Adapting strategic rewards used in the high-tech sector to your firm’s needs.
Faced with a shortage of talent, increased competitive pressures and the need to motivate and retain employees, human resource managers are often evaluating new ways of compensating employees.
Simply raising the level of cash compensation is rarely a solution in developing strategic reward and compensation programs. Ultimately, to determine just what kinds of programs are feasible and how effective they are, HR managers look at direct competitors or the general marketplace to learn of leading-edge programs that are being implemented at other organizations regardless of industry sector.
Over the last 10 years the business world has been inundated with news of rewards being implemented by the high-technology sector. Given the intense competition and growth (and more recently, losses) that fueled this sector, high-tech companies have been leading the way with innovative and sometimes unusual strategic rewards in order to attract and retain the skills they need.
While turning to the marketplace for information may be sufficient for some purposes, most HR managers would like something more substantive upon which to base any recommendations for enhancing compensation or rewards. So what has the high-tech sector really done, and has it worked?
Recently, Watson Wyatt Worldwide conducted a survey of the strategic rewards offered by companies in Canada and the United States. In total, 80 Canadian firms were included from a broad range of industries. The rewards in the high-tech sector were compared to those offered by other types of organizations.
Research findings
While more than three-quarters of the high-tech respondents to the survey indicated having attraction problems, almost as many organizations in other industries were in the same quandary. Conversely, while 41 per cent of high-tech firms reported having problems retaining critical skill employees, an even larger proportion of companies (58 per cent) in other sectors report problems retaining these employees. (See Figure 1.) Could the use of rewards account for some of this difference?
There isn’t much to distinguish between high-tech and other organizations in the area of traditional rewards, such as overtime, group incentives, technical premiums and project incentives, although high-tech firms tend to be greater users of different types of monetary rewards. However, less traditional rewards, including sign-on bonuses, spot bonuses, and retention bonuses, are given by a substantially higher number of high-tech companies.
Stock options and stock grants, as one would expect, are also provided to employees by a higher percentage of high-tech organizations. (Figure 2 compares the use of monetary rewards between high-tech and other industries.)
In most instances, it appears that high-tech firms and other types of organizations use non-traditional non-cash rewards to a similar extent. One exception is the provision of a reduced work week, which is more commonly offered by non high-tech organizations. On the other hand, high-tech companies are more frequent users of opportunities for advancement, working at home, and job redesign.
Flexible rewards and recognition
One key finding of the study is the apparent shift in attitudes and beliefs about rewards in the high-tech sector. Long gone is the “one-size-fits-all” reward strategy.
Instead, high-tech organizations are moving toward a far more flexible approach to direct and variable pay, and to combinations of monetary and non-monetary forms of recognition.
The new paradigm emphasizes decentralized reward programs that give business units decision-making authority on how to reward employees. This allows for a variety of reward programs — targeted to different groups — to co-exist in the same company. There is a strong emphasis on individualizing rewards and recognition programs, tailoring rewards to what is valued by employees.
In addition, a number of high-tech companies have looked at ways to enhance stock option and stock grant programs, and push them deeper into the organization.
Until recently, stock plans were very attractive to employees and helped link them to the company. Not surprisingly, due to the recent economic downturn stock options have lost their attractiveness and their decreased value may contribute to low employee morale and decreased productivity.
Another study conducted by the British Columbia Institute of Technology, together with Watson Wyatt, lends support to the idea that organizations are reconsidering the emphasis on stock options and placing a greater weight on base (cash) pay or granting significant additional stock options at lower prices. This qualitative study of 39 high-tech companies addressed the human resource issues being faced by the sector.
The research found that companies that developed a rewards and recognition program that identifies and rewards performance, and clearly links it to organizational goals, experience better attraction and retention rates and improved performance management.
Other findings of this study include:
•Better attraction and retention was achieved by offering comprehensive benefits packages; longer periods of paid time off; opportunities for professional development; ample training and private or semi-private offices.
•Referral bonuses or incentives for key positions were not as successful as hoped for. Referral bonuses were more effective in less-key roles, such as entry-level employees.
•Recruitment strategies that involved providing prizes to employees for attracting newcomers often resulted in an increased number of applicants but poorer matches — the organizations were not successful in attracting the right people.
•Effective communication programs and well-documented human resource policies that are both sustainable and equitable and that are aligned with organizational goals helped facilitate change management and increased employee morale.
How high-performing firms differ from the rest
The Watson Wyatt strategic rewards study found that high-performing companies (those companies with total shareholder returns substantially above peer companies), and not just those in the high-tech sector, exhibit critical differences from other types of organizations. These include:
•Engaging people. Successful companies report viewing rewards as a way to engage people in improving business performance. By definition, a reward is something given in return for something valuable. Ideally, employees are rewarded when they effectively support and help achieve an organization’s stated goals.
In reality however, many reward programs seem to be rewarding something else. Employers that believe rewards are a way to engage people in improving business performance will more likely develop specific programs that are directly targeted to specific business goals.
•Communication. Successful organizations distinguish themselves, through clear communication to employees. The best reward strategies and programs will not achieve their full potential if not clearly communicated and understood by staff. Employees will not be motivated unless they understand the value of the potential reward and exactly what they have to do to get it.
•Flexibility. The most successful firms are significantly more likely to report program flexibility in meeting changing business needs and conditions. This flexibility becomes more important in today’s changing business environment. If, for example, a firm finds a major competitor has instituted a formal career development program, it may need to quickly develop and implement one of its own to remain competitive. Being nimble is critical — lengthy bureaucratic processes and excessive layers within the organizational hierarchy can endanger a firm’s competitive edge.
•Employee involvement. Employee involvement in developing and designing rewards, while a distinct category, is closely related to communication. Namely, it provides a mechanism for employees to interact closely with plan managers, thereby developing a more thorough understanding of how the plan works and supplying much-needed information on the organization’s workforce.
•Measurement. A final major difference is that successful companies are more likely to measure reward program results to assess plan effectiveness on an ongoing basis. But, even in successful companies, this critical element is often overlooked.
What about you?
The high-tech industry, while leading the way, is only recognizing many of the same issues that organizations of all types and in all sectors have had and will continue to face. The creativity and innovative approaches evident in the sector toward compensation, rewards and performance management have been in response to a critical shortage of skilled labour — a challenge facing more and more organizations as the baby boom generation retires.
The accompanying list of reward and recognition mechanisms (box below) will help identify strategies that could help attract and retain talent.
In the days of globalization, a highly competitive economy, low unemployment and a dwindling labour supply, how can your organization provide exceptional compensation programs? First, there has to be a formal strategy for both attraction and retention of top talent — rewarding top talent for top performance through structured, measurable programs. In addition, there has to be a reward program created that fits the business, aligns with the overall strategy, is customized to the workforce — yet flexible enough for the individual — and is communicated effectively. Finally, top performance must be rewarded at every level of an organization — critical-skill and non-critical-skill workers alike.
Owen Parker is a consultant and national survey manager in Watson Wyatt’s Canadian Research and Information Centre, Toronto. Peter Saulnier is a consultant in compensation and strategic rewards in Watson Wyatt’s Vancouver office. Either can be reached at 1-866-206-5723 or by e-mail at [email protected].
Simply raising the level of cash compensation is rarely a solution in developing strategic reward and compensation programs. Ultimately, to determine just what kinds of programs are feasible and how effective they are, HR managers look at direct competitors or the general marketplace to learn of leading-edge programs that are being implemented at other organizations regardless of industry sector.
Over the last 10 years the business world has been inundated with news of rewards being implemented by the high-technology sector. Given the intense competition and growth (and more recently, losses) that fueled this sector, high-tech companies have been leading the way with innovative and sometimes unusual strategic rewards in order to attract and retain the skills they need.
While turning to the marketplace for information may be sufficient for some purposes, most HR managers would like something more substantive upon which to base any recommendations for enhancing compensation or rewards. So what has the high-tech sector really done, and has it worked?
Recently, Watson Wyatt Worldwide conducted a survey of the strategic rewards offered by companies in Canada and the United States. In total, 80 Canadian firms were included from a broad range of industries. The rewards in the high-tech sector were compared to those offered by other types of organizations.
Research findings
While more than three-quarters of the high-tech respondents to the survey indicated having attraction problems, almost as many organizations in other industries were in the same quandary. Conversely, while 41 per cent of high-tech firms reported having problems retaining critical skill employees, an even larger proportion of companies (58 per cent) in other sectors report problems retaining these employees. (See Figure 1.) Could the use of rewards account for some of this difference?
There isn’t much to distinguish between high-tech and other organizations in the area of traditional rewards, such as overtime, group incentives, technical premiums and project incentives, although high-tech firms tend to be greater users of different types of monetary rewards. However, less traditional rewards, including sign-on bonuses, spot bonuses, and retention bonuses, are given by a substantially higher number of high-tech companies.
Stock options and stock grants, as one would expect, are also provided to employees by a higher percentage of high-tech organizations. (Figure 2 compares the use of monetary rewards between high-tech and other industries.)
In most instances, it appears that high-tech firms and other types of organizations use non-traditional non-cash rewards to a similar extent. One exception is the provision of a reduced work week, which is more commonly offered by non high-tech organizations. On the other hand, high-tech companies are more frequent users of opportunities for advancement, working at home, and job redesign.
Flexible rewards and recognition
One key finding of the study is the apparent shift in attitudes and beliefs about rewards in the high-tech sector. Long gone is the “one-size-fits-all” reward strategy.
Instead, high-tech organizations are moving toward a far more flexible approach to direct and variable pay, and to combinations of monetary and non-monetary forms of recognition.
The new paradigm emphasizes decentralized reward programs that give business units decision-making authority on how to reward employees. This allows for a variety of reward programs — targeted to different groups — to co-exist in the same company. There is a strong emphasis on individualizing rewards and recognition programs, tailoring rewards to what is valued by employees.
In addition, a number of high-tech companies have looked at ways to enhance stock option and stock grant programs, and push them deeper into the organization.
Until recently, stock plans were very attractive to employees and helped link them to the company. Not surprisingly, due to the recent economic downturn stock options have lost their attractiveness and their decreased value may contribute to low employee morale and decreased productivity.
Another study conducted by the British Columbia Institute of Technology, together with Watson Wyatt, lends support to the idea that organizations are reconsidering the emphasis on stock options and placing a greater weight on base (cash) pay or granting significant additional stock options at lower prices. This qualitative study of 39 high-tech companies addressed the human resource issues being faced by the sector.
The research found that companies that developed a rewards and recognition program that identifies and rewards performance, and clearly links it to organizational goals, experience better attraction and retention rates and improved performance management.
Other findings of this study include:
•Better attraction and retention was achieved by offering comprehensive benefits packages; longer periods of paid time off; opportunities for professional development; ample training and private or semi-private offices.
•Referral bonuses or incentives for key positions were not as successful as hoped for. Referral bonuses were more effective in less-key roles, such as entry-level employees.
•Recruitment strategies that involved providing prizes to employees for attracting newcomers often resulted in an increased number of applicants but poorer matches — the organizations were not successful in attracting the right people.
•Effective communication programs and well-documented human resource policies that are both sustainable and equitable and that are aligned with organizational goals helped facilitate change management and increased employee morale.
How high-performing firms differ from the rest
The Watson Wyatt strategic rewards study found that high-performing companies (those companies with total shareholder returns substantially above peer companies), and not just those in the high-tech sector, exhibit critical differences from other types of organizations. These include:
•Engaging people. Successful companies report viewing rewards as a way to engage people in improving business performance. By definition, a reward is something given in return for something valuable. Ideally, employees are rewarded when they effectively support and help achieve an organization’s stated goals.
In reality however, many reward programs seem to be rewarding something else. Employers that believe rewards are a way to engage people in improving business performance will more likely develop specific programs that are directly targeted to specific business goals.
•Communication. Successful organizations distinguish themselves, through clear communication to employees. The best reward strategies and programs will not achieve their full potential if not clearly communicated and understood by staff. Employees will not be motivated unless they understand the value of the potential reward and exactly what they have to do to get it.
•Flexibility. The most successful firms are significantly more likely to report program flexibility in meeting changing business needs and conditions. This flexibility becomes more important in today’s changing business environment. If, for example, a firm finds a major competitor has instituted a formal career development program, it may need to quickly develop and implement one of its own to remain competitive. Being nimble is critical — lengthy bureaucratic processes and excessive layers within the organizational hierarchy can endanger a firm’s competitive edge.
•Employee involvement. Employee involvement in developing and designing rewards, while a distinct category, is closely related to communication. Namely, it provides a mechanism for employees to interact closely with plan managers, thereby developing a more thorough understanding of how the plan works and supplying much-needed information on the organization’s workforce.
•Measurement. A final major difference is that successful companies are more likely to measure reward program results to assess plan effectiveness on an ongoing basis. But, even in successful companies, this critical element is often overlooked.
What about you?
The high-tech industry, while leading the way, is only recognizing many of the same issues that organizations of all types and in all sectors have had and will continue to face. The creativity and innovative approaches evident in the sector toward compensation, rewards and performance management have been in response to a critical shortage of skilled labour — a challenge facing more and more organizations as the baby boom generation retires.
The accompanying list of reward and recognition mechanisms (box below) will help identify strategies that could help attract and retain talent.
In the days of globalization, a highly competitive economy, low unemployment and a dwindling labour supply, how can your organization provide exceptional compensation programs? First, there has to be a formal strategy for both attraction and retention of top talent — rewarding top talent for top performance through structured, measurable programs. In addition, there has to be a reward program created that fits the business, aligns with the overall strategy, is customized to the workforce — yet flexible enough for the individual — and is communicated effectively. Finally, top performance must be rewarded at every level of an organization — critical-skill and non-critical-skill workers alike.
Owen Parker is a consultant and national survey manager in Watson Wyatt’s Canadian Research and Information Centre, Toronto. Peter Saulnier is a consultant in compensation and strategic rewards in Watson Wyatt’s Vancouver office. Either can be reached at 1-866-206-5723 or by e-mail at [email protected].
