Strategy - The SZA Total Rewards Bulletin

Are there any circumstances under which an organization may elect to develop a total rewards strategy that is not related to an emphasis on high performance? We can answer this question of strategy with another question—are there any circumstances under which an organization would not elect high-performance over mediocre- or poor-performance total rewards? The answer clearly is no, and that is why CEOs are asking for more results and value from the money spent on total rewards.

Although what defines the four components of total rewards may differ from organization to organization, the objective is the same—to engage people to make them stakeholders in the organization and make it more successful. Best practice (not prevailing practice) for total rewards will continue to be the creation of a win-win relationship between the workforce and the organization.

Total Reward Components
Individual Growth	Compelling Future
Total Pay	Positive Workplace

Source: Patricia K. Zingheim and Jay R. Schuster, Pay People Right!
Breakthrough Reward Strategies to Create Great Companies,
San Francisco: Jossey-Bass, 2000.

Total rewards and best-place-to-work initiatives will continue to be on different paths as long as eligibility for total rewards is offered in exchange for high performance and best-place-to-work initiatives ignore the issues of skill, competence, and performance. The strategic value of total rewards is important because it can be the “accelerator pedal” to drive the creation of a high-performance organization. From a strategic perspective, this is clearly the universal value organizations receive from a total rewards focus.

Most CEOs agree that the top-performing 20% of the workforce is responsible for about 80% of the results achieved. As organizations face a talent shortage, the competition is most fierce for these top-performing employees who are in the top 20% of the total workforce in each work category in terms of capabilities and their ability to translate these into results. Common sense suggests that you should seek to get at least your share of top performers. They are attracted to high-performance organizations that have created a win-win relationship between talent and organizational results. These people are willing to be rewarded for performance and want to avoid a workplace built on tenure and entitlement. Being high performance brands your organization as making performance worthwhile by offering the four components of total rewards in larger portions to those who add sustained value to the business over time than to the rest of the organization.

But what happens to people other than those in the top 20% of the workforce? The answer is that making excellence worthwhile communicates to the entire workforce the organization’s values and directions relative to the role people play in making it a success. This means at least those employees performing and growing at an acceptable level or better will have an attractive total rewards program. It also suggests that growth in capability and performance over time will be significantly recognized and it communicates to people by clearly setting expectations and answering the question, “what it’s like to work here.”

The challenge facing organizations is changing the “deal” they offer their workforce midstream and moving from a formula that was attractive when an employee joined the organization to one the employees may not be comfortable with or may not accept. Many organizations liberalize total rewards during good times only to cut back when business challenges and cost constraints are evident. If these same organizations defined and communicated the deal with the workforce early in the game as an ability-to-pay total rewards program where rewards are determined by workforce skill, competence, and performance, false expectations would not be created. The challenge for organizations that offer powerful work-life and best-place-to-work total rewards unrelated to employee skill, competence, and performance is that these programs create an entitlement that is hard to reverse.

Experiences in the airline and auto industries suggest that creating an encrusted sense of entitlement does not correlate with high performance. It is essential that the workforce see a positive linkage between applying what they know to achieve organizational results and their rewards. If they don’t, employees will view total rewards as an entitlement rather than what they get more of when the organization is successful and less of when it is not. Engaging the workforce is at the core of total rewards. The best people want to be stakeholders in the organization’s future. They want to partner with the organization to develop and apply new skills to produce results and help create a compelling future and a positive workplace.

Often, best-place-to-work initiatives are positive and help create great work environments. However, in some instances they have been separated from organizational performance and fast become entitlements. In some organizations, the initiative to create a better workplace and a family-friendly organization have become separated from the traditional issues of providing pay and benefits, such as health insurance, to employees. How many bread winners are forced to come home to report that they will be able to work at home part-time but on the other hand, will have to pay more for and have less healthcare coverage?

What is the business case for total rewards? The answer is that both the organization and the workforce should gain advantage from moving to total rewards. Of course, one way to accomplish this is to be able to show that employees are happier in an organization with a strategy related to all four reward components than they would be in one without them. If all an organization does is provides more and more, entitlement ensues; and human nature being what it is, it may be hard to go back on implied promises. So defining the deal at the start and sticking with it is critical. And part of this arrangement is the reality that things will change and agility is critical to business fortunes. To survive, organizations must change and adapt.

So the strategy is to build a powerful business case for total rewards including the realities of organizational performance. As long as people add value and the organization thrives, it can afford a more liberal total rewards offering that is contingent on remaining a high-performance organization. Without high performance, it is not possible to treat the workforce as though performance does not matter—strategically, everything begins with performance excellence.