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Balancing Hard Choices on Pay and Benefits

Source: Towers Perrin

Posted on 20 Apr 2009

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For most companies this year, pay and benefit programs have come to the forefront in the struggle to manage costs in a bad economy. Many organizations have eliminated or trimmed salary increases and annual bonuses. A number, too, have increased employee cost sharing for health care programs through higher contributions or benefit design changes.

These are tough choices that go to the heart of big-ticket, high-visibility reward programs. They can carry a hidden but critical cost in the form of lowering employee engagement levels and potentially affecting both productivity and performance. So is there anything a company can do with its reward programs to mitigate these risks?

In fact, there are some low-cost and no-cost changes to reward programs that companies can consider to help balance cutbacks and minimize adverse employee reactions. These were discussed in a March 26 Towers Perrin Webcast entitled " Rx for Rewards in the Downturn."

Insights on How Employees Value Benefits and Other Rewards

The Webcast was led by consultants Ginny Olson and Suzanne McAndrew, who presented findings from Towers Perrin's 2008 total rewards survey among roughly 5,000 workers across the U.S. These findings yield important insights into what employees value in their reward programs and the impact of different reward elements on engagement, retention and other key workforce behaviors.

The research focused on the trade-offs possible across all types of reward programs to achieve desired cost-reduction targets and employee behavior outcomes, especially sustained engagement. It suggests that, while your company may be focusing on financial rewards (pay and benefits), you could be overlooking so-called relational rewards (such as training, managerial effectiveness, communication and work/life programs) that actually have more impact on engagement than pay and benefits.

The survey, which employed a sophisticated trade-off analysis tool used in consumer marketing, found that by enhancing relational awards at little or no cost, a company can actually lift employee engagement levels — significantly, in some cases. Four such relational reward areas are:

* work/life balance

* work location and schedule

* professional development

* company-provided financial investment education.

"There are things that employees value that, if implemented correctly, may help blunt some of the financial actions being taken and keep the organization moving forward," said Olson. "Flexible work arrangements, in particular, are extremely important to employees."

Equally interesting, the relative richness or specific features of high-cost reward programs (e.g., retirement, health care) didn’t have much impact on employee perceptions and preferences overall. However, the absence of some basic security programs can have a big impact. For example, just offering retiree medical coverage, even if fully paid for by retirees, gave a significant lift to employee engagement levels, especially for employees age 55 and over. Communicate, communicate on employee benefits and other rewards

Now is also a good time to communicate with employees about the value of ongoing benefit and other reward programs. There may be some missed opportunities in not underscoring the level of protection people have and continue to have right now.

A refresh of the total rewards survey conducted among employees in December 2008 (Taking the Pulse of the Workforce: A Snapshot in Time) found that having a secure position mattered most to employees, followed by adequate benefit protection. Maximizing earnings ranked seventh at the time, no doubt reflecting people's current focus on having and keeping their jobs.

This is also the time to demonstrate that leadership has real concern for employees and their families. Other Towers Perrin research shows that this can be a major driver of engagement. Employees want to hear from leadership, especially when times are difficult. Leaders who maintain open lines of communication can reap the benefits of a more engaged workforce and keep the organization on track to compete effectively when the economy revives.

"Leadership behavior, supervisor relationships and true pride in the company really have an effect on how employees view rewards," said McAndrew. "These elements create a halo effect around rewards, so it's important to pay attention to these areas. This can really help your organization manage changes to reward programs more effectively."

If your company is thinking about making changes that are going to place more financial risk on employees, such as implementing a high-deductible health plan, effective communication is especially important to help employees understand how to take on that risk and manage the plan, according to McAndrew.

Engagement and Reward Optimization Issues Don't Disappear

The principles and processes associated with decisions around optimizing reward programs remain, Olson reminded the Webcast participants. "We can take costs out of the system and manage volatility better. But at the same time, we want to understand what business performance loss or gain we can expect from the tactics that we're going to implement."