Aligning Rewards Strategy With Talent Strategy
An organization’s staffing and development strategy and its rewards strategy must be well aligned, to ensure that current and future talent needs can be met.
Attracting and retaining the required talent is facilitated by an employer brand and a value proposition that fit the wants, needs and priorities of those with the talent. The talent strategy will have a major impact on its employer brand.
How effectively and appropriately an organization defines, measures and rewards performance will have a major impact on workforce effectiveness. Without an effective performance management system employees will know how to optimally focus their efforts to maximize their contributions.
Rewards are a major component of the value proposition, which in turn is a major component of an employer’s brand. Compensation, benefits, working conditions and opportunities for work-life balance are all potential attractors. But the rewards strategy of an organization must fit its mission and objectives and the realities it faces, as well as appealing to its people. Those doing the work must believe they are rewarded equitably, competitively and appropriately. Most importantly, rewards strategy must be a good fit to the context within which the organization functions.
A rewards strategy communicates what is important to the organization and how it values contributions. The role that an employee plays generally determines the range of pay potential, in the form of a pay range. Executives are generally paid more than managers and managers are paid more than most subordinates. As a result, there is an economic inducement to climb the organizational hierarchy. But individual contributors can also progress within an occupation and realize greater pay potential by increasing their competence and being classified in higher levels within the pay structure.
The talent strategy should be designed to facilitate career progression and individual development. But motivating employees to seek promotions may result in a bad fit between what an individual is good at and likes doing and what they end up doing. This can create a conflict between the rewards strategy and the talent management strategy. Talent management strategies should result in the right people being in the right roles and doing the right things in the right way. People who are placed in roles that enable them to take advantage of their strengths and minimize the impact of their weaknesses are going to be more satisfied, engaged and effective. A shortage of managers addressed by pushing people into managerial roles can create problems.
When the career ladder has only one channel for progressing at some point increasing compensation potential requires going into management roles. A linear path can motivate people to accept promotions that result in a mismatch between what they do the best and like the most and what their role mandates they do. Promoting the best software designer to software design manager assumes that if someone was excellent at doing the work, they will be excellent in managing the work. It also assumes they will be satisfied with what they will be doing after the promotion. The recognition that this assumption is often incorrect has led to the adoption of dual or triple ladder systems… or the use of a lattice framework that enables lateral movement into different types of work.
Multi-path career structures can provide employees with more opportunities to pursue roles that allow them to utilize their strengths, minimize the effects of their weaknesses and to do work that they like to do. People change… what someone loved to do for three years may pale in appeal once the work has been mastered. Although someone starting out as an Engineer right out of school may end up as an Engineer at the end of their career this does not mean they will continue doing the same things at the same expertise level for thirty or more years. There are some who do want to do the same kind of work throughout their career and derive their satisfaction from gaining mastery, although they will still expect to be rewarded for gains in expertise. Recent information suggests many of the people changing organizations did not do so specifically because of the pandemic. Rather, the outbreak acted as a trigger that motivated those dissatisfied to move. The reality that so many openings exist and that one’s pay can be increased will add momentum to make a change.
Organizations often mistakenly believe everyone wants to traverse the management track. Having been convinced to manage an office of over 40 professional consultants turned out to be a poor decision for me… it felt to me like having over 40 dependents I could not deduct on my income tax form. Consulting was my niche and stepping out of it was uncomfortable. Gallup research suggests that discovering and utilizing ones’ strengths increases the chance that someone will be effective and satisfied. The guidance from philosophers “know thyself” and “to thy own self be true” if embraced will be likely to lead to a more satisfying career.
The multi-path career model, illustrated in Figure 1, provides a framework for finding the right path and guidance for developing one’s capabilities.
Dual ladder models have traditionally consisted of individual contributor and management tracks. The qualifications to do the work vs to manage the work are different in many respects and those who are the best at one type of work often are not the best choice for the other. When individual contributors find the only way to command higher income levels is to assume managerial responsibility they may overcome their reluctance to do less of what they are best at and like the most and to begin doing things they are less suited for. The question is whether that is beneficial for the individual and/or the organization. Trading a brilliant Engineer for a mediocre manager does not seem to be a win for anyone.
Dual ladder approaches have increasingly been modified to include a third ladder as more work has become project oriented. Project planning and administration requires technical training, although it may not require a professional level technical degree, such as an MS or PhD. Certifications for Project Specialists have been developed (see pmi.org) that provide evidence that someone has the planning and financial skills used in administering projects. There is a persistent shortage in the U.S. of Engineers and IT Specialists and creating the Project Specialist role can enable an organization to transfer some of the work that does not require a degree to those capable of doing it. This can reduce the number of degreed people required. It may also allocate work to those best qualified to do it, since not all technical professionals like or are good at some of the administrative activities. Another potential benefit of using Project Specialists is that some of the incumbents may be encouraged to pursue additional formal education and become candidates to move into professional level roles.
Rewarding Career Progression
Rewards strategies can be designed to facilitate employee development and career progression. Someone with an Associate degree or certifications in a technical field may aspire to progress into a higher paying capacity that requires a BS or higher degree, since many people respond to economic inducements. Or specialized certifications may be sought that are highly valued and may result in pay opportunity equivalent to roles requiring BS degrees. By encouraging employees to pursue additional education and providing monetary support an organization can better deal with persistent supply shortages of certain types of talent. But the people must possess the general intelligence required to acquire the required knowledge and skills. Additionally, they will be more likely to pursue career changes that will result in doing work they find satisfying. No matter how attractive the pay range is many will not want to or be able to progress into professional or managerial roles. These issues exist for all professional disciplines, such as IT, Finance and HR.
Management roles generally pay more than individual contributor roles. The question is whether mandating that a manager’s pay range be higher than any individual contributor is advisable. When working with national research laboratories the decision was made in several cases to define an individual contributor role that had a pay range as high or higher than some managerial roles. In one case a Research Fellow designation had a pay range equivalent to that of a Director role with responsibility for over 100 subordinates. Some believed this was inappropriate (more managers than individual contributors). In order to justify this pay relationship it was necessary to create a role definition that justified the high pay range, as well as a process to ensure the few who were classified into the Fellow classification were doing work that was of equivalent value compared to managerial roles. Incumbents of the Fellow classification often were creating new knowledge, which involved an extraordinary expertise in pure research. The reality was that their manager was technically unable to manage their work due to a lack of knowledge. Although responsible for administrative management these managers could not provide technical direction. This made the decision to pay them more than many managers more reasonable.
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The creation of individual contributor classifications that have higher pay ranges than some managers requires a rigorous selection process that controls who can be promoted. Nature abhors a vacuum and people abhor unfilled classifications, particularly those paying more. The creation of the Fellow designation at the research laboratory resulted in a long queue of aspirants. Since the Fellow provides technical direction but was not required to manage subordinates in theory every individual contributor could develop the competence to function in that role. Realistically very few had the native ability to do the work performed by Fellow incumbents. But a higher pay range attracts like a magnet. A rigorous selection process is required to prevent people from “aging” into a classification even though they are not competent to do the work.
Are Single Pay Structures Obsolete?
When internal equity is the primary driver of rewards potential an organization may elect to have a single pay structure. Jobs are classified into grades based on internal considerations, while pay ranges are determined by the average market rates for jobs in each grade. This has been the most common approach but labor markets have become more volatile and the variation in market averages for jobs in the same grades have for many occupations widened considerably. Trying to administer the pay for everyone in a singe 50% range can become impractical when the market rates for individual jobs vary by as much as 25% above and below the average for the jobs in that grade. Many organizations have historically administered pay for incumbents for all Engineering disciplines (Mechanical, Electrical, Civil, etc.) within the same ranges. Even though there are short term variations in the rate at which market rates increase across disciplines these variations can be accommodated using by variable control points and by varying budget allocations. (Note: a control point is typically the midpoint of the salary range, but it can be adjusted annually for specific occupations to reflect market rate volatility. The control point is then used to compute the compa-ratio, which in turn influences pay adjustments).
The management philosophy underlying rewards strategy will influence whether internal equity is a major focus, or the objective is to respond to variations in market values. Those who would argue for a single structure based on internal equity believe people make decisions about the equity of their pay based on internal comparisons. Others argue that Accountants are unlikely to retrain to become Engineers, so their primary reference point is what Accountants are paid in other organizations. They will also be concerned about whether they are equitably classified within the organization’s Accounting hierarchy. Utilizing an external perspective argues for multiple pay structures.
Rewards Strategies At The Team/Group Level
The individualistic cultural orientation that is widespread in the U.S contrasts with the more collectivist orientation in many other cultures. Yet measuring and rewarding performance at the individual level is the default option in individualistic cultures. Team, group and organization-wide incentives are less common in the U.S. because the prevailing mindset is one of “I should be rewarded for what I contribute” rather than “we should be rewarded for what we contribute.” Although more work is being done by teams in the U.S. the “I/me” mindset persists. Group or organization-wide performance sharing plans can be viewed as a shared destiny by some and Socialism by others. The challenge is to find a strategy that motivates individual excellence and contributions to team/group/organization effectiveness.
There are jobs that are appropriately rewarded by basing the amount on individual results. The organization’s sole sales representative in Nevada may be rewarded based solely on sales in Nevada. There are other jobs that significantly impact the effectiveness of others based on the way they are done. By determining what the desired outcomes are a rewards strategy can be fashioned that will motivate both effort and focus.
Organizations that place a high value on workforce stability and that believe it takes everyone to succeed may wish to encourage collective, rather than competitive behavior. Merit pay puts individuals in competition for a share of the fixed budget. The potential downside of that approach does not diminish the value of asking each person to do the best they can. But employees can be motivated to contribute to the effectiveness of peers and of their unit by using group incentives in conjunction with individual incentives.
Conclusion
“What you measure and reward you most surely will get more of” is a sound principle that should be considered when formulating a rewards strategy. Another is "if you are hoping for A, do not reward B." If the organization wants to maximize sales a rewards package that is tied to individual results can focus efforts on producing the desired outcomes. If an Engineering Technician must do their own work well but also must support Engineers in their work the rewards on offer should encourage a multi-faceted perspective as to what constitutes performance. To motivate people to do what the organization needs and to do it at an acceptable level the rewards strategy is a valuable tool.
Relative internal equity must be a concern, to ensure talent believes that contributions are valued and rewarded appropriately. There is currently a lot of attention being paid to individual equity, specifically across gender and race. The comparisons employees make should be based on what others doing the same type of work are doing. But because some occupations are dominantly male or female cross-occupation equity has also become a concern.
External competitiveness must also exist. The posture an organization adopts relative to prevailing market levels will be based on its ability to pay and what it must pay to successfully attract, retain and satisfy the people it requires.
The bottom line is that the rewards strategy must be a good fit to the talent management strategy, as well as producing a value proposition that will facilitate the attraction, retention and satisfaction of talent.
About the Author:?Robert Greene, PhD, is CEO at Reward $ystems, Inc., a Consulting Principal at Pontifex and a faculty member for DePaul University in their MSHR and MBA programs. Greene?speaks and teaches globally?on human resource management. His consulting practice is focused on helping organizations succeed through people. Greene has written 4 books and hundreds of articles about human resource management throughout his career.