quality Award winner, says two key reasons for their success are the adaptability of their entire workforce to change to match customer needs and the fact that their people think in terms of running a business and not just having a job. When a prospective customer asked a Solectron manufacturing worker why she was picking up parts off the floor, she explained the six costs of scrap. Not only had this worker changed to match new ways in which work was viewed and processes were performed--her answer resulted in a new customer for Solectron.

To sustain advantage, Solectron formed teams throughout its manufacturing process. This changed how people worked. It required people to collaborate and have a "shared fate" rather than a "me first and then you" view of the work process. Because individual rewards eroded the emphasis on team performance, we helped Solectron change pay to reward team performance. The team reward solution matched the change in how work was accomplished. Rewards continue to evolve at Solectron, matching how the enterprise keeps ahead.

Is Performance Lagging?

Is your business performance lagging? Although there are many ways to improve poor performance, the approach and how you go about it are important. Working with, not against, the workforce can engage their support.

At one of our clients, Owens Coming, the message to the direct labor force was that since their costs were higher than the competition''s, they needed to be more efficient. The business case was to improve cost performance--something the workforce can influence. A major communications undertaking articulated the business case and what people needed to do. We helped the company make the transition to a reward solution that encourages people to acquire and apply new skills and to emphasize new measures of success. The previous reward solution missed the boat, emphasizing only narrow jobs and close-in performance measures that did not extend the line of sight of the workforce to key measures of success.

Are You Getting Value From Rewards?

"Can pay and rewards be business-aligned in a union environment?" Yes, but the trust-building process to make this a reality must start now. Years of annual increases to base pay and liberalization of benefits may have caused people to be paid more than their skills are worth. This isn''t the fault of the workforce--both companies and unions have been partners in creating this problem.

In GM workforce wages are far in excess of the market value of the people''s skills outside of the auto industry. GM and the UAW stayed with the high fixed-labor-cost approach rather look for an innovative approach. The solution should have been to increase skills as wage costs increased. Incentives based on work effectiveness would have helped. Now, the direct labor force is overpaid compared to what GM needs to compete effectively. Just talk to Saturn and you''ll see what''s possible in a unionized workplace.

It''s imperative that companies get value from the overall cost of rewards. Giving people the signal that they''re owed more money every year as an entitlement isn''t a humane total-reward strategy. It gives a message of plenty where this may not exist.

Are You Missing Opportunities?

Time and again, we see different reward strategies for executives than for the rest of the workforce--a major missed opportunity for a CEO to make a difference. Too much attention is directed to CEO pay, how much it is and how it is tied to performance. People seldom look at how the major reward cost--that of the general workforce--is directed.

Alignment of executive rewards with the business is important--but it''s not enough. Legendary leaders like Herb Kelleher and Jack Welch agree. They believe the rewards of everyone must be aligned with the business, and they lead by example. The two men have different approaches to leadership and reward alignment, but look at the results. To them, rewards are more than "just a human resource project."