Developing a Reward Strategy that Delivers Shareholder and Employee Value The New Competitive Context: Today business faces the biggest and most difficult times ahead. With the ever changing moods and directions that business is taking almost daily, it is impossible to have a strategy set in place. There is no true "one way of doing things" and it is almost impossible to say that one strategy is the way to go. Knowing this the truly successful companies will be the ones who: Are linked to their suppliers, Global, Cross-functional, Built around knowledge workers and organize with a capacity for continues change.
With these guidelines set in place it is important to realize how to gain a competitive advantage. This is accomplished by innovation in technology, speed to market and creating customer value. Human Capital is the key to competitive advantage. It is only when the employee truly has his own goals set in motion that gives the company the true advantage that cannot be taken away unless your employees are acquired by other companies.
Human Capital is a combination of employee capabilities and their commitment. An Aligned HR System Is The Key: An organization has various "levers" for developing Human Capital into competitive advantage as shown in Exhibit 1. These must be properly integrated to work. Doing What has worked in the past will only lead to complacency. This figure demonstrates how to develop a working "culture." A culture designed to work faster, communicates more efficiently and gives a focused joint effort as a goal. Exhibit 2 presents a model for developing an integrated Hr approach to creating both shareholder and employee value Reward Systems: Reward systems are a crucial part of this development.
This aids in behavioral modification and creates drive and performance. Some negative aspects of rewards are that they are often too financially focused. They are lag indicators rather than lead indicators. They are not always associated with creating shareholder value.
In most cases they do not promote long-term behavior for most of the work force. A research done by Watson Wyatt shows that out of 1000 organizations surveyed. Only 27% of the employees had an understanding of the reward's program. Is it any wonder that the majority of the reward's programs fail to meet expectations Given these organizations can move from compensation focus to a total reward's focus. They can be based on measures that drive shareholder value.
How can I go about creating a portfolio of reward's programs that are linked to short-term and long-term business success, that will deliver true value all around The answer lies in Exhibit 3. Exhibit 4 describes how you can go about developing an aligned reward strategy. Develop Measures that Drive Shareholders Value: Here we must remember that financial metric is only one measurement to be considered. Factors such as innovation, customer focus, quality and organizational learning are part of this equation.
Focus on Behaviors that Drive Shareholders Value: It is important to note here that you not only select links that lead to shareholder's values but the behaviors that drive value. The company needs to tailor measures to the organizations level to ensure a clear line of sight. Provide Rewards that Deliver Employee Value: It is important to consider rewards from a very broad perspective. Consider compensation, benefits, recognition, advancement, development opportunities, the nature of the work, status, working conditions, flexibility, balance, social interactions, and other factors.
Conclusion: Companies need to think of dollars spent on reward's programs as investments and not expenses. When moving forward remember to focus on the critical priorities those programs that have the greatest leverage on business success. Keep in mind that aligning key drivers is critical. Finally remember to develop a reward strategy that fits your company.
Take your common reward system and look at it from a new uncommon perspective, and develop a competitive advantage so strong that it will command the attention of your competitive world.