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WHEN
SHOULD REWARDS CHANGE?<o:p></o:p>

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.<o:p></o:p>

Here are six common situations where
changing rewards needs to be considered:<o:p></o:p>

<![if !supportLists]>1.
<![endif]>The company is changing and new messages need to get to the
workforce.<o:p></o:p>

<![if !supportLists]>2.
<![endif]>The best people are leaving.<o:p></o:p>

<![if !supportLists]>3.
<![endif]>The company is unable to attract the talent it needs.<o:p></o:p>

<![if !supportLists]>4.
<![endif]>Work is changing and new strategies need to be planned.<o:p></o:p>

<![if !supportLists]>5.
<![endif]>Performance is poor.<o:p></o:p>

<![if !supportLists]>6.
<![endif]>The company is not getting good value for cost, because it''s
paying for the wrong things.<o:p></o:p>

Other reasons undoubtedly
exist, but these are among the most telling and important. <o:p></o:p>

WHY
THE NEED FOR CHANGING REWARDS IS OFTEN IGNORED<o:p></o:p>

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.<o:p></o:p>

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."<o:p></o:p>

EXAMPLES
OF CHANGE<o:p></o:p>

Company
Changing?<o:p></o:p>

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."<o:p></o:p>

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.<o:p></o:p>

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."<o:p></o:p>

Best
People Leaving?<o:p></o:p>

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.<o:p></o:p>

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.<o:p></o:p>

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. <o:p></o:p>

Can''t
Fill Jobs?<o:p></o:p>

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.<o:p></o:p>

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..<o:p></o:p>

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.<o:p></o:p>

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.<o:p></o:p>

Is
Work Changing?<o:p></o:p>

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. <o:p></o:p>

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.<o:p></o:p>

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.<o:p></o:p>

Is
Performance Lagging?<o:p></o:p>

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.<o:p></o:p>

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.<o:p></o:p>

Are
You Getting Value From Rewards?<o:p></o:p>

"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.<o:p></o:p>

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.<o:p></o:p>

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. <o:p></o:p>

Are
You Missing Opportunities?<o:p></o:p>

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.<o:p></o:p>

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." <o:p></o:p>

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