Driving Organization Agility through effective Rewards Strategy

Driving Organization Agility through effective Rewards Strategy | Mercer

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Driving Organization Agility through effective Rewards Strategy
Driving Organization Agility through effective Rewards Strategy
Calendar31 July 2019

In the wake of the ongoing trade war between US and China, organizations globally are experiencing weaker demand of their exports, therefore, impacting their bottom-line. With top-line growth hard to come by, organizations are focussing on cost containment and process improvements as paths to increasing profitability. This often requires them to balance conflicting challenges i.e. cost containment, process improvement and talent engagement. In particular, the tension between cost containment and talent engagement has stood out as a central theme across several organizations. While they are very concerned about the retention and motivation, particularly for top performers, high potentials and those with scarce skills, however, the option of paying more is difficult now than ever before.

The general view has always been that effective talent management requires deep pockets and in tough economic conditions the human factor has always taken a back seat. It has been noticed that the organizations that have built flexibility to their overall reward architecture, through use of annual STIs, Long-term incentive plans and business linked performance measures; that can be linked to the organization success have responded well to the issue of motivating and retaining talent. The reality is that rewards should be able to respond to shifts in the external environment. When the game plan changes, so too must the organization’s rewards philosophy. Additionally, to support the organizations in bringing that change, the current generation of talent is a lot more informed and flexible as long as their total rewards structure has been packaged and communicated effectively.

Listed below are some of the rewards recommendations that can help organizations drive agility through their reward programs:

·         Annual Reward Strategy Review: Compensation cost is one of the biggest expenses for an organization and yet despite the strategic imperative for flexibility and agility, organization’s reward strategy is often overlooked during the changing business climate. Organizations that review their rewards structure (pay mix, market positioning, performance measures etc.) at least once a year are better prepared to address the changing business environment. More responsive reward programs can be strategic enabler that keeps pace with changes in business conditions, rather than just being an operational tool that lags changes.

·         Differentiating and rewarding ‘mission critical’ roles: Retention of key talent/ high performers is very important especially during the tough business environment when organizations are competing for market share and talent. To retain key talent, the reward system must be perceived as relevant and fair. Furthermore, management should consider paying above the relevant talent markets to lessen the chance that competitors can lure these employees away. Careful monitoring of the external market for key talent is advisable, but one must also make sure employees identified as top talent understand why they are paid.

Key talent is also concerned about the opportunity for development and advancement. Management should have a development and succession plan for each key employee. Furthermore, key employees must be kept apprised of their development and advancement opportunities.

·         Aligning pay with organization performance: Organizations that encourage pay for performance culture by aligning rewards to performance measures that can drive sustainable growth and profitability through short and long-term incentive plans (STI and LTI) are better equipped to align employee compensation to the changing business climate.

·         Effective Rewards Communication: The success to any reward plan lies in how effectively it has been communicated to the employees. A well planned rewards plan can fail if it has not been communicated effectively, on hindsight, an average plan in the tough environment can do well with the employees if it has been communicated effectively.

Employees appreciate honest, transparent communication about pay, especially when salary and bonus budgets have been limited. Managers are the key to communicating pay decisions and the organization’s pay philosophy to employees. Because managers typically are the primary decision makers when it comes to pay, they can explain — in one-on-one meetings with employees — the reasons behind specific pay decisions. At the same time, they can provide honest feedback to employees about what they need to do to improve performance. 

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