Rewards Strategy

The HR Pressure Cooker is Heating Up

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Santhosh Varghese/Shutterstock

Wages have always been at the forefront of any HR Department’s concerns, but it seems we are now approaching boiling point and that something may blow. Recruitment company Hays notes in its 2018 Salary Guide “a building pressure and awareness around compensation that [they] have not seen in previous years.” (Hays 2018 Salary Guide, p. 20.)

What does this mean for HR Departments? It is clear that they are feeling the pressure. Eighty-five percent say they want and need to improve their compensation plans in order to hire and retain top employees, but according to the Hays study, only 24% of HR Departments are allowed to offer more than a 3% compensation improvement.

Here is where the pressure is building for HR Departments — in recruitment. Compensation challenges and an inability to hire locally sourced talent is making it very difficult for HR departments.

The pressure is on, then, for HR to develop sophisticated, integrated strategies that address compensation levels, organization culture, and recruitment challenges. Perhaps HR professionals will increasingly need to show evidence-based research to convince senior leaders that they may have to increase their compensation budgets in the very near future.

 

Discussion Questions:

Research companies that lead the market with their compensation strategies. Identify why they have pursued these strategies.

Develop a 3-minute presentation to convince a Chief Financial Officer that an increase in the compensation budget is needed.

 

Tack You – You’re Welcome!

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Martin Good/Shutterstock

IKEA’s business model works very well, with its focus on low cost, flat packing, and distinctive style. However, there’s something else at IKEA that’s working very well — their employee compensation model. In 2015 IKEA raised its minimum wages.

Click here to read about IKEA’s wage boost.

IKEA is committed to providing its employees with a living minimum wage. It also understands the benefits of performance bonuses. Recently, the company created an employee loyalty program it called Tack!, which is Swedish for “thank you”. The following milestones suggest IKEA is doing something right with its Tack! program:

  • IKEA has increased its total revenue from 20 billion euros to over 36 billion euros
  • It is the number 1 furniture retailer in the world
  • It is the number 5 retail brand in the word.

David Hood, Country Retail Manager of IKEA Australia, describes the program as “build[ing] something for the future and giv[ing] something back … by building a long-term relationship with employees.”

IKEA’s basic compensation program has wages that are above the jurisdiction’s minimum wage — they provide benefits and now, with the expansion of the Tack! program, all full time and part time employees with over 5 years’ service will get an annual bonus based on IKEA’s performance in that country of operations.

Click here to read more about IKEA’s Tack! program.

In Canada, the Tack! program has paid out $145 million to its employees this year.

Click here to read about the Tack! program in Canada.

IKEA is an excellent example of an organization that understands that compensation, benefits, and bonus systems are key tools in a successful business.

 

Discussion Questions:

  1. Identify the pros and cons of paying front line retail workers a minimum living wage when it is above the minimum wage required by law.
  2. Research and identify the cost of high staff turnover and the relative benefits of employee retention in the retail environment. Summarize your findings by creating a 5-minute presentation.

 

 

When Incentives Backfire

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Performance incentives may do more harm than good.

backfired Amazing drift car
Kárpáti Tamás/Shutterstock

In the summer months I drive a 40-year-old British sports car and occasionally it will backfire. A backfire happens when the car’s internal combustion engine decides to have a moment of external combustion and the whole neighborhood hears about it.

There can be many reasons for a car to backfire: wrong air/fuel mix, spark plug timing or just an exhaust problem. When it happens, I know the car is not performing at its best and something needs to be addressed.

The same thing can happen in the workplace with performance incentive plans. They sometimes backfire, and that backfire turns into real-world blow-back with significant consequences. Recent examples have happened in the banking industry:

  • Wells Fargo fined $185 million for pressuring employees to sell.

 Click here to read about Wells Fargo

  • TD Bank faces allegations that its employees broke the law to meet sales targets.

Click here to read about TD and its selling tactics.

The purpose of performance incentives is to encourage employees to display behaviours that are above the basics of task behaviour. In the HR world, we call this organizational citizenship behaviour. When we think of the citizenship behaviour we default to a very positive image of workers going above and beyond the call of duty. But, in reality, going above and beyond the call of duty can have disastrous effects when it is linked to a poorly developed sales incentive program. Poorly designed programs can create very successful anti- citizenship behaviour that supports the dark side of business plans.

Both TD and Wells Fargo had well-intentioned sale incentive programs designed to raise organizational performance in terms of profit. However, for both organizations, the profit motive became unhinged from the organization’s ethics and negative things happened. Employees become whistle-blowers and companies now face the blow-back of legal action, ethical complaints and very bad public relations.

There is always a right and a wrong way to implement a performance incentive program in an organization. When the company gets it right there is recognition as a top employer. When the company gets it wrong, there is always blow-back.

Question

  1. Do some research and find a workplace incentive plan that went wrong. Compare and contrast what went wrong to the Society of Human Resources Management (SHRM) suggestions on how to implement an effective incentive plan.

Click here to read about the SHRM’s suggestions.

Pay for Production

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Are you paying for hours, or for productivity? The difference could be huge.

Woman balancing life and work
nmphoto/Shutterstock

All organizations need to develop an effective compensation strategy that is aligned with their business strategy; that is HR and Business 101.

Many compensation consultants discuss the concepts of base pay, performance pay and indirect pay, and most of those concepts are built on the foundation of an annual salary or hourly wage. Our society has been ingrained into the concept that a full-time employee works eight hours a day and 40 hours a week for approximately 2000 hours a year. It just can’t be any other way, most HR professionals would say.

  • What if our society’s concept of the paid hour of work for eight hours a day is a flawed concept?
  • Is eight hours the most productive number of hours per day to work?
  • Are there any alternatives?

Well, some researchers and some businesses are exploring alternatives to the eight-hour day and seeing very productive results. Tower Paddle Board, a manufacturer of stand up paddle boards (SUP), moved to a five-hour work day and a five-percent profit sharing model.

  • What was the result?
  • Was it higher costs?
  • Was there lower productivity and greater customer complaints?

I bet you can guess the answer to those questions was a big and bold: NO!

The opposite was true: workers’ wages went from $20.00 per hour to $38.40 per hour for 25 hours a week, and annual revenues were up 40 percent. Also, they have been named one of America’s fasting growing companies.

Click here to read about Tower Paddle Boards.

Discussion Questions

  1. Read the article about Tower Paddle Boards. Review the five steps Tower Paddle Boards used to implement a 25-hour work week. Pick a company and see if you could use those five steps to make a 25-hour work week work for that organization.
  2. Conduct some research online to learn about how other countries and companies schedule their work week. Come up with your own ideas for alternatives to the 40-hour work week.

Millennial Considerations

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Two creative millenial small business owners working on social media strategy using a digital tablet while sitting at desk
AYAphoto/Shutterstock

The times they are a-changing, for sure.

Much has been written about the challenges facing the millennial generation as its members begin to take greater hold of the economy and the workforce. The millennial worker is someone who has grown up with access to a world of information through digital resources that a person from previous generations simply did not have. As this millennial generation increasingly populates the world of workers and business leaders, they are bringing about a changing view of what constitutes effective rewards and incentives for employment performance.

A recent article, published by Benefits Canada, outlines some positive statistical analysis of the millennial approach to indirect reward plans.

Click here to read the article. 

Previous generations of managers commonly held back group health and dental benefits until employees asked for them. It is apparent that upcoming business leaders recognize the reward potential of offering wellness initiatives from the very beginning of the employment relationship. In order to have a healthy, engaged and constructive workforce, millennials prefer to have a pro-active influence in an employee’s social and physical well-being.

Further, supporting employees on a pro-active wellness path is more affordable at the beginning of a business venture, rather than incurring escalating premiums for an unhealthy workforce later on. It is evident that access to digital resources, such as the statistical evidence provided in this article, has had a great impact on the way benefits are provided. It is also evident that the Human Resources professional has helped to shape this changing workforce view in a positive way. And, as noted in the article, millennial business owners appreciate the value of the Human Resources professional in helping to advise, shape and shift the modern workplace in a constructive way.

Discussion Questions:

  1. What are the top five HR compensation ‘must-haves’ you would advise a small business owner to put into place from the start?
  2. Why do you think flexible benefit plans, as outlined in this article, are attractive to the millennial workforce?
  3. After a year of working in your chosen profession, if you had a choice between a moderate pay increase or full access to an employer paid benefits plan – which would you select? Why?