I actually believe that innovative HR is quite simple! Innovative HR takes tactical and strategic practices and adapts them to integrate with a company’s business strategy and culture.

I believe the most powerful HR innovation comes from working with business leaders to develop the “next practices” that give a company a competitive advantage and ability to thrive in the new world of business. HR’s role is to adapt HR strategies and practices to help the company succeed in the future. HR innovation comes from working with business leaders to create practices that give the company a competitive advantage in the marketplace.

Innovative HR practices also need to translate the business strategy into action, engage employees at all levels to drive results and be transparent so everyone uses them every day to run the business. Innovative HR practices can result in a competitive advantage for the company in the marketplace, profitable revenue and strategic alignment.

At a global call center outsourcing company, I created a real-time performance optimization process that linked every employee to the key metrics that drove the success of the business every day. We eliminated traditional performance reviews because they negatively impacted productivity and the high-performance culture of the company. The performance optimization process was integrated with rewards and recognition programs every month to reinforce the success of each employee. This was innovative because it gave the company a competitive advantage in hiring top talent in the each of the global markets of operation and reinforced the achievement of the metrics that drove profitable revenue. To see complete details on the success of performance optimization, click on the following link, http://timsilvera.com/success-stories/performance-optimization/.

I asked a colleague of mine, Diane Gallo of CNC Strategy (www.cncstrategy.com), for her viewpoint on innovative HR. The following was her take on the topic. Innovative HR is about alignment.  Alignment of the organization in structure, resources, vision, strategy, business processes and communication is crucial.  Organizations that are aligned can execute on strategy, those that are not, don’t.  The Conference Board 2010 survey says that the biggest concern of CEOs is being able to execute on strategy.  As an HR leader, it is important to make sure that all players first understand the strategy, then that the organization’s structure supports it and resources are dedicated to execute on it.  In simple terms, getting everyone to “row in the same direction” is often a first step towards innovation for an HR leader. The ability to step back and see where the organization is not supporting its goals and developing a set of practices that move the organization towards execution is HR innovation.

Have you created an innovative HR practice? Please share your innovative HR practices to inspire others to follow in your footsteps! 

Human Capital – Love it, do it, prove it!

Over the last several months, many people have asked me to describe how human resources can become strategic and help a company be successful. I always start my answer by stating that to fully understand strategic HR, you need to know the definition of tactical HR. Tactical HR supplies companies with the basic administrative practices that allow a company to operate efficiently, such as policies, recruiting, compensation, benefits, compliance and discipline.    

Strategic HR takes it to the next level by guiding companies on how to engage its workforce to drive results and build its high-performance culture. It also creates a compelling employment brand that helps to attract top talent. Put another way, Strategic HR focuses the company’s talent on winning in the marketplace! For HR to truly be strategic, a company’s attraction, selection, development, performance and rewards strategies and practices need to be aligned with the company’s business strategy and objectives. Strategic HR practices also need to translate the business strategy into action, engage employees at all levels to drive results and be transparent so everyone uses them every day to run the business. Strategic HR practices can result in a competitive advantage for the company in the marketplace, profitable revenue, innovation and strategic alignment.

The following are the essential human resources strategies needed to achieve the business objectives of any high-growth company in today’s volatile economic environment.

• An attraction and selection strategy that delivers the right talent at the right time and acts as a starting place for effective employee engagement
• A development strategy and system that grows the technical, core and leadership competencies that accelerate the company’s performance
• An integrated performance and rewards strategy that engages and motivates employees to deliver results and offers employees what they need to excel in their work

The following charts detail the differences between tactical and strategic human resources by function. As you will see, tactical HR is administrative and fundamental to running a company and strategic HR is action orientated and creates a competitive advantage in the marketplace through people.

As you can tell from the above comparison of tactical and strategic HR, a whole new mindset for executives needs to be established and new capabilities for HR professionals need to be developed. If you are truly doing strategic HR, then the only true measure of HR’s success is positive improvement in business results!

I look forward to your feedback and comments on Strategic HR and how it is essential to the long-term success of your company…

Human Capital – Love it, do it, prove it!

At least 98% of company’s today state that they have a pay for performance compensation philosophy. Pay for performance is so commonplace that it has become absolutely meaningless to employees and does not give companies a competitive advantage when it comes to attracting or motivating talented employees. Yes, I believe pay for performance is dead and has been for a long time! I believe this is true even in companies that purport to have it and use it effectively. Why is this true?The following four paragraphs explain why pay for performance just does not engage today’s top talent to drive business results.   

In most companies today, the highest rewards go to those employees who are best at predicting what they can achieve, rather than the employees who achieve the greatest positive impact on the business. Put another way, managers and employees who set real stretch goals and miss are often penalized because they fell short on their goals. Whereas, managers and employees who set low goals increase their chances of exceeding expected performance and receiving significant rewards.     

We have seen numerous top executives receive extremely high pay even when their companies go out of business. Most top executives believe they should be paid top dollar for their past performance and potential to impact their new company. Thus, many executives receive guaranteed cash flow from annual incentive plans and equity awards that are not based on their individual positive results. They receive highly competitive pay for any level of performance, so they are not really motivated to take risks and drive positive results.

Traditional base pay practices reward mediocrity because they focus on annual merit not the on-going value of an employee.  Traditional base pay programs reinforce mediocrity by giving almost everyone a small base pay increase every year.  At best, top performers get 1% to 2% more than average performers which is not enough to differentiate. These traditional approaches treat everyone the same regardless of importance to the success of the company, thus mediocre employees stay with the company, whereas top talent leave after a short stay because they do not feel valued by the company.

In many companies, sales incentive plans are designed to rewards sales professionals for achieving their assigned quota, which is usually determined by the top sales leader. Top sales leaders are usually more concerned with maximizing their own pay than company performance. Thus, many sales professionals receive target cash compensation while the company achieves mediocre performance.    

How can we fix this problem?

A good starting place is establishing a dynamic compensation philosophy aligned with the company’s vision and business strategies, which would rejuvenate true pay for performance. You also need to develop meaningful rewards strategies and guiding principles that bring your philosophy to life with your employees. Your rewards strategies and guiding principles need to articulate to employees how they will be rewarded for their achievements that impact the success of the business.   You need to develop a unique compensation philosophy, rewards strategies and guiding principles that give your company a competitive advantage. When you articulate your compensation philosophy supported by meaningful rewards strategies and guiding principles, you also make your employment brand more robust and attractive to talented employees.

The following is an example of a new-era compensation philosophy, rewards strategies and guiding principles.

A dynamic compensation philosophy should be something like “Reward Success” or “Pay for Results”. To support a new-era compensation philosophy the following chart displays six vital rewards strategies and accompanying guiding principles necessary to make it meaningful for employees and your employment brand.

Once you establish your compensation philosophy, rewards strategies and guiding principles, you need to design your performance and rewards practices to bring them to life throughout your company. No more one-size fits all traditional compensation practices. Managers need to be empowered with a new paradigm for engaging their employees to drive business results. Goal completion should not be used as the ultimate criteria for success and rewards. Goals need to be tied to specific metrics and outcomes that truly predict the future success of the company.

For more details regarding the design of effective performance and rewards practices, look for my upcoming blogs titled, Performance Optimization… and Reward People Right!

As the country starts recovering from the worst economy in over 20 years, leaders need to start firing up commitment! Great leaders understand that over the last year, talented employees have become disillusioned with their current employers. Even if you think you did a great job connecting with your employees during the downturn, you need to understand that you still need to repair the damages caused by the environment and practices in your company.

Leaders should not rely on loyalty or morale to retain top talent. Loyalists actually cause big problems because they resist change which can kill your company. If high morale is a leader’s goal, failure will soon follow. High morale can only be an outcome of achieving results. Loyalty helps you retain mediocre employees, whereas results are powerful motivators for top performers to continue to drive business success. Loyal employees do show up to work every day, but committed employees invest themselves fully in their work and deliver dramatic results. 

Commitment energizes, empowers and inspires people to achieve great results. So, how can great leaders fire up commitment now? It all starts with you… You need to have passionate commitment, which will draw people to you. Your intensity, tenacity, focus, drive and dedication will create commitment in others. You also need to supply your employees with a strong purpose. If you give your employees a vision that they can identify with and rally around, you will see how commitment can grow and accelerate your team’s success. In addition to your personal passionate commitment and strong purpose, you also need to connect with your people, recognize and reward achievements, create a top club and be intolerant of weak commitment.

By connecting with your people, managers fill their employee’s longing for belonging! Feeling needed warms people deep inside and adds more heat to their fire of commitment. Managers must discover what fires up commitment in each of their employees and spend time with every valued person to convince them that his or her contribution adds value towards the company’s success.

To create a climate of greater commitment, managers need build an environment where people can achieve great results. Every good employee wants to work on meaningful assignments and be recognized and rewarded for delivering tangible results. So, managers need to energize their employees by giving them a piece of the action though meaningful work, recognition and rewards!   

By creating a top club with membership hard to come by, commitment grows naturally. Tough initiation rites create a common bond of experience for all that make it into the club. On the other hand, stiff admission criteria cause the weak-hearted to de-select themselves out of your company. Wow!

On a related topic, managers need to be intolerant of weak commitment! Managers need to make it clear that commitment is a top priority on their teams. Managers need to make commitment count for something by rewarding employees who try the hardest and contribute the most to the team’s success. And finally, it is crucial that managers weed out the uncommitted and mediocre employees.

By focusing on the power of commitment, you have a great chance of increasing the engagement factor of your valued employees. Mark my words… it really works!

What have you done lately to inspire commitment and employee engagement? Please share your stories in the comment section at the end of this blog.

Human Capital – Love it, do it, prove it!

As numerous employee engagement surveys tell us, fewer than 20% of employees are engaged at work.  With so few employees engaged in companies today, how can employers turn this around and truly engage their workforce in the future?

As an experienced human capital professional that has been a student of employee engagement and its linkage to employee and company performance for an extensive period of time, I would like to share the following opinions about engaging employees to drive business results and build a performance-driven culture.   I believe it all starts with understanding what engagement means and then developing the strategies to engage your workforce. 

As defined by Julie Gebauer of Towers Perrin in her book titled, “Closing the Engagement Gap”, employee engagement is the deep and broad connection that employees have with a company and their voluntary and enthusiastic commitment to its success.  Full engagement exists when every employee works at the top of his or her game.  Can you imagine how successful companies would be if all of their employee were giving 120% for the company?  Wow!

So, what are my recommended strategies for achieving full engagement of your workforce?  The 5 strategies that companies need to employ to achieve full engagement are as follows:

1. Understand  what is meaningful to each employee
2. Educate individuals and teams on the vision and strategies of the company
3. Create an emotional connection between employees, customers and the company
4. Involve employees in running the business
5. Reward employees for the key drivers of profitable revenue growth

The following paragraphs amplify the 5 points above.

Understanding what is meaningful to each employee is critical to the success of a company’s engagement practices.  Managers need to take the time and figure out what is important to each individual and their team as a whole.  Why? Because knowing what each individual values is the starting place for capturing the minds and hearts of your team member and receiving their discretionary effort, which is key to driving business results and building a high-performance culture. 

Educating your workforce at all levels on the vision and strategies of the company is also critical to running a successful business.  Senior leadership needs to start translating the company’s vision and business strategies into actionable plans for their teams.  A company’s education efforts should include explaining how the company makes money and how to gain competitive advantage in the marketplace.   

Creating an emotional connection with employees is somewhat complicated.  So what is the magic juice to create an emotional connection with employees? The answer to this question is twofold.  First, managers need to be genuinely interested in the well-being and success of their employees.  Second, the leaders of the company need to inspire and build a sense of pride in every employee.  To build pride in every employee, companies need to run an outstanding business, grow great managers, and build a “brag-able” culture and company.

Involving employees should focus on making everyone an active participant instead of order takers.  You get committed employees when you value each person’s contribution to business success.  

Practices for rewarding employees need to evolve from traditional compensation practice like merit increases and after-the-fact bonuses to practices that engage and motivate employees to achieve the strategic goals of the company.  Rewards should be integrated with performance management practices to create a continuous real-time business process for coaching and recognizing employees. For more detailed information regarding cutting-edge rewards practices go to bit.ly/UltimateRewards.

I believe any company can continue to grow successfully on a global scale if they integrate innovative engagement strategies with their vision and business strategies.  In the coming weeks, I will be posting additional blogs that explain what companies, managers and human resources can do to improve employee engagement at any company.

Human Capital – Love it, do it, prove it!

Over the last 5 years, I have read over 7 leadership books. Of those books, Courage – the backbone of leadership, by Gus Lee was absolutely the most meaningful because it describes the fundamental starting point of becoming a great leader. I believe the message in this book is critical to all professionals who aspire to be great leaders in today’s turbulent business environment. So, I decided to summarize the important aspects of Courage and share with my readership.

As a starting place, the 3 most important leadership values are integrity, courage and character. Most companies have a list of values that include ethics, open communication, innovation, teamwork, and diversity. But these admirable and desirable values can only be achieved if a leader has integrity, courage and character.

Courage is the single most decisive trait of a leader. Courage is the mental and moral strength to venture, persevere and withstand danger, fear, or difficulty. Courage is the tip of the spear of integrity and the spark plug for principled conduct. Courage converts integrity into a habit and gives enduring power to leadership. The starting point of becoming Courageous is understanding integrity. Integrity is acting for what is right. A person with high integrity acts for what is right regardless of risk to self. And, character is the result of sustained integrity and courage.

Courageous people do not accept wrong in others. Being courageous for rightness is superior to being a “good person” who is good in nature, but keeps his own nose clean.

Crossing the chasm from being a good to a courageous person is not so easy during today’s economic environment. Engagement scores in many companies today are higher by 10% to 20% because people are fearful of losing their jobs. I recently read that executives are patting themselves on the back for their great work engaging employees during the economic downturn. The same study stated that middle managers thought their bosses were doing a terrible job and could not wait for the economy to turnaround so they could jump ship and find a great place to work that valued their contributions.

A Courageous person demonstrates the following behaviors:

• Boldly stands for principles

• Boldly stands for all others

• Supports formal core values

• Discerns right from wrong

• Acts for the right regardless of risk to self

• Teaches others from his/her actions

• Stops wrong in self

• Challenges wrong in others

• Follows through on commitments

During my career I have seen few examples of courageous behavior because people believe that if they are courageous, they are viewed as challenging their superiors, thus putting their job and family livelihood in jeopardy. Loyalty is another reason people are not courageous. Many companies and their leaders demand loyalty. Loyalty only gets you mediocre employees who do what they are told to do without question, which does not help you gain a competitive advantage in the marketplace.

A few years ago I was in a situation that took a lot of courage. The COO of the company wanted me to implement a supervisor competency model that he established 10 years prior at his previous company. He was telling everyone that it was the definitive competency model for supervisors in any company or industry. I challenged him on many fronts. I explained how to avoid the best practice trap and truly create a supervisor competency model for our company that would give us a competitive advantage. After numerous emotional conversations with his leadership team, he conceded. Thus, we established a cross-functional design team which included supervisors from multiple locations to truly understand what behaviors defined a great supervisor at our company. The roll out of the new supervisory competency model was successful. We had immediate buy-in because we took the time to get it right based on company’s culture, strategy, structure and roles.

Are you Courageous? Please share your courageous stories to inspire others to follow in your footsteps! I encourage every leader to understand the importance of integrity, courage and character. If you want more information on integrity, courage, and character you can find it at http://www.guslee.net/.

One of the most misunderstood concepts in business today is best practices.  So, what are best practices really? I do not believe there is one set of human resources best practices that should be adopted by all companies. I believe there are common practices, best practices, and next best practices. Common practices are practices that everyone does that add no competitive advantage. Best practices should be based on solid evidence that they will give a company a competitive advantage and next best practices are cutting-edge and innovative practices that truly engage employees to drive business results and build a performance-driven culture, which is the ultimate competitive advantage.

Traditional merit increase is a perfect example of a common practice that only adds bureaucracy to companies. Merit increases do not add competitive advantage because they reward mediocrity instead of the on-going value of an employee.  In fact, top talent are so dissatisfied with traditional merit increase practices, they are just waiting for the economy to pick up so they can move to a new company that will value their expertise and contribution to business results. Another example of an overused common practice is pay for performance. 99% of company’s today state that they have a pay for performance compensation philosophy.  Pay for performance has become a common practice that is basically a joke to most employees and adds little or no competitive advantage. Other common practices you want to avoid unless you have evidence that they will impact your company’s performance include balanced scorecard, cascading goals and writing SMART goals. 

So, how do you avoid the best practices trap? For many years, human resources professionals have been benchmarking top performing companies to establish what to do in their companies. They think if it works in a top performing company, it should work everywhere. Benchmarking only identifies the most visible and obvious practices which results in mindless imitation. In many cases, the most important aspects of benchmarking are not addressed at all (business strategies, competitive environment, business model, organizational structure, leadership capability and culture). For example, how many companies attempted to mimic General Electric’s forced-curve ranking performance management system without understanding the cultural implication and leadership capabilities needed to sustain and evolve such a system?

The basic mistake human resources professionals make is taking practices from one company to the next without understanding if the practices will have a positive impact on the company’s performance. This is one of the main reasons why executives and employees hate HR! You should also be careful about using consultants who, under the guise of best practices, sell you human resources practices they developed for another company and now want to make a profit by selling them to you.  Great human resources professionals will develop effective human resources strategies and design custom practices for their company based on its vision, business strategies and culture.  They will also work with the leadership team throughout the design and execution process to ensure the practices add competitive advantage.    

The HR practices that a company sponsors should be aligned and integrated into the business strategy of the company and ensure competitive advantage in the marketplace, thus creating the next best practices for the enterprise. While you continue with your current practices, I believe the most powerful innovation comes from working with the business to develop the next practices that give a company a competitive advantage and ability to thrive in the new world. 

Human recourses leaders need to foster adaptation and evolution to help the company succeed in the future. Innovation comes from working with the business to adapt and create practices that give the company a competitive advantage in the marketplace. Just because it is time for change doesn’t mean that it’s easy to sell innovative ideas.  Economic uncertainty has diminished the acceptance of bold, grand transformations in most companies.  I believe the simple way to do this is by integrating practices with the vision, business strategies, and culture of the company as well as working with key executive to create the next best practices for the organization. You can also minimize executive resistance by having an execution plan that takes smaller steps before accelerating the transformation effort.   

You should always look at your company’s long term vision and strategies before designing your human resources practices.  If you do this you will be able to design the next best practices that give your company a competitive advantage.

So, remember to avoid the best practices trap! I would like to hear from you about your experience with common practices, best practices and next best practices in your company.

Human Capital – Love it, do it, prove it!

Wouldn’t it be great if we could actually communicate to employees that their base pay is directly linked to the value they bring to the company. Linking base pay directly to an employee’s value is easier than you might think. This is the perfect time to start making a paradigm shift from merit increases to value-based base pay practice because people need a reality check on the value of their skills in the marketplace.  A recent McKinsey Global Institute study on the economics of human capital stated, “60% to 80% of workers in the United States were receiving base pay in excess of their value in the marketplace”. You can review this entire study at http://www.mckinsey.com/mgi/.

So, how does a value-based base pay program work?  First, companies need to establish the competitive base pay range of each job in the company. Second, companies need to determine how each job adds value to the success of the company. Remember, value is defined as consistent and progressive achievement of pre-defined goals and metrics that impact the success of the company and demonstration of the required behavioral competencies for the employee’s job.

Once you define the competitive base pay range and value proposition for each job, it is easy to determine if you are paying someone right for the value they bring to your company.  I call the following diagram the Pay vs. Value Model. On the vertical axis we define the competitive base pay range, which includes the entry, market, and top level of pay that a company is willing to pay for a job.  On the horizontal axis, we define the levels of value as learning, successful and role model. It is worth noting that role model employees significantly impact the success of the business and help everyone else be successful.

 Pay vs. Value Model 

There are 3 spectrums in the pay vs. value model: (1) value is less than pay, (2) value is equal to pay, and (3) value is greater than pay.In spectrum 1, the employees’ pay is greater than the value they deliver to the company, so the employees’ pay should be decreased or the employee should increase their value quickly.  In spectrum 2, the employees’ pay equals value so the employees are paid appropriately for their value. It is important to note that high valued employees, who are already paid high in the competitive pay range, do not need a base pay bump. High valued employees should be receiving stellar incentives, bonuses, and equity grants for their impact on business results. In sprectrum 3, the employees’ pay is less than the value they bring to the company, so their base pay should be increased periodically to close the pay/value gap. Base pay increases for employees in spectrum should be over time to ensure consistency and motivation.

With this pay vs. value model, you would only give about 33% of your employees a raise every year. If you shift your paradigm to this dynamic base pay model, you can direct your freed up budget to reward and retain your top valued employees who are under paid or you can simply reduce your budget and cost of labor. The beauty of this model is that when the competitive base pay range or value propositon shifts up or down, the model just shifts accordingly. With this model, you limit the merit increase annuity or compounding effect, which reduces your cost of labor over time. Furthermore, if you communicate the competitive base pay ranges and value proposition correctly, you can even get improved company performance, which occurred at several organizations I deployed this model.  

Doesn’t this sound exciting? Transitioning from a traditional merit increase program to practices that reward employees for their value should be strategically important to companies worldwide.  All you need to do is document all the jobs in your company, market price them, and define each job’s value proposition. Since most companies already document and market price jobs, all you really need is to define the value proposition of each job in your company. And don’t forget, you must get the communication and change management plan right.  I believe the biggest challenge you will face if you want to design and implement a value-based base pay program is getting leadership buy-in. Merit increase programs are pervasive and embedded into the mindset of most companies worldwide and employees believe they are entitled to an annual bump in pay.  

I would like to hear your comments on this innovative base pay practice and its implications on companies given the economic environment we find ourselves in today. If you are interested in additional information regarding this subject, you can comment on this blog or contact me directly at tim.silvera@gmail.com.

For more information about innovative approaches to employee performance, cutting-edge base pay and variable pay practices, game-changing recognition programs and customizing performance and reward practices, see my upcoming blogs titled “Base Pay Practices that Reward Mediocrity!”, “Demystifying Base Pay!”,  The Evolution of Performance Management”, “Doing Recognition Right!”, and Reward People Right!”.

Human Capital – Love it, do it, prove it!

In 1992, I read an article titled “Merit Pay is Dead!”  It stated that merit pay had become an entitlement and only marginally differentiated between low and top performers.  In most companies merit pay was viewed by employees as nothing more than a cost-of-living increase for showing up every day.  Over 15 years later, most companies still sponsor some form of annual merit increase program that still has the same problems as noted above.  Thus, traditional base pay practices are rewarding mediocrity! 

Traditional base pay practices reward mediocrity because they focus on annual merit not the on-going value of an employee.  Traditional base pay programs reinforce mediocrity by giving almost everyone a small base pay increase every year.  At best, top performers get 1% to 2% more than average performers which is not enough to differentiate. These traditional approaches treat everyone the same regardless of importance to the success of the company, thus mediocre employees stay with the company, whereas top talent leave after a short stay because they do not feel valued by the company. The following charts detail how traditional base pay practices reward mediocrity and longevity, instead of value.

Chart A details the background on two engineers who are in the exact same job.  The engineers both have the same knowledge and required experience for the job, but their performance is quite different.

Chart A

Traditional merit increase programs give employees an annual base pay increase based on their performance rating.  The size of base pay increases are usually controlled by the merit budget.  Like most companies, you have a small merit budget of 3.5%, so you end up with a merit increase chart somewhat like the one displayed in Chart B.  You might even vary your merit increase percentages by position in the competitive base pay range of the employee’s current job, but you still need to stay within your budgeted dollar amount for merit increases.

Chart B

If we apply the above information as displayed in Chart C, you will see how common merit increase programs reward mediocrity and longevity.  It is important to note that I can only give my outstanding performer 5% because of the budget and I need to give my long term employee at least 3% because of loyalty to the company.  Yes, this is what happens in most companies today.

Chart C

After the annual merit increase process, Engineer 2, who is an outstanding performer still makes $29,300 less than Engineer 1.   Thus, mediocrity and longevity are rewarded.   In this example, the only apparent reason that Engineer 1 makes more money is time spent in his current job and possibly the economy that existed when he was hired.   

Many companies try to solve this problem with a variety of techniques including market adjustments for the lower paid engineers, but that is just a band-aid for a bigger problem, longevity pay and entitlement.  Since companies report base pay levels to survey companies, these merit increase practices also artificially increase the market value of jobs in the marketplace. For details, look for my future blog titled: “The Art of Market Pricing!”.    I believe that base pay levels have outpaced the skills for most of our workforce, which was partially caused by ineffective base pay practices.  A recent McKinsey study on the economics of human capital stated, “60% to 80% of workers in the United States were receiving base in excess of their value in the marketplace”.  So, a significant change needs to occur in how we determine base pay increases in the future.

So, what can you do?   You need to transition your merit increase practices to rewarding employees based on their value. As introduced in my blog titled, “What are Ultimate Rewards?”, value is the consistent and progressive achievement of pre-defined goals and metrics that impact the success of the company and demonstration of the required technical and behavioral competencies for the employee’s job. I will be sharing how to link base pay directly to value in my upcoming blog titled “Demystifying Base Pay”, which will be posted next week.

Human Capital – Love it, do it, prove it!

For many years, compensation consultants have been talking about a total rewards approach to compensation and benefits practices, yet little impact has been seen. In most cases, total rewards terminology is just used as a bundling of traditional compensation and benefits programs to control costs. Total rewards programs do not engage employees to drive business results. I believe it is time to start designing and using a set of ultimate rewards to drive business results and reinforce a company’s culture

What are Ultimate Rewards? Ultimate Rewards engage employees by integrating performance and reward practices to motivate employees to deliver results and build culture. The purpose of Ultimate Rewards is threefold:

• Engage and motivate employees to achieve the strategic goals of the company
• Turn performance management into a continuous real-time business process
• Create an easy metric-driven platform for coaching and recognizing employees

Ultimate Rewards has six main elements: performance optimization, base pay, variable pay, recognition, equity, and development. Chart 1a defines each element of ultimate rewards.

Chart 1a - Click for larger image

I do not include employee benefits as an element of Ultimate Rewards because benefits are not strategic drivers of performance.  Benefits are a necessary component of totals rewards because they are a significant cost for most companies.

The purpose of performance optimization is to transition traditional performance management from a manager driven to an employee/manager collaborative process, which offers today’s employees what they need to excel in their work and achieve great results.  Performance optimization is a business process, not an HR process.  It can unlock the potential of front line managers by increasing the role of coaching and communicating.  In a recent study McKinsey stated, “front line managers are only spending 4-8% of their time on coaching” because they are busy doing administrative tasks. 

Base pay is a key element of ultimate rewards because for most employees it makes up 70% to 90% of the total cash they receive from employers for their valuable work.  Employees should be rewarded for their value to the enterprise within the context of the competitive market value of their job.  What is value?  Value is the consistent and progressive achievement of pre-defined goals and metrics that impact the success of the company and demonstration of the required technical and behavioral competencies for the employee’s job.

Variable pay can be short-term or long-term depending on the employee group to which it applies.  Variable pay needs to reward individuals for their impact on the success of the company and specific, measureable metrics that add value to the enterprise.  If you truly want employees to drive results, you need to design custom incentive plans for employees and functions within the company that have significant impact on its success.

For recognition to truly be impactful, it needs to be designed so everyone can win and celebrate together.

I am a firm believer that equity should be awarded to employees who can truly impact the business.  I would award less than 50% of employees’ equity grants each year so you can increase the awards for the top valued and high potential employees that you need to grow your business.  Companies need to start focusing on their top talent.

Today’s knowledge workforce wants interesting and challenging work regardless of generation. Continuous development is a requirement to keeping employees engaged and growing their potential to add value to your company.  Since development gives employees the ability to increase their value, we can see direct linkage to future base pay increases and promotions, thus making base pay a key element of ultimate rewards.

It is an imperative that the elements of Ultimate Rewards be customized for different functions and levels within a company because line-of-sight is clearly needed to align employees to the success of the company. Customizing performance and reward practices by function and level is truly the ultimate challenge for companies where the Human Resources team champion a one-size-fits-all practice based on compliance and funding issues.  For years, we have treated the sales organization differently, so now is the time to go to the next step by customizing rewards by function (sales, operations, and support) and level (executives, middle management, and individual contributors).

For more information about innovative approaches to employee performance, cutting-edge base pay and variable pay practices, game-changing recognition programs and customizing performance and reward practices, see my upcoming blogs titled “Base Pay Practices that Reward Mediocrity!”, “Demystifying Base Pay!”,  The Evolution of Performance Management”, “Doing Recognition Right!”, and Reward People Right!”.

Human Capital – Love it, do it, prove it!